Here is an example situation: The Owner wants to change the scope of work, but the parties cannot agree on how this will affect the contract price. The Owner urges the increased scope should cost $50,000.00, but the Contractor estimates the work at $65,000.00. The dispute leads to a stand-off, where the Contractor refuses to make the change, and the Owner claims a breach in contract.
The Owner issues a Construction Change Directive under the Contract Documents, requiring the Contractor to proceed forward with the change…Now what?
Depending on the terms of your contract, the Contractor may be required to perform the work for the lesser amount, or – in certain circumstances – without payment until the parties can resolve the dispute through ADR or litigation!
Clearly, a Construction Change Directive can greatly affect the success or non-success of a construction project. It’s important, therefore, that you deal with the perils of these Owner-friendly devices during contracting, and not when an unpleasant situation arises.
If you’re working with form contract documents, they will almost always allow an Owner to issue an interim change directive. And in almost every circumstance, in the case of non-agreement over a change, the Owner is allowed to require the Contractor to proceed forward while the dispute is pending.
Importantly, however, these contracts differ on the procedures for resolving the dispute between the parties.
Under the AIA A201 General Conditions, if the parties cannot agree on the impact of the change directive on the Contract Sum, the Architect makes the determination and her determination is binding upon the parties. If the contractor disagrees with the Architect, it can dispute the decision through the dispute resolution procedures of Article 15 (2007 ed.), but it may be left having to fund the entire cost of the directed change until the final resolution is reached!
The ConsensusDOCS – a new set of contract documents introduced in September 2007 – seems to offer a more balanced approach. Most importantly, ConsensusDOCS provides interim relief to the contractor in the case of disagreement, requiring the Owner to pay the Contractor 50% of its estimated cost to perform the work while the Parties dispute the remaining amount.
Contractors signing the AIA A201 agreement should be cautious about the Construction Change Directive provisions. Without altering the AIA language, a dispute over a construction change directive will likely weigh heavily in favor of the Owner.
It’s no secret that thousands of construction projects are embarked upon without the use of an set of contract documents from the AIA or some other association. In fact, its safe to assume that most construction projects in the United States are regulated by more custom and simple contracts.
It’s easy for a lawyer to analyze the impact certain situations may have on a construction project when looking through the prism of time-tested contract forms, but in everyday life, its more difficult to make these predictions.
In regards to Construction Change Directives, for example, when two parties not using the AIA or ConsensusDOCS forms find themselves arguing about the cost of a change order, they may find themselves with very clear or very ambiguous options.
On the one hand, they may have a contract that speaks very clearly to the point. The contract may give the Owner unfettered ability to direct a change, or it may state that the contractor is unequivocally not required to deviate from the original scope without a written and signed change order.
On the other hand, the contract may be completely silent on the point. In this circumstance, unfortunately, the Owner and Contract might be for a lengthy and trying dispute proceeding.
When contracting with custom documents, contractors should analyze that documents treatment of change order and construction change directive procedures. If the contract is silent on the issue, have an attorney draft some language to regulate what will happen in the event of a dispute. If the contract speaks to the issue, ensure that your company won’t be left to dry when the Owner decides he or she wants a kitchen ten times the cost of the original scoped kitchen.
Change Orders and Construction Change Directives are the root of most disputes in the construction industry. Understand what your contract will require from you and the other party in the event a change is necessary, and ensure that your contract is reasonable in the event of a dispute.
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