Chapter 6 Change Orders

• Library: Arkansas Construction Law Manual (2016 Ed.)

Change Orders

Ashlea Brown^* © 2016

6.1 Scope of Chapter.......................................... 6-2

6.2 Purpose of Change Orders............................ 6-2

6.3 Contractual Change Order Clauses and the

Change Order Process.................................. 6-3

A. AIA Forms................................................... 6-3

B. Federal Government Contracts..................... 6-6

6.4 Circumstances Requiring Change Orders....... 6-6

A. Additional or Reduced Scope of Work........... 6-6

B. Changed Conditions and Differing Site

Conditions.................................................. 6-9

C. Weather Delays.......................................... 6-12

D. Design Modifications and Revised

Specifications............................................. 6-12

E. Adjustments to Unit Pricing........................ 6-13

6.5 Pricing Change Orders................................ 6-15

6.6 Change Order Documentation..................... 6-18

A. Written Change Orders............................... 6-18

B. Waiver of the Written Change Order

Requirement.............................................. 6-18

6.7 Authority to Issue Change Orders................ 6-23

6.8 The Role of the Design Professional in the

Change Order Process................................ 6-26

6.9 Subcontractor Considerations..................... 6-29

6.10 Change Order Dispute Process.................... 6-32

A. Notice Requirements.................................. 6-32

B. Continuing Contract Performance............... 6-33

C. Performance of Work under Protest............ 6-34

6.11 Conclusion................................................ 6-36

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6.1 Scope of Chapter

Changes in a construction project are inevitable. This chapter discusses how changes are implemented through change orders. The first section discusses the purpose of change orders. The next section discusses various types of contractual change order clauses and the change order process. The chapter then discusses factors giving rise to change orders, change order pricing, change order documentation, the design professional’s role in the change order process, and subcontractor issues. The chapter concludes with a discussion of the change order dispute process.

6.2 Purpose of Change Orders

While the parties may attempt to contemplate all aspects of the work before they execute a contract for construction, even the finest plans are incapable of anticipating everything that will happen during the course of a project. A construction project that proceeds to completion without any changes is a rare occurrence.

Nonetheless, without a mechanism to effectuate changes, a contractor is obligated to perform and the owner to pay only for the work described in the contract.¹ Given the inherent uncertainty in every construction project, the parties need to be able to change the scope of the work without invalidating the contract. A change order allows that to happen by agreement of the parties or by unilateral direction of the owner.² As one court opined, “[n]o prudent individual would make a contract for the construction of a building of any magnitude without incorporating a provision, somewhere, making specific and definite arrangements concerning extra work.”³

6.3 Contractual Change Order Clauses and the Change Order Process

From a practical point of view, there are two types of change orders. One is a change order that is directed by the owner unilaterally. The other is a request from the contractor as a result of something that happens during the project resulting in a delay or extra cost. Because changes can significantly impact the schedule of work and project cost, contractual provisions regarding both types of change orders are crucial to the success of any construction project. The change order clause in the contract dictates the process by which changes may be effectuated and how cost and time implications will be handled.

Many contract drafters rely on the change order clauses used in standard industry form agreements such as those promulgated by the American Institute of Architects (“AIA”). Federal government contracts also contain detailed change order clauses that contract drafters may consider when drafting a change order clause. The clauses used in these standard forms provide a useful framework.

A. AIA Forms

The AIA general conditions form A201 contains very detailed provisions regarding how changes are implemented on a project. The AIA contemplates that changes in the work may be accomplished in one of three ways: (1) the traditional change order where a change is directed, the parties agree upon a modified price and modified contract time, and then the change is implemented; (2) a “Construction Change Directive,” whereby the owner unilaterally mandates a change, the contractor is required to perform the change, and an agreement on modified price and time is established at a later time; or (3) minor changes directed by the architect that are so minuscule they do not modify the contract price or time.⁴

Under the first scenario, the AIA requires changes in the work to be documented by a written change order prepared by the architect and signed by the owner, which memorializes the agreement upon the change in the work, the amount of the adjustment in the contract sum, if any, and the extent of the adjustment in the contract time, if any.⁵ The contractor may perform the changed work before a written change order is executed, but it does so at its own risk as the owner and contractor may later disagree regarding the extra compensation or time to which the contractor is entitled.

The second scenario, a “Construction Change Directive,” allows the owner to order the contractor to add, delete, or otherwise revise the scope of work when the parties have not agreed to a change order.⁶ The owner may adjust the contract price and contract time when issuing a Construction Change Directive, but is not required to do so. The contractor must perform the changed work upon receipt of a Construction Change Directive regardless of whether it agrees with the terms.⁷ The Construction Change Directive will be reduced to a formal change order only if and when the owner, architect, and contractor agree on the terms.⁸ Construction Change Directives are dangerous for contractors because they must incur increased costs without knowing whether the owner will provide adequate compensation. Most owners like the idea of Construction Change Directives because they can seemingly effectuate changes quickly. Owners, however, should use Construction Change Directives with caution, as they do not really know what the change will cost before the contractor begins the work. For these reasons, the Construction Change Directive may be viewed as a precursor to a formal change order or the origin of a dispute.

The third scenario under the AIA for changes is when there is a minor change in the work that will not affect the price or time for completion.⁹ In such an instance, the AIA allows the architect to order the minor change without the execution of a written change order.¹⁰ Architects typically use this to make changes such as color or dimensions that require no additional work.

The AIA forms do not contemplate a change order issued by a contractor. However, a contractor may make a claim for additional compensation or an extension of time under the “claims” clauses of the contract.¹¹ A contractor would use this procedure when it believes it has performed work beyond the scope of the contract.

B. Federal Government Contracts

Federal government fixed-price contracts also provide for change orders to be issued unilaterally by the owner with an adjustment in the contract price to occur later.¹² Unlike the AIA general conditions, federal contracts recognize that change orders may be written or verbal.¹³ If the owner verbally directs a change, such verbal directive may be considered a “change order” only if the contractor provides written notice to the contracting officer that it considers the verbal direction to be a change order.¹⁴ The verbal change order contemplates a situation where the government requires the contractor to perform work that is beyond the scope of the contract.

6.4 Circumstances Requiring Change Orders

There are many circumstances that can lead to change orders on any given construction project. The most common are: changed conditions and differing site conditions, additional or reduced scope of work, weather delays, design modifications, and adjustments to unit pricing.

A. Additional or Reduced Scope of Work

Owners may change their minds about the scope of work leading to an increased or decreased scope of work. An owner may decide that it wishes to substitute more expensive materials than those specified in the plans. In other situations, an owner may realize that once construction has begun its budget is dwindling and it no longer desires to include certain features that it had initially included in the plans. Either of these situations requires a change order.

The distinction between this type of change order and other types of change orders is subtle but important: this type of change order changes the scope of work, not merely when or how the work is performed. This distinction becomes relevant when considering whether the owner has the authority to demand the contractor to perform extra work and whether the contractor must perform that work.¹⁵

There must be an initial determination of whether the owner is actually adding to or deducting from the original scope of work.¹⁶ In the context of change orders, a poorly defined scope of work in the initial contract is a recipe for disaster as it may be difficult, if not impossible, to determine which work was part of the original scope versus extra work that necessitates a change in price or time for completion. For this reason, all parties involved will benefit from a clearly defined scope of work.¹⁷

While the owner is typically...