By Bruce Jervis
When a construction contractor bids work, the quantity or volume of that work has a significant impact on the pricing structure and profit expectation. Yet standard clauses commonly found in construction contracts allow for a reduction – even a drastic reduction – in the scope of work. These clauses authorize deductive change orders and partial terminations for convenience. The financial impact on a contractor can be significant.
One recent case involved what appears to be an abuse of the deductive change order. A contractor awarded a unit-price subcontract which authorized changes in the quantity of work without any adjustment to the unit price. At the time of subcontract award, unbeknownst to the subcontractor, the prime contractor had negotiated a change in the design with the project owner. This change effectively eliminated 80 percent of the sub’s work.
The subcontractor learned of this development only when it arrived at the site. The sub demanded an equitable adjustment to the unit price for the remaining 20 percent of the work. The prime contractor refused. The subcontract gave the contractor the right to reduce the scope of work, even by 80 percent, without increasing the unit price.
To be sure, many contract clauses call for an equitable price adjustment when there is a change, additive or deductive, to the scope of work. And some courts impose a standard of good faith when reducing the work, something which seemed notably absent in this case. Nonetheless, contractors are vulnerable to drastic reductions in the quantity of work. What has been your experience? Are contracting parties always fair and reasonable when reformulating the scope of work?
