Alteration of the contractual scope of work can result from a variety of factors. Unanticipated physical conditions at the site may necessitate changes. The original design may include shortcomings or oversights. The project owner may simply decide to expand or otherwise alter the definition of the work.
Ideally, changed work can be priced before it is performed. A fully priced contract modification, signed by both parties and free of reservations of right, is the surest way to avoid subsequent disputes. But it is frequently impractical, or unadvisable, to forward-price changed work. There may be too much uncertainty regarding the scope of the changes or the cost impact of those changes.
The inability to forward-price changed work does not mean a contractor must proceed with no pricing guidelines whatsoever. It may be possible to unit-price aspects of the work. The parties may agree to a “force account” approach, essentially cost plus a percentage of cost. These pricing techniques are not free of pitfalls, however.
In a recent New York case, an appellate court had to recalculate a contractor’s compensation for force account change order work. A lower court had awarded an overhead mark-up on direct costs without crediting the owner for field overhead it had already paid. The lower court then compounded the error by adding overhead to overhead. Pricing force account work is not always cut and dried.
What is your approach to pricing changed work? Is forward-pricing practical only with the simplest changes? When forward-pricing isn’t feasible, when and how do you try to price changed work? I welcome your comments.
Featured in Next Week’s Construction Claims Advisor:
- AIA Consultant Agreement Did Not Contain Pay-If-Paid Clause
- “Best Value” Design-Build Procurement Barred in Pennsylvania
- Claim Valid Even When Termed a “Request”
