ConstructionPro Week, Volume: 1 - Issue: 29 - 11/19/2012

Are Change Orders Really Comprehensive and Final?

By Bruce Jervis

In some ways a change order is a snapshot of a project at one point in time. It reflects where the project stands and the modifications that are being made during an ongoing process. But a change order usually states it constitutes the entire agreement regarding the modification; the parties waive the right to additional time or money. The change order purports to be comprehensive and final.

Subsequent occurrences sometimes call this language into question. The most common example would be numerous change orders which have a disruptive cumulative impact on the contractor’s ability to perform the work. The project owner says any claim for cumulative impact damages was waived and released under the terms of the individual change orders. The contractor says the change orders applied only to the changed work itself, not subsequent developments such as cumulative delay and disruption.

A recent Wyoming case presents another twist on the comprehensiveness and finality of a change order. Two signed change orders authorized price increases to compensate for enhancements to the project. There was also an alleged oral side agreement granting the owner credits for value engineering changes. Those credits were supposed to be reflected in subsequent change orders which, unfortunately for the owner, were never executed. The owner attempted, to no avail, to disavow the signed change orders.

Can a change order truly be comprehensive and final when the construction process is so fluid? Shouldn’t these documents accommodate subsequent developments? Or does the need for certainty outweigh any considerations of flexibility? I welcome your comments.

COMMENTS

I believe that a verbal contract is still binding and should warrant a change order credit. As for the approved change orders I believe should stand as a comprehensive document. As all change orders have risk of loss as well as gain for the contractor. It is my opinion that the court would rule in favor of the owner on the basis of oral agreement.
Posted by: Patrick Greiner - Wednesday, November 21, 2012 1:47 PM

Verbage such as: comply with all, time is of the essence, shall be limited too and others, ignore the realities of the design construction process.

Each project is unique within its site paramenters, who is building it, the subs selected and the experience or inexperience of the workforce. That being said, the project delivery systems of to day are feeding into concerns associated with change orders. Book after book and article after article makes it seem as if CO's are a gold mine. In fact they are not profitable when compared to the % of total project cost they represent vs the cost to administrate them.

Successful projects acknowledge at the front end the likelyhood of CO's occurring and place in the General Conditions a protocol for equitable resolution.

A perfect set of drawings (rarely attained)would yield a project cost of "x" which would equal the original bid price (+) the CO's, yielding a similar amount, less the administrative fees incurred to process the CO's.

As you intially have indicated, the disconnect is in the language of the agreements and its interrpretation by those affected by it.

Acknowledgement that construction is a process of "we together" and not us vs them, will yield less negative results.

Trust me when I say "Parterning" works. (with the right participants & facilitator)
Posted by: James V. Vitale, AIA, LEED AP, CASp, RCI - Wednesday, November 21, 2012 1:51 PM

I'm in favor of a "team" approach when dealing with a contractor who is willing to follow the plans to the letter, and who will contact the architect in advance, say during the bidding process, or who will notify the architect of a discrepancy or disagreement in advance of incorporating a change, whether a credit or an add. Architects design and detail as they do for reasons contractors may not understand, and in my experience when a contractor does it "his way" or in a manner he is accustomed to in his trade, the effect is nearly ALWAYS deleterious to the aesthetics or function of the design. Some contractors have real respect for architects and process, other have little more than contempt. Change orders originating with field requests should always be negotiated, and changes never approved without the architect in the middle of the process. Owners who bypass the architect are courting problems whether a request involves a credit, no cost add, or additional fees.
Posted by: G.R. Collins, AIA - Wednesday, November 21, 2012 2:56 PM

Like any other project work acitivity, the elements of a change issue need to be input into the proejct schedule to determine what, if any, impact the change will have on the other work activities. The resources to perform the change need to be analyzed to determine if current resources are adequate or if additional resources will be required. The bottom line is the planning of change activities have to be performed in a similar manner to what is required to accomplish the base oontract activities. If additiional resoureces are required or impacts to other work are identified as a result of the change, this should be reflected in the cost of the change.
Posted by: Ron Cilnesek - Wednesday, November 21, 2012 3:08 PM

A change order is to protect the contractor and the owner. They are mutual agreements between the parties and can be worded as needed in regard to unknown conditions, additional unanticipated costs, contingent costs, etc.

As for cumulative effect, it would seem that a good construction PM and/or architect would apply experience, expertise and leadership to head off potential disputes and misunderstandings in this area and reach mutual agreements. Assuming two ethical and professional parties to the discussion, it is certainly within reason and certainly preferable to ADR or court if for no other reasons than to save valuable time and protect reputations.
Posted by: Marshall Wilson, RA, LEED AP - Wednesday, November 21, 2012 5:43 PM