In an ideal world, all changed work – all contract modifications – would be priced before the work commences. It is not always possible, however, to forward-price this work with accuracy or to find agreement between the parties. Contractual methods for pricing the work are sometimes used, but they are by no means a complete solution.
A recent case involving a California public works contract brought this issue into focus. The contract contemplated both time and materials and lump sum change orders. One provision required the contractor to provide “documented actual cost.” But it was unclear whether this pertained to T & M change orders or all change orders. As the project progressed, the project owner issued T & M directives for smaller items of changed work. For larger items, the owner attempted to negotiated forward-priced, lump sum contract modifications, based upon engineering estimates. Not all change orders were successfully forward-priced, however. When the contractor sued to recover payment for unpriced changes, the owner argued that the claim was barred because the contractor was relying on engineering estimates and had failed to itemize and document its actual change order costs.
If changed work cannot be forward-priced, should owners always insist on itemized documentation of all actual costs? Are contractual formulas useful? Or, as in the California case, do they simply add another layer to the dispute?
As always, I welcome your comments.
Featured in next week's Construction Claims Advisor:
- Payment Application Procedure Strictly Enforced
- “Referee Clause” Did Not Make Project Owner Arbiter of Claims
- Contractor Not Competitive Regardless of SBA Problems
Bruce Jervis, Editor
Construction Claims Advisor