The most common element of Holloway’s consulting practice is the analysis of change orders. And, perhaps the most common element of the hundreds of construction claims we have worked on is owner directed changes to the base contract scope, which typically occurs without controversy. However, disputes are comprised of the controversial:

OWNER’S RIGHTS

The owner enjoys the right to make changes that fall within the scope of the construction contract. The spectrum of possible change covers every element of the Contract Documents – from detail notes on design drawings to complete sections of the General Conditions. The owner may direct the change verbally or in writing. The owner’s right to make a change to the contract is typically qualified in two respects:

1. The modification must not be a fundamental change beyond the scope of the contractor (i.e., Cardinal Change).

2. The contractor must be given the right to a contract price and schedule adjustment if the modification made by the owner affects his costs or delivery schedule or both.

CONTRACTOR’S RIGHTS

In exchange for the owner’s right to make a change, the contractor enjoys the right to receive an adjustment in contract price. In a unit price contract, many changes can be simply made by an adjustment in payment quantities. Complex changes in unit price contracts, and all changes in lump-sum contracts, require the negotiation of a specific revenue adjustment (notwithstanding the occasional “no-cost” change).

When negotiations fail to produce a mutually-acceptable revenue adjustment, the owner may direct the contractor to proceed with the changed work on a force account basis. When the change is time critical, the owner may direct the contractor to proceed with the changed work before the revenue adjustment has been agreed upon. When the negotiation of a change is unsuccessful, the owner may also issue a unilateral, “two-part” Read more on Change Orders;

1. the first part of the change order establishes interim revenue adjustment (generally close to the owner’s version of equitable compensation) while,

2. the second part of the change order is left open for solution at a later date during the contract life.

When the owner has reserved the right to make changes in the contract and has appropriate language in the contract requiring performance of the work pending resolution of any disputes, the contractor has the duty to perform such directed changes whether or not he agrees with them and whether or not compensation therefore has been established. The current AlA Document A201, General Conditions of the Contract for Construction contains various related clauses, including the Construction Change Directive clause.

Read more about Owner Directed Change claims

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CONTACT INFO

J. Steve Holloway, GC
The Holloway Consulting Group, LLC
10885 W. Beloit Pl.
Lakewood, CO 80227
Tel: (303) 984-1941
Email: hollowayconsultinggroup@gmail.com

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