The Changes Clause is one of the most important, perhaps the most important, provision in any construction contract. Project designs are rarely perfect. A Changes Clause provides a mechanism for dealing with such imperfections as well as allowing project owners the flexibility to update a project’s design as the project progresses. A good Changes Clause specifies when an owner can change the original scope of the contract, how the parties should resolve the value of the changed scope and when payment should be made to the contractor or a credit given to the owner. A good Changes Clause will also provide a mechanism for the contractor to notify the owner when it believes a change order is due and specify the time within which such notice must be given. For the contractor, failure to pay attention to the requirements of the Changes Clause can lead to forfeiture of the right to seek an adjustment to the contract value or contract completion date. For an Owner, failure to pay attention to and enforce the requirements of the Changes Clause can result in unnecessary payments to the Contractor.
Changes clauses can differ depending on the type of project delivery system. For the typical design-bid-build contract, the Changes Clause should entitle a contractor to a change order for any revision to the issued-for-construction drawings after the award of the contract. In a fast-track delivery method contract, the contractor must often allow for some level of change between the bid drawings and specifications and the issued-for-construction plans before it can request additional compensation. An Owner will want to include language in the Changes Clause that allows for changes in the design as the design develops between the contractor’s bid and the time construction begins. The parties to such a contract should also contemplate and negotiate language that puts the contractor on notice that the bid documents do not currently include the entire scope of work so that the contractor knows to price the risk of added work that will not be considered a change from the preliminary versions of the design documents while at the same time putting a limit on the extent of changes that can be made.
Interesting issues related to the Changes Clause arise when the contractor takes on design responsibility for a project. Under design-build contracts and public-private partnerships (P3) projects, owner delegates most of the design responsibility to the contractor. A Changes Clause within these contexts is typically limited to changes to the fundamental project parameters provided by the owner as the basis for the contractor’s design.
Particularly problematic for contractors are notice provisions that mandate very short timeframes for submission of a request for change to the owner. These types of restrictions on the contractor’s ability to request a change can lead to the contractor financing the cost of changed work. If this damages the contractor’s financial health, it may impact the progress of the project. While strict notice provisions are concerning for contractors, many courts have been reluctant to strictly enforce these provisions in the absence of actual prejudice. These courts have been more apt to recognize the equities of the case rather than the strict language of the contract. Owners can be successful in enforcing notice provisions if they can demonstrate that the owner could have resolved the delay causing event in a timelier fashion if the contractor had properly notified the owner of the event per the contract requirements. However, demonstrating the actual prejudice required to win on these notice provisions is difficult in court or arbitration.
Another area of concern to contractors is the effect of changes provisions on delay and impact claims. Frequently, delay and impact claims involve a series of events that transpire over a period of time. Notice provisions both in the changes clause and elsewhere in the construction contract emphasize proactive notice whereas the accurate calculation of delay and impact damages arises only after the delaying or impacting event resolves. This inevitably leads to a conflict of interest, where the owner desires an immediate quotation of the cost of the changed work and the impact of the delay against the contractor’s desire to formulate a more accurate quotation of the cost and delay after the delay impacts have been measured and calculated. On large projects, these competing interests can be resolved through the effective use of a true third-party dispute manager, including the use of prospective scheduling and impact measures generated through windows and time impact methodologies. While the owner or contractor may not fully recover their immediate and direct losses through this implementation, the long-term benefits of timely and quickly resolving the disputes through an interim dispute manager may often outweigh the heavy time and cost impacts imposed by even the quickest of arbitrations. On projects that cannot afford the extra expense of an outside dispute manager, contractors should be allowed to reserve the right to seek an adjustment once the actual impact of the changed work is known.
Most Changes Clauses also allow the owner to delete work from the overall contract scope as well as adding work to that scope. In the situation where an owner deletes some scope of work, the contractor should be prepared to offer a credit to the owner for the work that was deleted. Pricing the credits often becomes a point of contention between the parties. Owners will often suggest the credit should be the work’s value in the contract’s schedule of values. Since work deletions do not usually reduce a contractor’s overhead, contractors will want to base the credit on the direct cost of the work without allowance for overhead.
A good Changes Clause is fundamental to the smooth operation of any construction contract of significant size. Contractors who do not have the opportunity to negotiate the terms of their Changes Clause should carefully review notice provisions and all other technical aspects of the clause so as not to unnecessarily create a dispute through inadvertent noncompliance. Owners who include strict notice and other harsh provisions in their Changes Clause should consider whether strict enforcement will do more harm to their project than good in the long run.
