CONTRACT DOCUMENTS THAT LEAD TO CHANGES, CHANGE ORDERS, AND DISPUTES (PART 2)

INTRODUCTION

This article is Part 2 of Steve Holloway's series describing recurring issues that tend to create changes and affect construction. These issues frequently cause disputes among the owner, contractor, and designer, harming relations and adversely affecting construction. This material was originally published by Aspen Publishers in Chapter 3 of their 2006 Construction Law Update.

CONTRACT DOCUMENTS THAT CONSISTENTLY PRODUCE CHANGE ORDERS

This article addresses:

1. Illegal Restrictions;
2. Improvements in Time;
3. Incomplete Design;
4. Intention of the Contract Documents;
5. Lack of Design Discipline Coordination;
6. Latent Conditions;
7. Owner Changes; and
8. Updated Information

Subsequent articles will address pre-bid, bid/award and construction phase sources of changes.

Illegal Restrictions

Illegal restrictions arise when the designer either includes requirements or deletes some option contrary to procedure outlined by law. Errors and omissions of this type can force a contractor to complete a portion of the work more expensively than otherwise would be allowed.

A common example of this type of interference is the use of a proprietary specification on a public project to unreasonably restrict the contractor’s sources of supply. In such circumstances, the law may provide that several sources of supply be permitted, and also mandate the flexibility to allow a contractor to propose additional items as equal to those listed. If a single product is listed on a public project, it can be an indication that the specification has been unlawfully restricted.

Improvements in Time

Change orders related to improvements in, or changes to, the time of performance are relatively rare, and are more likely to be initiated by the owner than by the contractor. Such change orders sometimes result from the owner’s need for an earlier certificate of occupancy or product production date, and are sometimes related to the need to accelerate the work to overcome delays. Even where associated with owner-caused delays, if the proposed change order results in additional costs, it may be difficult to get the owner to accept responsibility in the absence of a schedule analysis.

Incomplete Design

Incomplete design occurs when a designer fails to identify the project scope to the level sufficient to allow the contractor to adequately price and execute the work. Deficiencies of this type are very common and can appear anywhere in the contract documents; for example, failing to provide a complete finish schedule or steel connection details, or much more commonly, failing to provide the clear construction or installation details necessary to perform the work.

The architect’s failure to adequately define and represent the scope of work in the contract documents is usually unintentional. However, it can also be intentional, most obviously and commonly when the contract is awarded based on schematic or design development designs. Cost-plus and guaranteed maximum price contracts, rather than fixed price contracts, are often used in these circumstances.

Intention of the Contract Documents

General and supplementary conditions often include provisions that refer to the owner’s intention to have, and/or the contractor’s obligation to provide, a ‘‘complete project.’’ Technical specifications will often include clauses stating a similar objective, such as: ‘‘It is the intent to have a complete and operating system in every respect.’’

Language that can be interpreted to unilaterally place design responsibility on the contractor can cause problems. It may be the owner’s ‘‘intent’’ to have a complete and operating system, but it becomes unreasonable when this kind of wording is intentionally used in an attempt to make up for design flaws or incomplete design.

On the other hand, certain statements regarding the intent of the documents can be legitimate. For example, a notation that the piping and instrumentation diagrams are symbolic and diagrammatic in nature and are only intended to be a general plant schematic, showing equipment, pipe sizes, and flow would be consistent with industry custom and practice.

Owners and architects should clearly define the intention of the contract documents, and contractors should endeavor to understand the documents prior to contract execution.

Lack of Design Discipline Coordination

The architect typically manages and coordinates the individual designs necessary to complete the facility. Problems often arise because separate plans and details are developed independently, by separate and, perhaps, unmanaged consultants. Designs are often completed without full consideration for the other disciplines and with false assumptions. Examples from our firm's cases include:

1. The civil engineer assumed that the architect would provide the finish floor elevations and ADA access grades and routes. The architect assumed the civil engineer would make these same provisions.
2. Even though the sanitary line appeared to conflict with the column, the architect left the drawings unchanged, assuming that it would get resolved in the field or would be caught during shop drawing reviews.
3. The HVAC drawings were issued without adequate regard for structural steel locations.
4. Because the engineer was under contract with the owner, rather than the architect, the structural engineer’s calculations and final roof design did not account for the fact that the air handling units were being relocated to the roof.

Such problems arise when the job of coordinating the respective designs is performed improperly; either complete information is not given to the design consultants or the individual designs were combined as a package, without the benefit of proper design coordination.

Latent Conditions

Latent conditions, or latent defects, are hidden or unknown to the contractor at bid time, such as:

1. Subsurface site conditions that remained undetected due to inadequate soils testing; and
2. Hidden conditions in an existing facility, such as broken in-wall piping in a renovation project.

The contractor should try to determine how contract language deals with latent conditions, because provisions vary from form to form.

Owner Changes

Virtually every construction contract contains language that authorizes the owner to make changes in the work. In many respects, owner-initiated changes are easier to deal with because they are obvious, as compared to hidden design defects. Owner changes may be prompted by the desire for additional space, more luxurious finishes, an upgraded facility, or by negative circumstances, such as project funding limitations or reduced need that requires a reduction in the scope of work.

Updated Information

Changes resulting from new or updated technical information may provide advantages for construction, depending on the timing of updated information in relation to construction and the contractor’s ability to accommodate the changes. Improved information may include new or improved methods to achieve a function. These types of positive information will often result in contract scope changes that are easily approved and processed by the owner.

Closing