Practical Pointers for Change Orders on Commercial Construction Contracts
December 31, 2014 —
John E. Bowerbank - Newmeyer & DillionConstruction projects pose unique challenges, including keeping costs within budget, meeting project deadlines, and coordinating the work of numerous contractors and subcontractors in the wake of inevitable design revisions and changes to the plans. Anticipating potential project challenges and negotiating contract provisions before commencing work on a project is critical for all parties. Careful planning should reduce the number of contract disputes. This, in turn, can facilitate the completion of a project within budget and on schedule.
“Changes” Clauses in Construction Contracts
Most commercial construction contracts have a clause addressing changes to the contract. A “changes” clause typically requires the mutual agreement of the parties on the scope of any modifications to the contract, as well as the effect on the contract price and timeframe for the work to be performed. This results in what is generally referred to as a “change order.” Many projects have a large number of change orders, which can result in significant cost overruns and delays to the project if the contract contains a complicated change order process. Therefore, in order to minimize cost overruns and project delays, it is crucial to keep the change order process as simplified and streamlined as possible.
In the most basic terms, change orders memorialize modifications to the original contract, and typically alter the contract's price, scope of work, and/or completion dates. A typical change order is a written document prepared by the owner or its design professional, and signed by the owner, design professional, and affected contractors and subcontractors. An executed change order indicates the parties’ agreement as to what changes are taking place, including approval for additional costs and schedule impacts.
While the reasons for change orders and the parties initiating them may vary, all change orders have one feature in common. Effective change orders alter the original contract and become part of the contract. Therefore, from a legal standpoint, change orders must be approached with the same caution and forethought as the original contract.
Practice Pointers for Change Orders
In light of the foregoing, some practice pointers for change orders in commercial construction contracts are as follows:
- Carefully Negotiate and Draft Change Order Provisions in the Original Contract.
A carefully negotiated and drafted “changes” clause that accounts for “unexpected circumstances” or “hidden conditions” can protect the parties from downstream costly disputes.
- Immediately Address Changes by Following the Change Order Process, Including Obtaining Necessary Signatures.
Regardless if you are an owner, general contractor or subcontractor, you should address any proposed change order immediately. Even if a decision maker gives “verbal” approval to go ahead with changed work, the work should not proceed without following the change order process in the original contract. This includes making sure to obtain any necessary signatures for the change order, if at all possible.
- Analyze the Plans and Specifications to Determine Whether “Changes” are Within the Scope of the Original Contract, or Whether They are Extra Work.
Prior to entering an original contract, it is imperative that the parties review the plans and specifications for ambiguities regarding work included in the original contract, versus potential extra work that would require a change order. This is important because a careful review of the plans and specifications sometimes reveals that work believed to be a change order is, in fact, original work, or vice versa.
- Make Sure Requests and Approvals for Change Orders are Done by an Authorized Representative.
When a party requests or gives its approval to a change order, it is important to confirm the request or approval came from an authorized representative.
- Avoid Vague and Open-Ended Change Orders.
Indeed, the vaguer a change order, the more likely it can lead to a dispute. Vague and open-ended change orders, including change orders that provide for payment on a time and materials basis, can be difficult for an owner to budget and schedule. This can lead to disputes as to cost and/or time extensions.
- Oral Assurances for Payment Without a Signed Change Order May Not Be Recoverable.
When a party provides verbal assurances to another party for extra work without following the change order process, there is a much higher likelihood that disputes will occur. Although there is case law that may allow a contractor to recover for extra work in private contracts based on oral promises, the parties should avoid placing themselves in such a legal position. Notably, in public contracts, a contractor may not be able to recover for any extra work without a signed changed order, even with verbal assurances of payment from the owner.
About the Author:
John E. Bowerbank, Newmeyer & Dillion
Mr. Bowerbank is a partner in the Newport Beach office and practices in the areas of business, insurance, real estate, and construction litigation. You can reach John at john.bowerbank@ndlf.com
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Remodels Replace Construction in Redding
September 09, 2011 —
CDJ STAFFThe Record Searchlight reports that while new construction is down in Redding, California, residential and commercial remodel permits are up 17 percent. By August 2010, there had been 63 housing and commercial business starts in Redding, while this year has seen only 15.
One such remodel, that of Parkview Market, will cost about $201,000. Safeway is planning on two $80,000 remodels of its grocery stores in Redding. In all, the 150 building permits for remodels are worth a total of $2.8 million.
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From the Ground Up
March 06, 2022 —
Maggie Murphy - Construction ExecutiveAs a veteran of the U.S. Marine Corps, Mari Borrero knows a thing or two about stepping up to a challenge. She describes her time in the military as “one of those milestones that changes your life,” and credits the experience with turning her from a self-described “entitled teenager” into the woman she is today: fearless, bold and relentless in pursuit of her dreams.
A career in the construction industry was never on the table for Borrero, who, after being honorably discharged from the Marine Corps, worked as a hospice-care coordinator and then a teacher in support of her then-third-grade son. The common thread in all these occupations? A genuine desire to put the needs of others before her own. Today, Borrero says she can’t imagine doing anything other than what she now calls work—owning and operating a construction business, Auburn, Washington–based American Abatement & Demo.
Easing Transitions
Born in Bayamón, Puerto Rico, Borrero was five when her mother moved the family to Dallas to seek life-saving treatment at Children’s Medical Center Dallas for her brother, who had a rare kidney disease. A local church supported the family, providing housing, food and clothing until they were able to transition into their own space.
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Maggie Murphy, Construction Executive, a publication of Associated Builders and Contractors. All rights reserved.
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No Coverage for Sink Hole Loss
June 18, 2019 —
Tred R. Eyerly - Insurance Law HawaiiThe federal district court found there was no coverage under the commercial property policy for loss suffered by the insured condominium association due to a sink hole. Bahama Bay II Condo. Ass'n. v. Untied Nat'l Ins. Co., 2019 U.S. Dist. LEXIS 67487 (M.D. Fla. April 11, 2019).
The plaintiff condominium association had thirteen buildings inside their complex. On December 9, 2016, a sinkhole appeared near Building 43. The building was vacated and declared unsafe. Plaintiff's board excused Building 43 owners from paying association dues.
Plaintiff submitted a claim to the insurer for benefits under the policy. The insurer inspected and accepted coverage for Building 43 under the policy's Catastrophic Ground Cover Collapse (CGCC) provision and issued a check for $290,000 for immediate repairs. The insurer denied coverage for Buildings 42, 44, and 45; repairs to the foundation of all buildings, the retaining wall and outdoor fences; land, landscaping, and patios, uncollected association dues, and condominium unit owner property.
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Tred R. Eyerly, Damon Key Leong Kupchak HastertMr. Eyerly may be contacted at
te@hawaiilawyer.com
Power to the Office Worker
September 03, 2019 —
Aarni Heiskanen - AEC BusinessModern offices consist of variable spaces that cater to personal preferences and functional needs. The indoor air quality is typically not as adaptive to various tasks, which can lead to suboptimal worker performance and dissatisfaction. A pilot project led by Senate Properties used BIM and building data to develop an operational model that helps workers get a better grip on indoor conditions.
Around 55,000 government employees work in the 9,000 premises managed by Senate Properties, a Finnish, state-owned enterprise. For decades, Senate has been at the forefront of digitalizing construction and property management. They routinely use BIM both in new building projects and in retrofitting. Over the last few years, Senate Properties has developed and piloted the use of BIM for the purpose of maintenance and operations.
Testing BIM as a Property Management Platform
“We want to improve the work conditions of office users, and consequently employee satisfaction and work productivity,” says Esa Halmetoja, Senior Expert at Senate Properties. “In this pilot project, we wanted to demonstrate how to use a building information model as a platform for locating service requests and performance monitoring in a three-dimensional environment.”
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Aarni Heiskanen, AEC BusinessMr. Heiskanen may be contacted at
aec-business@aepartners.fi
Wilke Fleury Attorneys Featured in 2021 Best Lawyers in America and Best Lawyers: Ones To Watch!
August 16, 2021 —
Wilke Fleury LLPWilke Fleury congratulates attorneys David Frenznick, Adriana Cervantes and Dan Egan on their inclusion in the 2021 Edition of Best Lawyers in America!
Since it was first published in 1983, Best Lawyers® has become universally regarded as the definitive guide to legal excellence. Best Lawyers lists are compiled based on an exhaustive peer-review evaluation. Almost 108,000 industry leading lawyers are eligible to vote (from around the world), and they have received over 13 million evaluations on the legal abilities of other lawyers based on their specific practice areas around the world. For the 2021 Edition of The Best Lawyers in America©, 9.4 million votes were analyzed.
Daniel L. Egan – Recognized in Best Lawyers since 2021
- First year recognized in Bankruptcy and Creditor Debtor Rights / Insolvency and Reorganization Law: 2021
David A. Frenznick – Recognized in Best Lawyers since 2016
- First year recognized in Litigation – Real Estate: 2016
Adriana C. Cervantes – Recognized in Best Lawyers: Ones to Watch*
- First year recognized in Medical Malpractice Law – Defendants: 2021
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Wilke Fleury LLP
Real Estate & Construction News Round-Up (11/02/22) – Flexible Workspaces, Sustainable Infrastructure, & Construction Tech
November 15, 2022 —
Pillsbury's Construction & Real Estate Law Team - Gravel2Gavel Construction & Real Estate Law BlogThis week’s round-up dives into digital transformation in the construction industry, renewed interest in flexible workspaces, and how the infrastructure sector can become more resilient and sustainable, both economically and environmentally.
- Digital transformation in the construction industry is top of mind for many firms, but most are still in the beginning and intermediate phases of implementing new digital capabilities. (Ursula Cullen, PBC Today)
- Companies could mitigate climate hazards and build resilience into the life cycle of their infrastructure and capital projects by facilitating a comprehensive approach to understanding risk. (Brodie Boland and Daphne Luchtenberg, McKinsey & Company)
- The use of drones in project planning, as well as the incorporation of other technology, is proposed as an alternative solution to addressing the construction industry’s labor shortage. (Shaun Passley, For Construction Pros)
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Pillsbury's Construction & Real Estate Law Team
With No Evidence of COVID-19 Being Present, DC Trial Court Finds No Claim for Business Interruption
September 28, 2020 —
Tred R. Eyerly - Insurance Law HawaiiA D.C. Superior Court rejected a business interruption claim due to closures related to the COVID-19 pandemic. Rose's 1, LLC v. Erie Ins. Exchange, Civil Case No 2020 CA 002424 B (Order dated Aug. 8, 2020). The decision is here.
Plaintiffs owned a number of restaurants in the District of Coiumbia. Plaintiffs had commercial property coverage in a policy issued by Erie. The policy provided coverage for loss of income sustained due to interruption of business resulting directly from "loss or damage" to the insured property.
DC Mayor Bowser issued a series of orders in March 2020 which closed all non-essential businesses, including plaintiffs' restaurants. Plaintiffs filed claims with Erie. When coverage was denied, plaintiffs filed suit. Both sides moved for summary judgment.
The dispute centered on whether the closure of the restaurants due to the mayor's orders constituted a "direct physical loss" under the policy. Plaintiffs argued that the loss of use of the restaurants was "direct" because the closures were the direct result of the mayor's orders without intervening action. The court reasoned, however, that the orders were governmental edicts that commanded individuals and businesses to take certain actions. Standing alone and absent intervening actions by individuals and businesses, the orders did not effect any direct changes to the properties.
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Tred R. Eyerly, Damon Key Leong Kupchak HastertMr. Eyerly may be contacted at
te@hawaiilawyer.com
