No matter how perfect a set of drawings may appear at the beginning of a project, the scope of the work will invariably change.
The easiest and best way to deal with change, and its resulting effects on schedule and contract price, is through a change order mutually executed by an owner and a contractor.
But life isn’t always that easy. Sometimes the cost of a change or its effect on a schedule is impossible for a contractor to calculate. At other times, the parties to a contract will know that a request for additional work constitutes a change but dispute how the change should be measured in cost or time. Also common are instances when parties dispute whether a particular bit of requested additional work indeed amounts to a change at all or instead falls within the original scope of work.
So, what are owners to do when these disputes arise and contractors refuse to proceed?
If the parties can agree that certain work constitutes a change but nonetheless dispute the likely effects on cost or time, owners can compel contractors to perform requested additional work by issuing a Construction Change Directive, also known as a CCD. The American Institute of Architects’ standard General Conditions of the Contract for Construction A201-2017 (“General Conditions”), for instance, both provides owners with authority to call for changes that fall “within the general scope of the contract” and require contractors to “proceed promptly” with such changes.
The General Conditions also provide a mechanism allowing contractors to be paid for changes (though they don’t specify how much fee for overhead and profit a contractor should receive).
Developers often modify AIA form agreements and others to add a layer of specificity stating precisely how contractors will be paid for a CCD and disputed claims. This is done typically to remove reimbursements for indirect costs and to identify the exact amounts contractors should be paid for overhead and profit (and sometimes insurance or even related general conditions).
Without the authority to issue a CCD or similar right, owners will be negotiating from a position of weakness. This is because contractors may simply refuse to perform requested additional work, unless the owners they are working with agree to their terms. Hiring another contractor to perform the change is typically not a good option.
If parties do not agree about whether a particular request in fact amounts to a change, issuing a CCD may not be the right way to go. By definition, a CCD seeks a change. Many CCD forms, including the AIA’s G714-2017, are meant for times when a change has been acknowledged in the scope of work for a particular project. If owners issue one of these CCDs without carefully reserving their rights, the receiving contractor will certainly argue later that they are foreclosed from denying a change has occurred. To prevail upon a claim, a contractor typically has to prove entitlement and then quantum (amount). Establishing entitlement is much easier if an owner, intentionally or not, has issued a CCD acknowledging a change has occurred.
In these situations, then, owners should take care to issue a directive, as opposed to a change directive, calling for the performance of disputed work. Contractors, upon the receipt of such an instruction/directive, may in turn dispute the instruction and submit a claim in accordance with the claim procedures of the contract. Still, the contractor may not stop working. Just as owners should take care when they are issuing directives, contractors must be equally careful in responding to them and submitting their claims for additional time and money. Failing to submit a claim promptly in such instances may result in the forfeiture of their rights.
Having the ability to order changes is an essential right for an owner. Otherwise, contractors could refuse to perform any changes, giving them undue power in negotiating a change order for time and money. A fair contract should allow owners to issue some changes and include an agreed-upon mechanism for calculating how contractors will be compensated for additional work.
Colm Nelson is an attorney in Stoel Rives’ construction and design practice group in Seattle. Call him at 206-386-7525 or write to him at email@example.com.