ConstructionPro Week, Volume: 2 - Issue: 14 - 04/05/2013

What Happens When Change Order Procedures are Ignored?

By Bruce Jervis

Construction contracts frequently contain detailed procedures for processing change orders. The contract addresses notification, request for modification, pricing, proposal, review, approval and execution. The problem is that the parties seem to seldom follow the procedures.

During the controlled chaos of an ongoing construction project, the emphasis is on expediting the work. The tendency is to defer documentation. The change order procedure, which appeared so orderly and logical on paper, falls by the wayside. There are consequences, however, to ignoring the change order procedure.

In a recent case from New Hampshire, multiple change orders were made to a subcontract, but the parties did not follow the contractual procedure. When the parties could not agree on outstanding claims at the end of the project, the subcontractor sued.

A trial court ruled that the parties, by ignoring the change order procedure, had abandoned the subcontract. The trial court compensated the sub for unjust enrichment, essentially a total cost recovery. The New Hampshire Supreme Court brought things back to reality. While the parties may have modified the change order procedure, they had not abandoned the subcontract. The sub’s recovery for extra work was still governed by the subcontract.

In your experience, are change order procedures in contracts followed? Have you seen instances where a party ignores the stipulated process and then asserts the procedure as grounds to deny subsequent changes? Are the contractual procedures unduly complex and multi-phased, almost guaranteeing they will be ignored during the exigency of ongoing construction? I welcome your comments.

COMMENTS

ALL THE TIME!!! The owner or arch/engineer always wants to make a change and most of the time, (there not being enough time), results in asking you to move forward and at the same time put together a change request. Items ordered and maybe installed and the owner, arch/enginer is still reviewing your costs and after the installationis complete they want to negoiate and lower price. Many time I have said I will not even order a part or complete an installation unitl I get something in writing to cover my costs only to be told I am holding up the project. It is usually a no win situation for the subcontractor and if it'snot the owner, arch, engnieer it is the prime contractor who doesn't forward your cost estimate to the owner or he has been paid and won't pay you. Very frustrating.....
Posted by: bud - Friday, April 5, 2013 11:18 AM

This is an incredibly frustrating but REAL problem. We worked with a large international "construction management" company who issued CO approvals via email (in writing) but turned around and said that it wasn't on their correct form so they wouldn't pay. The contract stipulates changes just have to be made "in writing, prior to execution." They were completely in the wrong but it took threatening to pull off the project before they took a look at the contract and their own procedures and paid up.
Posted by: EV - Friday, April 5, 2013 11:58 AM

No legal action in my case, but irony in one instance was that out of state owner favored the GC over my challenge, as the architect with contracts administration responsibiility, to their claim for extra compensation - ending with their being paid more for actually doing LESS - and diminishing the overall quality of the project. I think my client was irritated by the additional effort paying attention to their architect, me, entailed! They just wanted to get the job done as quickly as possible. Needless to say, I wrote the necessary CYA memos.
Posted by: Russ - Friday, April 5, 2013 1:11 PM

Contractually prescribed change order procedures are often unweidy, and unsuitable particularly where the contract is plagued with changes and delay is untenable. Not following the contractually required procedures, however, creates a bad situation for both parties. From the owner's perspective, paying a contractor on a change where the contractor failed to follow certain contract procedures may be deemed a waiver of those provisions in that instance and going forward. Not following contract procedures creates uncertainty. Uncertainty is bad for both owners and contractors. It often leads to litigation. If asked to proceed on a change, in advance of the contractually required paperwork, the contractor should ask the requester to sign a statement stating that specific contract procedures do not have to be followed in this instance at the requester's direction and that the requester has the authorithy to make this change. If the requester declines to sign such a statement, the contractor should decline to perform the change. Although I have never seen it happen, best practice is for the parties to bilaterally change the contract to replace the unworkable change order procedures with new procedures better suited to the project's needs.
Posted by: David Anderson - Friday, April 5, 2013 4:07 PM

I think there are two circumstances here: large and cumulatively smaller changes. In my 30+ years if experience I have found that the larger change orders usually follow the contractual procedures because the client wants to be sure he/she can afford the desired change in scope. The smaller, usually field generated changes tend to fall through the cracks. Subcontractors need to document these changes to their GC and GCs need to document changes to the Owner. An order of magnitude estimate for both time and cost is always appropriate before you start the work. And while we all want to CYA, we have a responsibility to provide realistic estimates. Building confidence with your clients by accurately estimating the time and cost of these smaller changes tends to result in timely reasonable approval once the costs are finalized. And, if you blow the order-of-magnitude estimate every now and then it’s usually okay.

If as EV state above, the client / CM hangs their hat on formality saying it’s in writing, but not in the correct format… well that’s raising a red flag for more problems down the road. I would likely stop work.

My two cents…
Posted by: Steve Pick - Wednesday, April 10, 2013 2:25 PM