Construction Contracts | Adroit Consultants, LLC

Author: Amin Terouhid, Ph.D, P.E.

Changes that are made to a contract scope of work and modifications of work conditions are among the key causes of conflict in construction projects. A contract changes clause can play an important role in properly allocating risks among the parties to a contract to ensure each party knowingly assumes risks that it is capable of managing.

The main objective of a contract changes clause is to establish a well-drafted procedure for allowing change to the project scope of work and modifications of work conditions that a contractor is subject to. The following table highlights some of the main considerations that need to be given to drafting a contract changes clause.

ID	Items	Description
1	The right to make changes	A well-drafted contract changes clause needs to recognize proper rights to make changes. These rights are typically, but not always, given only to the owners. If the intent is to specify the individuals who are authorized to direct changes, this requirement must be included and clearly be stated in the contract.
2	The size of changes that can be made	The contract changes clause should clearly identify any limitations on the permissible adjustment to the subcontract price.
3	Notice requirements	Proper means of communication and issuing change directives need to be defined in the contracts. In addition, the contract should clearly specify the notice requirements that need to be satisfied prior to performing any additional work (e.g., performing additional work following an unwritten change directive) as well as any ramifications of failure in giving proper notices in a timely manner.
4	Estimating and pricing considerations	The contract should identify proper mechanisms for estimating and pricing change orders (e.g., defining pre-approved unit rates and force account procedures), and the roles and responsibilities of the contracting parties in defining the scope of change and providing the information needed for pricing change orders.
5	Change order resolution timetable	The contract should provide a procedure to specify the steps that need to be taken for the resolution of cost and time adjustments to the contract due to changes. A change order resolution timetable should also be contained as part of the procedure to define expectations from the time management and construction administration perspectives.
6	Conflict resolution procedures	Conflicts are inevitable especially in large construction projects. The more changes are made to the contract scope or work conditions, the more likely the conflicts are. As such, a well-drafted contract changes clause needs to define proper conflict resolution procedures to facilitate successful management and resolution of claims and conflicts.
7	Unwritten change orders	The contract should clearly state if unwritten change orders are permissible, and if so, under what circumstances.
8	Working under protest	It is important to ensure that a contract changes clause specify if the contractor is contractually required to proceed with a changed work even if the contractor is not in agreement with the directing party about the price of the changed work.
9	Time impacts	A contract changes clause should define the conditions under which time extensions are issued due to changes. It should also specify if the contactor needs to submit its time extension request in a specified format or within a defined time frame.
10	Productivity and cumulative impacts	A contract changes clause should specify if productivity or cumulative impacts are permissible to be accounted for in pricing change orders in the event of a change, and if so, how and/or within what time frames the contract allows the contractor to seek compensation for the adverse effects of changes on the contractors labor and equipment productivity or request for compensation due to unexpected cumulative impacts whose synergistic effects were unknown at the time of evaluating individual changes.
11	Emergency changes	It is expected that a contract changes clause defines if emergency changes are allowable to be made under a serious, unexpected, and often life-threatening or property-damaging emergency requiring immediate action, and if so, what the roles, rights, and obligations of the involved contracting parties are if such a need for change arises.

Since changes to the contract scope or work conditions typically have significant impacts on construction projects, they potentially have time, cost, and productivity implications. Therefore, it is important to take proper steps in minimizing the likelihood and/or impact of conflicts between contracting parties. This article focused on one of these steps and identified some of the key considerations that need to be given to drafting a contract changes clause that exposes the involved parties to smaller risks arisen from changes that take place in construction projects.

If your project has been affected by multiple change orders and they have adversely affected labor or equipment productivity on-site, or if you are interested to investigate the extent of time and cost impacts due to change orders, Adroit will be able to assist in assessing these impacts. To find out more about Adroit’s Construction Claims Consulting services, call 352.327.8029 or contact us using this form.

Dr. Maryam Mirhadi, PMP, PSPS

Project risks are treated in a variety of ways. Contract documents are among the key mechanisms that parties to a contract may use to transfer a risk to another party, accept a risk, or select other risk response strategies to treat the risk. The use of waiver language in contract documents is one way to achieve this objective. Waiver language is increasingly incorporated in various contract documents such as contracts, payment releases, and change order or directive forms. The intent of waiver or disclaimer language is to constrain a contractor’s entitlement to compensation for resultant damages that are not expressly identified as compensable in the executed change order.

Therefore, it is important that contractors closely examine contract documents to identify which risks they are taking by entering into a contract or by accepting to include certain waiver language in the contract documents. This close examination becomes more important if a contractor intends to reserve its right to seek compensation for resultant damages. One of the other reasons that highlight the importance of close examination of waiver language in contract documents is that the impact of some changes on a contractor’s productivity or performance is not readily apparent. In these cases, a contractor may be able to evaluate these damages or assess their actual cost impact only after executing the work. If so, it is likely that the contractor has already been asked to execute a variety of contact documents containing some form of waiver language. Therefore, contractors are generally advised to exercise caution to the extent possible and adjust the contract language to avoid unintended consequences.

One of the mechanisms to achieve this objective is to use conditional phrases. An example provision that uses a conditional phrase may be as follows:

The amount of the individual change is in full satisfaction of the changed work and the contractor waives any claim for further compensation for cumulative impact costs unless the contractor expressly reserves that right and no other change concurrently impacts the scope of work.

It is imperative that construction contractors seek legal and expert advice prior to executing contract forms that contain some types of a waiver or release language to determine the best strategies that can be used to avoid unintended consequences of waiver language to the extent possible. Contractors are typically advised to avoid executing overarching waiver provisions.

The second strategy that a contractor may choose to pursue if a client requires the contractor to sign a contract form with some types of overarching waiver or release language is to engage in bilaterally negotiations that aim to include alternative language or adjustments to language as appropriate. These alternative language or adjustments are project-specific conditions or language that the contractor creatively phrases to appear on the contract document or forms, and they may entitle the contractor to reserve, at a minimum, a portion of the contractor’s rights to recover proper damages under defined circumstances.

Accepting a unilateral change order that pays for most of the costs without signing the documents that contain overarching waiver language is another strategy that prudent contractors may pursue if the magnitude of consequential impacts justifies the use of this strategy.

If the contract permits the contractor to carry out the changed work without a settled change order, the fourth strategy that contractors may choose to pursue instead of executing documents that contain overarching waiver language is to complete the work without formally signing the change order form and at the same time use the capacities of the contact dispute clause to seek payments to the extent contractually allowed.

Prudent contractors should closely examine contract documents to identify which risks they are taking by entering into a contract or by accepting to include certain waiver language in the contract documents. They are also advised to use any of the four main strategies discussed above if they are asked to execute forms that contain overarching waiver language to avoid the negative risks of waiver and release language and mitigate their potential impact to the extent practically feasible.

—

Our posts to the Insights page share fresh insights and seasoned advice about many project and construction management topics. To have the Insights monthly newsletter delivered automatically to your email inbox, please subscribe here.

Tag: Construction Contracts

A well-drafted contract changes clause

Waiver language in contracts may obstruct recovery of damages