No matter how perfect a set of drawings may appear at the beginning of a project, the scope of the project will invariably change. The easiest and best way to address a change, and its resulting impact on the schedule and contract price, if any, is through a change order mutually executed by the owner and contractor before the change is implemented.
But life isn’t always that easy. Sometimes the cost of a change or its effect on the schedule is impossible for the contractor to calculate. Other times the parties know that additional work is a change but dispute its cost or time impact. Equally prevalent is when parties dispute whether work is a change in the first instance or in fact falls within the original scope of work.
So, what is an owner to do when these disputes arise and the contractor refuses to proceed with the changed work?
If the parties agree that certain work is a change but dispute the associated cost or time, the owner can compel the contractor to perform the changed work by issuing a Construction Change Directive (CCD). For instance, the American Institute of Architects’ standard General Conditions of the Contract for Construction A201-2017 (“General Conditions”) provide the owner with authority to direct changes in the work that fall “within the general scope of the contract” and require the contractor to “proceed promptly” with such changes.
The General Conditions also provide the mechanism for how the contractor will be paid for changes (though they don’t specify how much fee for overhead and profit the contractor should receive).
Developers often modify the AIA form agreement and others to add a layer of specificity outlining precisely how the contractor will be paid for a CCD and disputed claims, typically to remove reimbursement for indirect costs and to identify the exact amount of fee the contractor should be paid for overhead and profit (and sometimes insurance or even related general conditions).
Without authority to issue a CCD or similar right, the owner will be negotiating price and time associated with the change from a position of weakness. This is because the contractor may simply refuse to perform the changed work, unless the owner agrees on the contractor’s terms. Hiring another contractor to perform the change is typically not a realistic option.
If the parties do not agree whether something is a change, issuing a CCD may not be the right approach. By definition, a CCD is for a change. Many CCD forms, including the AIA’s G714-2017, are for when a change is acknowledged. If the owner issues one of these CCDs without carefully reserving its rights, the contractor will certainly argue later that the owner is foreclosed from denying a change has occurred. To prevail upon a claim, a contractor typically has to prove entitlement and then quantum (amount). Establishing entitlement is much easier if the owner, intentionally or not, has issued a CCD acknowledging a change has occurred.
In these situations, then, owners should take care to issue a directive, as opposed to a change directive, to perform disputed work. The contractor, upon receipt of such an instruction/directive, may in turn dispute the instruction and submit a claim in accordance with the claim procedures of the contract, but the contractor may not stop working. Just as owners should take care in issuing directives, contractors must be equally careful in responding to them and timely submitting their claims for additional time and money. Failing to submit a claim promptly in such instances may result in forfeiture of the contractor’s rights, especially in states like Washington that enforce strict claim notice requirements.
Having the ability to order changes in the work is an essential right for an owner. Otherwise, the contractor could refuse to perform the change, giving the contractor undue leverage in negotiating a change order for time and money. A fair contract should allow the owner to issue some changes and include an agreed-upon mechanism for calculating how the contractor will be compensated for the additional work.
Colm Nelson is an attorney in Stoel Rives’ construction and design practice group in Seattle. Contact him at 206-386-7525 or firstname.lastname@example.org.