The Magazine of University of Florida’s School of Building Construction recently published an article written by David Salazar. The article is a primer on the difficulties a contractor faces when dealing with change order work. Additionally, the article sets forth the inevitable problems a contractor encounters and provides some risk management tips that can help the contractor manage these problems.
A. The Traditional Setting
1. The Relationship
In this setting, there is no contract between the general contractor and architect but rather only contracts between the owner/general contractor and owner/architect. This creates a triangular relationship that often leads to tension. This is because the construction process seldom unfolds as anticipated. Things change – especially in construction – and this is the subject of our article.
2. The Standard Contract
The American Institute of Architects (“AIA”), among many other things, sells construction contract forms which all the various trades utilize. Because of their popularity, we use AIA forms as our examples in this article.
3. The Work Begins
With a complete design, and with bidding finalized, contractors are chosen and the work begins. Thereafter, the need for numerous changes almost certainly arises. Why? The reasons are endless. Examples include design conflict, change of owner preference, out of sequence construction, and problematic physical condition(s). After generating questions to the designers, the various trades then submit proposed changes to the construction administrator.
4. Change Work
Change work is typically done by way of a written modification to the contract; most often as a change order. The AIA’s general conditions define “Modifications” as (1) a written amendment to the contract signed by both parties, (2) a change order, (3) a construction change directive or (4) a written order for a minor change in the work issued by the Architect. Per the AIA, a change order shall be based upon agreement between the developer, contractor, and architect. The AIA requires the architect to prepare the change order and the developer to sign it, indicating an agreement as to (1) change in the work, (2) the amount of the adjustment, if any, in the contract sum and (3) the extent of the adjustment, if any, in the contract time. An unsigned change order may mean the general contractor does not get paid.
Perhaps most important to any developer is the project’s schedule and change in the work tends to affect that schedule. This is why construction contracts typically provide for liquidated damages, which are damages to which parties contractually stipulate as a reasonable estimation of actual damages to be recovered by one party if the other party breaches.
B. The Conundrum in Contracting
1. Changes Tend to Disagree with the Schedule
Given the importance of the schedule and the potential for damages, should a contractor stop the work to get the change order signed? In other words, does the contractor proceed with the work, or should it wait for the signed change order?
2. Risk Management
While there are no simple answers to these questions, there are protections the contractor can put in place to better manage this dilemma, which include:
So the contractor has sent its letter memorializing why the change order is necessary and detailing its efforts to get it signed without delaying the work. But what should be done in the meantime? If the contractor proceeds, it may not get paid for that work. If it doesn’t proceed, it may be in breach of its contract and face a lawsuit for construction delays. The practical approach is to (1) submit the detailed proposed change order, (2) enclose within the submission the documents showing the changes (e.g., the architect’s revisions), and (3) and specify that the project will be delayed, through no fault of the contractor, until the change order is signed.
Consult a construction lawyer. The manner in which a contractor may protect itself will vary with virtually every project. A qualified construction lawyer should be able to assist with a thoughtful and deliberate approach to a contract that preliminarily addresses most of the contractor’s change work concerns.
Although problematic, there are measures that can be put in place, preferably early in the process, that can make the change work process more manageable. That said, construction contracts will always be a minefield ripe for conflict. So, document your file and try to avoid performing work on an unsigned change order.