Chapter V Claims Arising Out of Contract or Quasi Contract1
A. Changes - Work Beyond the Scope of the Contract
Due to the complexity and length of most construction projects, changes are almost inevitable. Few, if any, construction projects are completed without some deviation from the original plans and specifications. A contract change happens when an event or condition modifies the work as defined in the contract documents. Changes can be caused by numerous situations that arise on construction projects, including original design errors, design changes, departure from the contract schedule, changes in the sequence of work, unknown site conditions, and owner changes beyond the scope of the contract.2
Changes can result in additional costs, credits, extended time to perform, or some combination of the three. The impact of changes in the scope of work, due to increased time and money, is one of the most disputed issues in construction.3Therefore, in order to keep the project moving toward completion, the contractual provisions dealing with changes must effectively manage the effect changes have on the contract schedule and price.
1. Formal Change Procedures/The "Changes" Clause
Under the common law, a contract is formed when two parties reach a mutual understanding of a specific undertaking, whereby each party agrees to perform their contractual duties in exchange for some performance or consideration by the other party.4 In a regular contract, neither party can unilaterally alter the terms. If changes are necessary, the parties must reach a new agreement.5
In order to better manage the numerous changes that are almost certainly going to be part of a project, construction contracts began including what is known as a "changes" clause to provide a practical, efficient manner to handle changes to the scope of a contract after contract execution.6 Most importantly, the "changes" clause allows an owner to unilaterally request changes within the contract's general scope.7 These changes are considered to be within the original scope of the agreement. In exchange for the unilateral right to order changes, the changes clause gives the contractor a right to an adjustment in time for completion or additional compensation.8
Most clauses provide that if the parties are able to agree on the amount of the cost and/or time adjustment, they can execute a contract modification, commonly known as a change order. In theory, the change order should be a written document issued prior to commencement of the work. However, due to the frantic pace of actual construction, this often does not happen.
Therefore, another method to handle changes when the parties are unable to agree on some portion of the modification has developed. The disagreement usually involves the scope of the modification, or the price or time impact of the modification. The manner in which the contract addresses the scenario where the parties are not in agreement and the name of that process varies from contract to contract. However, changes clauses typically allow the owner to require that the added or disputed work be performed in what is often referred to as a "construction change directive." The contract requires an adjustment at a later point in time to resolve the disagreement. As might be expected, this type of change is the subject of much litigation. If the contractor has performed the requested work without reaching an agreement as to the amount of contract adjustment, the contractor is then forced to negotiate a fair price or schedule adjustment for the work after the fact.
a. AIA A201 Changes Clause
In the General Conditions of the AIA, the authority for these changes arises in Paragraph 7. The changes clause in the AIA contract provides for three methods of executing changes to the scope of the work, through a change order, construction change directive, or an order for a minor change.9 Paragraph 7.1 of the 2017 AIA A201 provides as follows:
ARTICLE 7 CHANGES IN THE WORK
§ 7.1 GENERAL
§ 7.1.1 Changes in the Work may be accomplished after execution of the Contract, and without invalidating the Contract, by Change Order, Construction Change Directive or order for a minor change in the Work, subject to the limitations stated in this Article 7 and elsewhere in the Contract Documents.
§ 7.1.2 A Change Order shall be based upon agreement among the Owner, Contractor and Architect. A Construction Change Directive requires agreement by the Owner and Architect and may or may not be agreed to by the Contractor. An order for a minor change in the Work may be issued by the Architect alone.
§ 7.1.3 Changes in the Work shall be performed under applicable provisions of the Contract Documents. The Contractor shall proceed promptly with changes in the Work, unless otherwise provided in the Change Order, Construction Change Directive or order for a minor change in the Work.10
b. Change Order/Agreed Changes
The change order includes work that has been added or deleted from the work specified in the original contract scope entitling a party to either a change in the contract price, alteration of the time for completion, or some combination of the two. If the owner, architect, and contractor have agreed on the scope of the change and the amount of adjustment under the contract in terms of additional time or money, a change order is executed.
For example, A201-2017 § 7.2.1 states:
A Change Order is a written instrument prepared by the Architect and signed by the Owner, Contractor and Architect stating their agreement upon all of the following:
1. The 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.11
In a contract which contains a changes clause, a change order can be requested without the consent of the contractor as long as the change falls within the general scope of the contract and in accordance with the contract's changes clause.12 If the contractor does not agree to the contract adjustment, a construction change directive is issued.
c. Construction Change Directive
Usually if a dispute arises regarding a change in the work, it is due to the owner and contractor disagreeing on whether the work performed by the contractor was an actual change or the owner disputes the additional compensation or time the contractor has requested due to the change.13 If the parties cannot agree on the adjustment in contract price and/or time, the owner can issue a construction change directive whereby the contractor is still obligated to perform the change. Any price and time adjustments will be determined later by the architect utilizing guidelines set out in Section 7.3 of the changes clause in the AIA Contract.14 If the parties can agree on even partial pricing for the change, that amount should be included in the contractor's billing.15 Section 7.3.1 states:
A Construction Change Directive is a written order prepared by the Architect and signed by the Owner and Architect, directing a change in the Work prior to agreement on adjustment, if any, in the Contract Sum or Contract Time, or both. The Owner may by Construction Change Directive, without invalidating the Contract, order changes in the Work within the general scope of the Contract consisting of additions, deletions or other revisions, the Contract Sum and Contract Time being adjusted accordingly.16
The construction change directive is an excellent method to keep the project moving forward when the parties cannot agree on the impact of the change. Unless there is a complete agreement on both the cost and time impact of the change the parties should use the construction change directive. If at any time the contractor later agrees to its terms or mutual agreement is obtained by adjustment of its terms, it is then deemed to be a change order. In the event that the contractor finds it impossible to accept the architect's determination of changed cost and time, the contractor's recourse is to follow the claims procedures outlined in Section 15 of the AIA Contract.17 It is crucial that the contractor maintains a precise record of the cost and time to perform the change in the event the contractor is forced to file a claim for additional compensation or time under Section 15.18
d. Order for Minor Change
The third type of change under the changes clause is an Order for a Minor Change.19 These minor changes are usually a result of requests for information, requests for clarifications of the design, or other issues which arise as a normal part of a project.20 Contractors are expected to perform work within the original scope of the contract documents, and if the change does not alter the cost or time to complete the project, the contractor is not entitled to a contract adjustment.21 It is rare for an owner and contractor to agree a change has caused no impact on the cost or schedule, but in the event they do, the architect can issue an Order for a Minor Change.22
2. Issues Related to Changes in the Scope of the Contract
When determining whether the contractor is entitled to additional compensation for an alleged change to the contract, several issues must be considered, including the scope of the contract, the authority of the party requesting the change, whether the change was written or oral, and whether the claimant followed the proper guidelines for notice under the contract.
a. Scope of the Contract
The first step in determining how to assist the client involves the process of (1) analyzing exactly what the contract called for and the risks assumed by the contractor as part of the original contract price, and (2) determining whether the change falls within the original scope, the general scope, or if the change so drastically altered the parties' original agreement that the change falls completely outside of the...
