Troublesome Contract Clauses: Change in Terms

signatureThe final troublesome contract clause we will look at in this series is the Changes in the Work clause. A contract change occurs when an event or condition modifies the work as defined in the contract documents. Changes may include:

  • Additions to or deletions from the work to be completed
  • Changes in the materials specified
  • Corrections in the specifications or drawings
  • Acts or omissions of other contractors or trades
  • Departures from the contract schedule
  • Changes affecting the sequence in which work will be performed
  • Changes resulting from construction conditions

Changes may result in adjustments to the contract price or schedule, or both.

Craig Martin, Attorney with Lamson, Dugan & Murray notes that the impact of changes on the scope of work – concerning both time and money – is probably the most frequently disputed issue in construction. Thus, to keep the project moving toward completion, the contractual provisions governing changes should be both fair and effective in encouraging prompt resolution of cost and time issues.

Most construction contracts have a clause permitting the project owner to make changes in the scope or character of the work.

An example of a common Change in the Work contract clause is AIA A201 Section 7.3:

7.3.1 A Construction Change Directive is a written order prepared by the Architect, directing a change in the Work prior to agreement on adjustment, if any, in the Contract Sum or Contract Time, or both. The Owner may by Construction Change Directive, without invalidating the Contract, order changes in the Work within the general scope of the Contract consisting of additions, deletions or other revisions, the Contract Sum and Contract Time being adjusted accordingly.

7.3.2 A Construction Change Directive shall be used in the absence of total agreement on the terms of a Change Order.

7.3.3 If the Construction Change Directive provides for an adjustment to the Contract Sum, the adjustment shall be based on one of the following methods:

.1 Mutual acceptance of a lump sum properly itemized and supported by sufficient substantiating data to permit evaluation;

.2 Unit prices stated in the Contract Documents or subsequently agreed upon;

.3 Cost to be determined in a manner agreed upon by the parties and a mutually acceptable fixed or percentage of fee; or

.4 As provided in Section 7.3.7.

AIA A401 provides as follows:

5.1 The Owner may make changes in the Work by issuing Modifications to the Prime Contract. Upon receipt of such a Modification issued subsequent to the execution of the Subcontract Agreement, the Contractor shall promptly notify the Subcontractor of the Modification. Unless otherwise directed by the Contractor, the Subcontractor shall not thereafter order materials or perform Work which would be inconsistent with the changes made by such Modification to the Prime Contract .

5.2 The Subcontractor may be ordered in writing by the Contractor, without invalidating this Subcontract, to make changes in the Work within the general scope of this Subcontract consisting of additions, deletions or other revisions, including those required by Modifications to the Prime Contract issued subsequent to the execution of this Agreement, the Subcontract Sum and the Subcontract Time being adjusted accordingly. The Subcontractor, prior to the commencement of such changed or revised Work, shall submit promptly to the Contractor written copies of a claim for adjustment to the Subcontract Sum and Subcontract Time for such revised Work in a manner consistent with requirements of the Subcontract Documents.

When you see this type of clause in any contract you are considering, you need to negotiate alternative language in the contract. Possible alternative language includes:

  • Modify the Changes clause to allow for an adjustment in the contract sum or contract time where a change occurs but no change order or directive is issued
  • Modify the Changes clause to make the negotiation of change order pricing a Condition Precedent to the obligation to perform the changed work
  • Modify the Changes clause to prevent the use of the Termination for Convenience clause to make deductive changes.

The big issue here says Mr. Maritn is “Do you know how changes can be made to your work?”

Detailed review of any contract you are considering is very important. Knowing what terms and conditions the contract contains and understanding what they mean is key in assessing your risk with any new project contemplated. You can find more information on this and other topics at Craig’s Construction Contractor Advisor blog.

The information contained in this blog post is for educational purposes only as well as to give you general information and a general understanding of the topic, not to provide specific legal advice. For more specific information on this, please contact Craig Martin, Lamson, Dugan & Murray, LLP, (402) 397-7300.