Changes, Claims, and Dispute Resolution

After a construction contract has been awarded to a contractor, and usually after construction has begun, it may become necessary to make changes in the work that are not covered by the contract documents. To avoid writing a new contract whenever a work change is made, construction contracts usually include provisions for change orders. These are legal documents that provide a means by which an owner can order changes in the work or require extra work. Change orders may be issued for the following reasons:
1. Change in scope. Specifications for building construction include a Scope of the Project, which includes a general verbal description of the project. The details are given in the technical sections of the specifications, each of which provides a Scope of the Work. This is a statement of the work to be done under that section. If any change is to be made in the project, a scope becomes involved.
Usually, the specifications give the owner the right to make changes in scope, with specified compensation to the contractor.
2. Change in material or installed equipment. For any of a variety of reasons, such as unavailability of a specified item or cost or time savings resulting from a substitution, the owner or the contractor may request a change in building materials or installed equipment.
3. Change in expected conditions. After the start of a project, a contractor may encounter conditions not anticipated by the building designers and not covered by the contract documents. For example, during excavation for the building foundations, subsurface conditions may be encountered that are different from those described in the plans and specifications. Or abnormal weather may interfere with progress of the work or may damage work already completed. Or labor strikes may occur. Change orders may be required to accommodate these unexpected conditions.
4. Change to correct omissions. During construction, the owner or the contractor may discover that certain necessary work or extra work desired by the owner is not covered by the contract documents. The owner will have to issue a change order for performance of that work.

Methods of Payment for Change Orders

Either an owner or a contractor may request a change order. Changes or extras may be priced in any of the following ways:
Unit Prices. At the time of either the bid or the signing of the contract, unit prices are listed by the contractor for various classes of work that may be subject to change. Usually, unit prices are easily administered for such trades as excavation, concrete, masonry, and plastering. The task of the purchaser is to obtain unit prices from subcontractors for various classes of work for the same trades that are in the contract. Although usually the same unit price is agreed for both added and deducted work, occasionally the unit prices for deducted work will be agreed to be 10% less than those for added work.
Cost of Labor and Materials, plus Markup. Another method of computing the value of changes or extra work is by use of actual certified costs, as derived from record keeping as the project proceeds. Rates for wages and fringe benefits must be verified, and the amount of percentage markup must be agreed to either in the contract or before the work is started. Usually, the general contractor is allowed a markup over and above subcontractors costs and markup, but the general contractors markup is less than the subcontractors allowance in such cases.

When work is done on a cost-plus-markup basis, the contractor must maintain an accurate daily tabulation of all field costs. This document should be agreed to and signed by all parties responsible for the record keeping for the change. It will form an agreed-on certification that the work has been performed and of the quantities of labor and material used. A daily work-report certification is shown in Fig. 17.17.
Negotiation by Lump Sum. If the owner desires to have changes or extra work performed and does not want it done on a cost-plus or unit-price basis, owner and contractor may negotiate a lump-sum payment. In this situation, a cost estimate is prepared by the contractor or subcontractor involved, and a breakdown of costs is submitted, together with the estimate total. If the owner accepts the lump sum, the owner or the architect writes a change order, and the work is performed. Such a change order is shown in Fig. 17.18 as issued to a subcontractor.

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