Research Paper - Construction Law

eaenandtrey2020

Ch18.pdf

Home >Law homework help >Research Paper - Construction Law

Construction Law for Design Professionals, Construction Managers, and Contractors Sweet and Schneier

Learning Objectives

 Understanding the underlying risk allocation and rationale for the system of change orders and change claims in construction contracts.

 Highlighting the differences between change orders and modifications.

 Identifying potential theories of recovery for contractors for completed work on changes that are not requested through the change order process.

Construction Law for Design Professionals, Construction Managers, and Contractors Sweet and Schneier

Changes: Differing Perspectives

 Owner’s perspective:

 Designs and methods may become inadequate over time.

 Changes present risks of eventual delays or cost overruns.

 Loose changes clause risks turning a fixed price contract into an open-ended costs contract.

 Owners want some flexibility for changes, but not too much.

Construction Law for Design Professionals, Construction Managers, and Contractors Sweet and Schneier

Changes: Differing Perspectives

 Contractor’s perspective:

 Contractors are concerned about receiving adequate compensation and time allowances for changes that require additional work.

 Changes may force contractors to pull resources from other projects or overhead to complete the change.

 Contractors may feel that a change has occurred even though not formally requested through the changes process, and pursue a changes claim against the owner.

Construction Law for Design Professionals, Construction Managers, and Contractors Sweet and Schneier

Common Law Approach to Changes

 Default rules and contract interpretation in absence of a contract provision on changes.

 Case Study: Chong v. Reebaa Construction Company.

 Inherent difficulties of oral contracts.

 Interpreting uncertainty in the terms of the contract, particularly as changes occur over time.

Construction Law for Design Professionals, Construction Managers, and Contractors Sweet and Schneier

The Changes Clause  Under a contract provision, the owner may

unilaterally direct changes to be made without obtaining the contractor’s consent to perform the work.

 Changes that add work.

 Changes that delete work.

 Changes that substitute one item of work for another item of work.

 Different from a modification, where both parties mutually agree to a change.

 Role of change order formality requirements.

Construction Law for Design Professionals, Construction Managers, and Contractors Sweet and Schneier

Changes under AIA Documents

 AIA documents use different terminology which can be misleading.

 Three primary AIA mechanisms for making changes:

 Change order (CO), similar to a typical contract modification, requiring both parties to agree on change.

 Construction change directive (CCD), similar to a typical change order, unilateral.

 Order for minor change in the work.

Construction Law for Design Professionals, Construction Managers, and Contractors Sweet and Schneier

Changes: Shifts in Bargaining Power

 Initially, owner has superior bargaining power during bidding, allowing it to push for favorable contract terms.

 Contractor then later has superior bargaining power during performance as it could refuse to complete changes unless receiving agreed allowances.

 Changes provisions in the contract favors the owner and rebalances bargaining power by forcing the contractor to make some changes.

Construction Law for Design Professionals, Construction Managers, and Contractors Sweet and Schneier

Changes  Case Study: Watson Lumber Company v.

Guennewig.

 Facts of the case?

 What must the contractor prove in order to recover for “extras”?

 Waiver of formal change requirements.

 Abusing the changes system.

 Administrative costs of managing changes.

Construction Law for Design Professionals, Construction Managers, and Contractors Sweet and Schneier

Components of the Changes Process

 The changes process involves:

 Exercise of a power to order a change or a direction the contractor contends is a change in the work.

 Methods for the contract or the parties to price the change and its effect on time requirements.

 A residuary provision that controls the price in the event the parties do not agree.

 Changes process is necessary for design flexibility and cost control.

Construction Law for Design Professionals, Construction Managers, and Contractors Sweet and Schneier

Limitation on Power to Order Changes

 Changes system has potential for abuses.

 In the absence of an agreed-upon price, whether the contractor must perform depends on the magnitude of the change in comparison to the contract as a whole.

 Minor changes must be performed or risk claims for breach of contract.

 AIA documents limit scope for acceleration changes.

 Special considerations for public contracts.

Construction Law for Design Professionals, Construction Managers, and Contractors Sweet and Schneier

Authority to Order Change

 Absent contract provisions, default rules from agency law apply as to who may order changes (on behalf of owner).

 Express contract authorization needed to create authority for design professional, construction manger or project representative to order changes on behalf of owner.

 Work in emergency situations.

Construction Law for Design Professionals, Construction Managers, and Contractors Sweet and Schneier

Misrepresentation of Authority

 Situation: contractor performs additional work at direction of design professional who lacks actual authority from owner to order changes.

 Unlikely that contractors can reasonably rely on apparent authority of design professional.

 Concept of ratification.

Construction Law for Design Professionals, Construction Managers, and Contractors Sweet and Schneier

Pricing Changed Work

 Preferred to price work by reference to or analogy to unit prices already specified in the contract.

 Cost plus percentage of cost for overhead, etc.

 “Equitable adjustments” and “reasonable expenditures.”

 Administrative burden of overseeing changes costs.

Construction Law for Design Professionals, Construction Managers, and Contractors Sweet and Schneier

Deductive Change (Deletion)

 Special issues:

 Standard of within the scope of the work doesn’t apply for deletions.

 Effects of deduction on contracts with subcontractors.

 Breach of contract if deduct work from one contract to give that work to another contractor.

Construction Law for Design Professionals, Construction Managers, and Contractors Sweet and Schneier

Waiver: Excusing Formal Requirements

 Situation: contractor completes change work according to order that does not meet formal requirements, then owner refuses to pay, asserting no valid change order.

 Contractor claims owner waived formal requirements. Issues:

 Is the requirement waivable?

 Who has the authority to waive the requirement?

 Did the facts claimed to create waiver lead the contractor to reasonably believe that the requirements have been eliminated?

Construction Law for Design Professionals, Construction Managers, and Contractors Sweet and Schneier

Waiver: Excusing Formal Requirements

 Only parties with authority to order changes can waive formal requirements.

 Waiver can be based on conduct, including payment for changed work done while not meeting formality requirements.

 Contractors are well advised to follow formality requirements rather than rely on later court arguments on waiver.

Construction Law for Design Professionals, Construction Managers, and Contractors Sweet and Schneier

Contractor’s Changes Claims  Cardinal changes:

 Cardinal change doctrine provides a theory of recovery for contractors for changes that go beyond the scope of the work.

 One shot scope changes and aggregate scope changes claims.

 Constructive changes:

 Actual change in performance from contract requirements and some order or directive from owner, even if not meeting formality requirements.

 Claim by contractor for equitable adjustment.

Construction Law for Design Professionals, Construction Managers, and Contractors Sweet and Schneier

Summary

 Changes are an important and common part of many projects, to provide design flexibility and control costs.

 However, changes can have significant effects on the risks and obligations of both parties, and in particular the contractor.

 Beyond the change order process, cardinal and constructive change claims help to protect the contractor and provide a theory of recovery for work performed on changes.