First, an obvious statement: construction projects are complicated, complex undertakings. It would be a miracle if everything went precisely according to plan.
Miracles tend to be in short supply, so changes are an inevitable part of the business, so the owner has a little extra work to do. The owner must both:
- Create the flexibility to change the scope and price of the work so changes can be allowed, keeping the project on track
- Maintain control over the change process in order to remain in budget and avoid large claims from contractors who received insufficient notice of the change
It starts with the general contract
Everything starts with the general contract. a good construction contract provides for changes in the scope of the work while requiring approval from the owner for changes in price.
As part of the contract, the owner is entitled to thorough advance notice of the potential amount of any additions in the event approval cannot be reached for additional expenditures.
Changes can be controlled through three contractually authorized methods to impose liability on an owner:
- Change Orders
- Construction Change Directives
If there is no time to put together a change order or a construction change directive, you may be told to go ahead with a change in the absence of a contract revision.
In order to get paid, you will need to issue a claim for any work you believe is outside the scope of the original contract. Needless to say, contractors have less leverage with a claim since there may be no documentation of the change in the work scope or cost.
You are probably most familiar with change orders. A change order is a written agreement between the owner, the architect, and the contractor about the scope, price, and time adjustment required for the change.
All three must agree and sign-off on the proposal for the change order to go into effect. A change order establishes any new terms and basis of payment, becoming part of the contract once executed and approved.
Change orders often result from the contractor sending an RFI in which the architect discovers some specific part of the project was not detailed out. Others result from the discovery of unsuitable soils at the project site, or the unavailability of specified materials.
Change orders are some of the most litigated and disputed documents in the industry.
Construction change directives
A construction change directive (also known as “Force Account Work”) is not synonymous with a change order. Where a change order requires the agreement of the change by the owner, the architect, and the contractor, a construction change order only requires the approval of the owner and the architect. The Surety is also not required to sign.
DictionaryOfConstruction.com puts it like this:
“[A construction change directive is an] alternative mechanism for directing the contractor to perform additional work to the contract when time and/or cost of the work is not in agreement between the owner and the contractor performing the work.”
Note that the above definition says it is an alternative mechanism for directing the contractor. In other words, it is not a request. The contractor must perform the work as directed by the owner, understanding that the team will figure out how to compensate and justify the extra time and costs at a later date.
In the circumstances of a construction change directive, the owner and the contractor have not been able to come to an agreement on the schedule or budget changes. The decision then defaults to the architect regarding the amount to be rewarded in exchange for the additional work.
However, the contractor is now free to include price adjustments on future pay requests. Sometimes this practice leads to lawsuits if the owner thinks a contractor is inflating prices. Construction change directives have different legal implications than change orders; additionally, the directives are used less often than change orders, yet tend to be even more litigated.
Many publicly funded projects will not allow construction change directives (CCDs) to be used.
Construction change directive application
The CCD application is a single page document typically containing four sections.
The first section contains all project information, which is standard only any contract document. It includes a brief description of the directed change. The next two sections contain the proposed price change and the proposed time change.
The final section contains the signature blocks for the Owner (whose directive it is), the Architect (required), and the Contractor (not required).
Exceptions to a construction change directive
The U.S. courts have come to recognize exceptions to contract requirements such as waivers, changes in common law theory, and occasionally due to cardinal change doctrine. These exceptions can make it difficult to enforce some contracts since they are not as airtight as once thought.
A written change order can also be waived through oral statements or promises made to convince the contractor to perform extra work, or the Contractor’s reliance on the actions or conduct of another person. In either case, an exception can be created by someone with the authority to legally bind the owner.
Construction change directives can fall prey to these same exceptions. The contractor’s protections can be weakened because a CCD only requires the signature of the owner and the architect.
It is not unusual for a contractor to have a punchlist or a batch of change orders during the course of a project. With so many parts to come together seamlessly, it may be unrealistic to expect even the best-written general contract to identify and cover all exigencies.
Changes can be made with or without the approval or agreement of the contractor. A change order requires the contractor to agree with the request of the owner and architect. A construction change directive does not.
A construction change directive only requires the agreement of the owner and architect, leaving the contractor to recoup the additional charges through a process similar to making a claim. At least with a CCD you can be assured that the owner is aware that changes were requested and won’t be broadsided by your request for more funding.
Also unlike a claim, a CCD implicitly allows you to increase the amount of each payment beginning with its implementation. Your cash flow will be smoother without the need to wait until the end of the project to get paid for the extras.