Change occurs on construction projects constantly, and it’s almost inevitable that even the most standard project will encounter the need to deviate from the original plan. Parties to construction contracts should include language that enables the parties to modify terms – design, construction, price, time – as changing circumstances require.
Once an agreement between parties has been established (preferably in writing), one party cannot change the terms of the contract without the mutual agreement of other parties to the contract, according to the principles of contract law.
Most often, contract provisions that allow for changes within the general scope of the contract take the form of a change order agreed to by an owner and the contractor or change directed solely by the owner (in AIA documents, this option is termed a change directive). It’s important to note that changes can only go so far; the Cardinal Change doctrine allows a contractor to decline proposed changes that are so substantial that they far exceed the original contemplation of the parties.
Whether changes in the work covered by a construction contract are addressed through a change order or change directive, it is critical that a construction contract require that any such changes be made in writing to prevent misunderstandings, lapses in memory and potential disputes down the road.
From Design Changes to the Impact of the Weather
Why would a construction contract require a change? There are a myriad of reasons, including:
- Omissions or a party’s desire to add or delete certain design aspects;
- Conflicting provisions in contract plans and specifications;
- Existing site conditions proving to be different than expected;
- Code (building, MED, ADA, etc.) interpretations or governmental actions; and
- The impact of weather or other circumstances outside the reasonable control of the parties.
A well-drafted contract will contain provisions providing a methodology for changes to the work, compensation for such changes and how changes can be requested or even compelled. Commonly there are provisions regarding change in a construction contract in the form of change orders, or in the absence of mutual agreement, change directives by an owner, or an architect on behalf of an owner.
A change order is an amendment to the contract that provides for a revision in the scope of work, and as a result, the price. The impact of the change on the contract time should be included. Change orders provide flexibility to contracts to address any number of issues that arise during the course of a project. Benefits include:
- Allowing parties to adhere to a construction contract while allowing for specific changes;
- Providing for an element of predictability for such circumstances;
- Providing the parties control over determination of costs and impact on the schedule;
- Enabling contractors to be paid for extra work; and
- Avoiding disputes.
Depending upon the nature of the project, change order provisions can range from simply recognizing that an owner may direct changes to the contract — with the parties agreeing to document such direction in a change order — to provisions that outline a detailed process. This process may include requirements for written direction from an owner, a formal response from a contractor with pricing and other material documentation, strict timelines for such written notifications, and limitations on the type or extent of changes. A change order should be signed by the parties, describe the change in work to be performed, describe any contract price increase or decrease and describe the effect on the time for performance.
Change Directed by Owner
In the event the parties cannot agree on change order specifics, a change directive is an alternative mechanism available to owners to modify the scope of work on a project. An owner or architect may issue a change directive in the absence of an advance agreement with a contractor on specific terms for changed work, which might not be a competitive price for such changes. Change directive provisions prevent contractors from using the ongoing project as leverage to negotiate (in the opinion of an owner or architect) a price increase that is too high. Contracts that include a provision for change directives require the contractor to proceed immediately with the change, with details such as price to be determined at a later date by a design professional or some other method of calculation.
Owner’s and Contractors’ Perspectives on Contract Changes
From an owner’s perspective, inclusion of provisions for change in the work protects its ability to add or subtract from the scope of work. Owners will want language to include that any change orders shall constitute final settlement of all matters related to such changed work. In other words, no prior or subsequent course of conduct or oral communication should result in further price differences not set forth in the change order. As well, owners should require that changes in the work provisions allow for change directives.
Changes to scope of work impact contractors’ time and money. As a result, contractors (and subcontractors) should insist that change orders be processed within a certain period of time, and provide that work shall not proceed until the change order is in final form and fully executed. Contractors may also wish to negotiate language reserving the right to seek additional time to complete work under a change order if the full effect of the change cannot be determined within the time frame for submission and approval of change order documentation.
Finally, parties should be mindful that in some jurisdictions, including North Carolina, oral modifications to a contract may be enforceable under certain circumstances, even if a contract states that it may only be modified in writing. The best practice is for parties to negotiate and include in construction contracts language that allows the parties to agree in advance on a mechanism to address changes to a project.