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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Washington Trial Court Narrows Definition of First Party Claimant, Clarifies Available Causes of Action in Commercial Property Loss Context
January 04, 2021 —
Kathleen A. Nelson & Jonathan R. Missen - Lewis BrisboisThe law in the State of Washington, albeit clear on issues regarding first party claimants, was recently challenged in the matter of Eye Associates Northwest, P.C. v. Sedgwick et. al. However, despite this challenge of first impression, the court limited the application of the term “first party claimant” (a term of art akin to “insured”) based upon the wording of a loss payee clause, as well as taking into consideration and harmonizing the wording of the leases, other provisions in the policy regarding tenant improvements, and the simple fact that Eye Associates was not named in the policy whatsoever.
In Eye Associates, the plaintiff leased office space in a high-rise medical office building, insured by three separate insurance companies. A water loss caused damage to the plaintiff’s leased space, and the plaintiff brought suit against the owner of the building, its insurers, the property manager, a third-party administrator (TPA), and two individual adjusters assigned to inspect and adjust the water loss claim.
Reprinted courtesy of
Kathleen A. Nelson, Lewis Brisbois and
Jonathan R. Missen, Lewis Brisbois
Ms. Nelson may be contacted at Kathleen.Nelson@lewisbrisbois.com
Mr. Missen may be contacted at Jonathan.Missen@lewisbrisbois.com
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New York’s Comprehensive Insurance Disclosure Act Imposes Increased Disclosure Requirements On Defendants at the Beginning of Lawsuits
February 07, 2022 —
Craig Rokuson & Lisa M. Rolle - Traub Lieberman Insurance Law BlogOn December 31, 2021, New York Governor Kathy Hochul signed into law the Comprehensive Insurance Disclosure Act, which amends Section 3101(f) of the Civil Practice Law & Rules (CPLR) to require the automatic disclosure of insurance-related items within sixty days of the filing of an answer in a civil suit. For lawsuits pending as of the effective date of the Act, the disclosures required by Section 3101(f) must be provided by March 1, 2022.
Pursuant to amended Section 3101(f), defendants (including third-party defendants, cross-claim defendants, and counterclaim defendants) must provide the following information to plaintiffs within sixty days of answering the affirmative pleading, accompanied with a certification from both the defendant and his/her/their/its defense counsel that the disclosures are accurate and complete:
- Copies of all insurance policies that may be liable to satisfy a judgment in the lawsuit, including the insurance application.
- The contact information of any individuals responsible for adjusting the claim on each policy, including his/her/their phone number and email address. If a TPA is involved, his/her/their contact information must also be disclosed.
Reprinted courtesy of
Craig Rokuson, Traub Lieberman and
Lisa M. Rolle, Traub Lieberman
Mr. Rokuson may be contacted at crokuson@tlsslaw.com
Ms. Rolle may be contacted at lrolle@tlsslaw.com
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After Elections, Infrastructure Talk Stirs Again
December 04, 2018 —
Tom Ichniowski - Engineering News-RecordIn the wake of Democrats’ House takeover and Republicans widening their Senate majority in the midterm elections, talk has quickly revived about taking on infrastructure legislation in the new Congress. Construction industry officials welcome the pro-infrastructure rhetoric from congressional leaders and President Trump. But it remains to be seen whether the words will spark a bill that can make it through a divided 116th Congress. Funding the package remains the high hurdle.
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Tom Ichniowski, ENRMr. Ichniowski may be contacted at
ichniowskit@enr.com
Properly Trigger the Performance Bond
January 04, 2018 —
David Adelstein - Florida Construction Legal UpdatesOriginally Published by CDJ on January 5, 2017
A performance bond is a valuable tool designed to guarantee the performance of the principal of the contract made part of the bond. But, it is only a valuable tool if the obligee (entity the bond is designed to benefit) understands that it needs to properly trigger the performance bond if it is looking to the bond (surety) to remedy and pay for a contractual default. If the performance bond is not properly triggered and a suit is brought upon the bond then the obligee could be the one materially breaching the terms of the bond. This means the obligee has no recourse under the performance bond. This is a huge downside when the obligee wanted the security of the performance bond, and reimbursed the bond principal for the premium of the bond, in order to address and remediate a default under the underlying contract.
A recent example of this downside can be found in the Southern District of Florida’s decision in Arch Ins. Co. v. John Moriarty & Associates of Florida, Inc., 2016 WL 7324144 (S.D.Fla. 2016). Here, a general contractor sued a subcontractor’s performance bond surety for an approximate $1M cost overrun associated with the performance of the subcontractor’s subcontract (the contract made part of the subcontractor’s performance bond). The surety moved for summary judgment arguing that the general contractor failed to property trigger the performance bond and, therefore, materially breached the bond. The trial court granted the summary judgment in favor of the performance bond surety. Why?
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David Adelstein, Florida Construction Legal UpdatesMr. Adelstein may be contacted at
dadelstein@gmail.com
U.S. Housing Starts Top Forecast on Single-Family Homes
December 17, 2015 —
Victoria Stilwell – BloombergNew-home construction in the U.S. rebounded in November, led by gains in single-family dwellings that signal the residential real estate industry will continue to support growth in the world’s largest economy.
Housing starts climbed 10.5 percent to a 1.17 million annualized rate from a 1.06 million pace in October, figures from the Commerce Department showed Wednesday in Washington. The median estimate of 81 economists surveyed by Bloomberg was for a 1.13 million rate. Work began on the most stand-alone houses since January 2008, and permits for similar projects reached an eight-year high.
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Victoria Stilwell, Bloomberg
Nancy Conrad Recognized in Lehigh Valley Business 2024 Power in Law List
July 31, 2024 —
White and Williams LLPNancy Conrad, Chair of the Higher Education Group, Managing Partner of the Lehigh Valley Office and the President of the Pennsylvania Bar Association (PBA), has been named to the Lehigh Valley Business 2024 Power in Law List, for her work as a leader in the legal field.
This year’s honorees were asked to relate inspiration that pushed the pursuit of their career. One of her inspirations, as explained by Nancy in the article, was the opportunity to instruct and impact students while teaching during the day and pursuing a legal career in the evening at Temple Law which cemented a “commitment to excellence in the practice of law and service to the community.”
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White and Williams LLP
A Court-Side Seat: Permit Shields, Hurricane Harvey and the Decriminalization of “Incidental Taking”
May 31, 2021 —
Anthony B. Cavender - Gravel2GavelThis is a brief review of some of the significant environmental (and administrative law decisions) released the past few weeks.
THE U.S. SUPREME COURT
On April 22, 2021, the Court decided two important administrative law cases: Carr, et al. v. Saul and AMG Capital Management v. Federal Trade Commission.
Carr, et al. v. Saul
In this case, the constitutionality of Social Security Administrative Law Judges (ALJs) hearing disability claims disputes was at issue. More precisely, were these ALJs selected in conformance with the Appointments Clause of the Constitution? A similar issue was litigated in the case of Lucia v. Securities and Exchange Commission. There, the Court held that many of the agency’s ALJs were not selected in conformance with the Appointment’s Clause. Here, the Court held that this issue could be decided by the courts without compelling the litigants to first exhaust their administrative remedies. Thousands of ALJs are employed by the federal government, and it may take some time to resolve this question for every agency.
AMG Capital Management v. Federal Trade Commission
In this case, the court held, unanimously, that the Commission does not presently have the authority to employ such equitable remedies as restitution or disgorgement.
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Anthony B. Cavender, PillsburyMr. Cavender may be contacted at
anthony.cavender@pillsburylaw.com
