In this world nothing is certain except death, taxes, and change orders. Available to owners and contractors alike, a change order allows parties to make and implement changes to a contract without having to rewrite the entire contract. These changes can add or remove time, scope of work, and/or cost. But don’t go changin’ things unless you’ve followed the contract’s change order procedure. You may unintentionally waive your rights to the change order, including the right to be paid – especially on public works of improvement.
What is a Change Order?
A change order modifies an existing construction contract. This modification can change: (1) the amount of time allowed to complete work; (2) scope of the work; and/or (3) the price. To be enforceable, a change order must meet the legal requirements of a valid contract. Those requirements are generally offer, acceptance, and consideration. Depending upon the specific project and construction contract at issue, a change order must generally be signed by all parties before the changes are performed.
Why Would I Need a Change Order?
Some common reasons for needing a change order include:
- Changes in scope of work
- Defects in the plans and specifications
- Project delay
- Material or labor price escalations
- Differing site conditions
What is The Procedure to Obtain a Change Order?
Most construction contracts have express procedures defining how changes to the original contract must be made. These procedures can vary based upon the type of project, parties involved, project schedule, and many other factors. Therefore, it is imperative that the parties read their change order provisions in the contract documents and follow them diligently. If the prescribed change order procedures are not correctly followed, a party risks waiving all rights to the change order – which could result in performing the change without any compensation or time adjustment.
Below, we discuss the three change procedures provided in the AIA’s form A201 – 2017 General Conditions of the Contract for Construction, as well as the claim procedure if the parties are unable to agree to an adjustment of time, price, and/or scope of work.
Change Orders: In the standard A201-2017 agreement, the change order procedure is initiated when one of the parties to a contract requests a change to the original agreement. Generally, the contractor prepares a change order request which will identify the changed scope of work, time, and/or cost. Once the terms of the change order are agreed upon, a formal, written change order is prepared and signed by all parties. Importantly, it is common for construction contracts to require a party to provide a written change order request within a limited number of days from the time they learn of the need for a change order, otherwise the party may waive their rights to the change order.
Construction Change Directive: Not all changes to the original agreement require the contractor’s approval. A construction change directive (CCD) is a written order prepared by the architect and signed by the owner and architect. This directive, without invalidating the contract, allows changes to the general scope of the contract, consisting of additions, deletions, or other changes in the work. The contract sum and time are adjusted either by mutual agreement or the manner provided in the contract documents. A CCD can be used in the absence of a total agreement on the terms of a change order.
Minor Changes in The Work: Another way changes to a project can be made is by the architect ordering “minor changes in the work.” These changes shall be consistent with the intent of the contract documents and will not involve adjustments in contract sum or extensions of contract time. The minor changes in the work must be ordered in writing by the architect. If the contractor believes the proposed minor change will affect the contract time and/or contract sum, the contractor must notify the architect and must not proceed with the minor change. If the contractor performs work proposed by the architect’s order for a minor change without prior notice to the architect that said changes will affect the contract time and/or contract sum, the contractor may waive any rights to adjust the contract sum and/or time.
Contract Claim: If a change order request is denied, or the parties dispute the adjustment of time, price, or the scope of work, a formal claim by the contractor must be made 21-days after the change order denial, or from when the need for a claim becomes known, to preserve the contractor’s rights. A claim must be referred to the initial decision maker (usually the architect) who then has 30-days to respond to the claim. If no response is received within the 30-day period, or the claim is rejected, the contractor may proceed to demand mediation. If mediation is unsuccessful, the contractor has 30 days to formally demand binding dispute resolution (arbitration or litigation, whichever is selected) pursuant to the contract documents.
What Happens If I Fail to Follow the Contract’s Change Order Procedures?
When it comes to change order procedures, it is important to note the distinctions between a public work of improvement versus a private work of improvement. If a contractor fails to follow the change order procedure on a private work of improvement, the contractor may nonetheless argue that the owner has waived the change order procedure, the contractor has substantially complied with the change order procedure, the owner is estopped to enforce the change order procedure, or that there was an oral modification of the change order procedure. Any of these arguments, if successful, could preserve the rights of the contractor to receive a contact adjustment for the change’s time, scope of work, and/or price.
Importantly, on a public work of improvement, a public owner may only modify a contract in the manner prescribed by the contract documents. In the event a contractor fails to follow the change order procedure in the contract documents, i.e., not obtaining a written change order prior to performing the work, the contractor will be at a risk of performing the changed work for free and not receiving a time extension. (P&D Consultants, Inc. v. City of Carlsbad (2010) 190 Cal.App.4th 1332, 1342.)