Construction Change Order Analysis

Change order-Related cost and impact consultants


 
Through more than four thousand expert designations, the Construction Experts Group at Bert L. Howe & Associates, Inc. have provided construction change order analysis and evaluation in support of legal actions on behalf of builders, risk managers, publicly-traded companies and a variety of public agencies. Our staff has prepared evidence and testified during binding arbitration and at trial. BHA reviews change orders and Requests for Equitable Adjustment for patterns and inconsistencies, participates in settlement negotiations, and provides analysis of prices submitted by contractors to compare them against actual costs.
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Construction Change Order Consultants

Construction Change Order Analysis, Investigation, Expert Testimony


Introduction To Construction CHANGE ORDER ANALYSIS AND EVALUATION

Change orders are a fact of the construction and development process. The Construction Expert’s Group at BHA comprises credentialed construction and design professionals that are familiar with all aspects construction contracts, standards of care, and the change order procedure. From the commencement of the change – many times through a Request for Information (RFI), to preparation, review, and assessment to clarify and quantify changes with respect to scope, price and time. Bert L. Howe & Associates, Inc. can improve the process of reviewing and analyzing project documentation to evaluate and determine the primary cause of the change, as well as ascertain the appropriate direct and indirect cost associated with the change. BHA has provided change order consultation and review services to general contractors, subcontractors, owners, Fortune 500 builders and the nations leading construction litigation practitioners.

Many change orders and contract changes necessitate changes to the construction schedule, BHA provides support to municipalities and legal professionals in evaluating the changes impact to the project schedule and calculating the direct and indirect costs associated with construction delays.

SCHEDULE DELAY ARISING FROM CHANGE ORDERS

Understanding the financial impact of a change order to the project’s completion date requires construction change order analysis to determine whether a specific change order has introduced a delaying event into the schedule. This analysis is often called a contemporaneous Time Impact Analysis (TIA). The TIA can show how much delay the change will cause or has caused to the project’s critical path, if any, and show exactly how the change impacts project completion. The outcome of this analysis is used to calculate the appropriate time extension associated with the change (if any). At this juncture, project principals and consultants can assess whether a time extension should be approved, or mitigation efforts undertaken in order to prevent or make up possible project delay.

Issues that may necessitate schedule delay analysis consist of but are certainly not limited to:

Change Order Impacts

If re-sequencing the schedule subsequent to the TIA mitigates project delay; there may still be further impacts. Compression of the project schedule may add to higher peak quantities of equipment or labor necessary for simultaneous use. Higher peak labor or equipment quantities may be larger than those originally expected by the contractor in its initial baseline schedule, and subsequently require added resources as a result of the change.

One potential consequence from a change order is the related loss of efficiency as well as loss of productivity. These types of inefficiencies are to be expected to occur on changes with large quantity increases, or excessive changes. In certain circumstances, the large scope of changes, or the cumulative effect of many changes, may require the work force to work on an overtime clock, work a longer work-week or in congested site conditions. Individually and together, these types of impact scenarios may cause workers to work slower or less efficiently.

Change Order Related Dispute Resolution

Successful resolution of change order related claims and contract disputes requires credible and experienced construction consultants. The consulting Architects, Engineers, General and Specialty Contractors at Bert L. Howe & Associates, Inc. investigate, analyze, support, prepare, and review all aspects of the change order.

During the construction process or subsequent to project completion The Construction Expert’s Group at BHA provides a single point of reference to builders, owners, municipalities, and legal professionals seeking effective resolution to construction related claims.  Contact us today to arrange an initial consultation concerning your specific claim.

General Information Concerning Construction Change Orders

How Construction Change Orders Differ From Ordinary Contract Principles

Construction contracts define the scope of a contractor’s work and how the contractor will receive compensation.  Unlike other types of contracts, construction contracts are almost never complete when they are signed.  Most construction projects require changes to the original scope of work contemplated at the outset of the contract. Accordingly, construction contracts normally permit the owner to make unilateral changes to the project during the construction process. 

Most construction contracts contain change order clauses.  This type of contract is antithetical to the typical business contract for services.  The change orders attendant to a construction project can significantly alter the profitability of a project to the owner or the contractor.  Many construction disputes arise from change orders. 

The construction experts group at Bert L. Howe & Associates, Inc. provide expert witness testimony and consultation to owners and builders involved in change order related construction disputes.  The Architects, Engineers, General and Specialty Contractors at BHA are adept at guiding clients through the myriad issues arising from change order related claims and have set forth the following information to benefit owners, contractors, risk managers, and public entities in making informed decisions with regard to the construction change order process.

Scope of Typical Change Orders Clause

Changing circumstances, unknown site conditions and shifting priorities require that change order clauses be included in contemporary construction contracts.  Even well planned projects may require change orders. 

Common reasons for change orders include differing site conditions, incomplete plans, changing priorities relevant to the entitlements process, and new construction technologies. These are but a few of the reasons that change orders are so common in the building industry.  A well written construction contract will set forth a detailed process by which the owner can initiate desired or needed changes without voiding the original contract.  Building Contractors, as well, benefit from a well written change order clause, enabling needed changes to the scope of work without renegotiating the entire contract whenever a change is required. 

Disputes between the owner and the contractor can arise from discrepancies that focus on whether the substance of a change order is actually new work or whether it was included in the original scope of work.  The contractor is usually entitled to compensation from owner initiated change orders that are not part of the original scope of work, but much argument can occur before settling on whether the work is (or should have been) part of the original scope. 

The Construction Experts Group at BHA has extensive experience in providing change order related construction document analysis in support of change order related litigations. The Experts Group provides pre and post construction document review and site inspections to determine the legitimacy of change orders, and to determine whether a change order or group of change orders was improperly characterized as a change order when in fact it should have been considered as part of the original scope.  Once determined, BHA can provide precise valuation of change order items, determine scheduling impact, and assist legal professionals during settlement negotiations, mediation, arbitration or trial.

Authority to Order Changes

As set forth in the above text, the construction process requires that the flexibility of a change order clause be included to virtually any construction contract. Some of the reasons for this utility are set forth above, but suffice it to say that each construction project is different. Accordingly the number of reasons why a change order clause is needed is almost incalculable.  But who has the authority to issue a change order? 

In modern construction contracts this authority is granted solely to the owner.  The contractor is powerless to initiate change orders, though as set forth above, the contractor can be compensated (or make requests for compensation) for additional costs and profits arising from owner initiated change orders.  

Many complexities come to bear for a contractor when an owner initiated change order is given.  Change to scope, job completion date,  opportunity costs lost from pre scheduled jobs which have to be considered, changes in material costs or the availability of supplies, changes to overhead, etc…  The contractor is under no obligation to accept a change order given from a person who does not have the proper authorization to initiate change orders.

Contractors should have a well defined procedure to document all events relevant to change orders, but should also have a policy to that assures that the person or entity initiating the change order has the appropriate authority to initiate the order.  Contractors should be both cautious and meticulous in this regard as owners have little reason to pay for change order items that are not part of the original construction drawings and specifications, unless those items are well documented and handled within the context of the change orders clause in the original contract.

Most change order clauses will call for written authorization prior to performance of the work; this is generally considered to be good practice as it protects both the owner and the contractor.

Formal Change Orders vs. Constructive Changes

Though the right to initiate a unilateral change in scope is given to the owner in the context of most change order clauses, certain limitations apply to the nature and type of changes that are covered in the change order clause language.  For example Cardinal Changes or change orders that seek to change the purpose of the contract are not covered in most change order clauses. 

Cardinal Changes or Constructive Changes may be considered a breach by the owner, and accordingly do not fall within the intent of the change order clause.  Though the owner and the contractor may agree on an altered contract, proper consideration is required as the altered part of the contract is considered to be an addendum or new contract.

Challenging the Finality of an Executed Change Order

Most construction contracts have a change orders clause. This clause confers the contractual right to unilaterally change, add or decrease the scope of work on a given project (within certain parameters). At the same time this clause sets forth the method in which the contractor is to be paid for this additional work, or conversely the method by which the owner will receive credit for decreases to the scope of work. 

Many contractors see change orders as a means to expand the scope of work, and widen their profit margins. Though owner initiated changes or additions can make a job more profitable, there are risks for both parties to consider. For instance, a contractor’s initial estimate for the cost of changes may be undertaken without the level of contemplation that accompanied the original estimate of the job. 

The scheduling and financial ramifications surrounding an ongoing construction project are many. Accordingly, many change orders can be issued in a short time frame or in a hurried fashion. Given the complexities of an ongoing construction project it is not uncommon that the contractor neglects to fully consider the ramifications of the change order and accordingly fails to correctly estimate the monetary impact of the changes.

Common scenarios include failure to account for scheduling impact, subcontractor sequencing, delays due to the changed work, and resulting difficulties which complicate the fulfillment of the original contract.  Most change order clauses specify methods of documenting authorizations to change orders.

Typical change orders include release language to the effect that "in consideration of $[value of change order] and other valuable consideration, the receipt of which is hereby acknowledged, [contractor] hereby waives, releases any and all claims, and right of lien for work, labor costs and materials furnished on the above described project." 

Once this type of change order release is endorsed by the contractor then the contractor assumes the risk of any conditions that he/she may not have anticipated, that may significantly impact the project. Once this release is given by the contractors, owners are hesitant to entertain requests for additional performance related compensation, relying instead on the release language in the change order.

Challenging or supporting the finality of an executed change order requires the support of a competent legal professional and consultants and experts that have the credentials to qualify as experts.  The Construction Experts Group at Bert L. Howe & Associates, Inc. provide construction claims related litigation support to the nations most recognized construction litigation practitioners, Fortune 500 builders, general liability carriers, and municipal government agencies.

Issues and Potential Controversies Arising As A Consequence Of Delays Relevant To Construction Change Orders

The impacts of delay on a construction project are important considerations for owners and builders. Owners confronted with significant construction delays are subject to a negative fiscal impact from the inability to use the facility, which may include lost rent, or diminished income streams. In addition, owners impacted with delays can face the burdens associated with additional cost of capital (resulting from additional construction loan interest), and prolonged project related administrative fees. 

For builders, acceleration and lost productivity or inefficiency costs are the most common primary considerations. Other considerations for builders can include the opportunity costs associated with the inability to utilize his/her supervisors and crew on other projects, increases in equipment costs, escalation of labor costs, overtime compensation, difficulties in scheduling subcontractors, enhanced costs arising from general conditions, idle equipment costs, and other intangible costs to reputation within the subcontractor pool available to the builder.

Changes Resulting From Rescission Termination

Termination is one type of contract rescission; its use is somewhat common in construction contracts where one party has partially performed duties under the contract.

Typically either party can terminate the contract if the other party fails to fully or completely comply with certain contract provisions.  Common conditions which permit termination or rescission in a construction contract are acts which articulate certain circumstances which can justify rescission under the contract language.  This contrivance when used is often referred to as a default termination as opposed to termination for convenience wherein the termination-for-convenience clause permits contracts to be modified by either partial or complete termination for convenience without any breach or default.

Termination for convenience is available only when permitted by the contract. Although originally found only in federal government contracts, the right to terminate a contract for convenience is increasingly found in private construction contracts. The Associated General Contractors of America Document No. 200, Standard Form of Agreement and General Conditions between Owner and Contractor, provides that the owner may terminate for its convenience at Paragraph 11.4.

The 1997 revisions to the American Institute of Architects (AlA) Document A20 I, General Conditions of the Contract for Construction, added a termination for Convenience clause for the first time to AlA documents. Article 14.4.1 states that "The Owner may, at any time, terminate the Contract for the Owner's convenience and without cause." Article 14.4.3 permits the contractor to recover payment for completed work and other costs incurred because of the termination, along with reasonable overhead and profit for the work that was terminated.

Notice Requirements for Change Orders And Related Claims

One frequent set of circumstances that usually occurs towards the end of a construction project, is one in which the contractor, in an attempt to decrease losses or increase profit, analyzes the project to see areas of cost overruns, and isolates areas where the owner (or perhaps a sub) might have been the source of inflated costs. He then formulates a demand for supplementary payment, and forwards it to the applicable party where the blame is being asserted.

The understandable response from the owner is one of surprise. The owner will then point out the contract provision that requires the contractor to give appropriate written notification of the basis for a demand for additional compensation, and then formally deny the request. Many times when the contractor fails to perform in strict compliance with the contract notice requirements and provisions relating to changes in the scope, owner objections can be overcome. The reasons for the notice provision are clear: to allow the other contracting parties against whom a claim may be made a chance to investigate the circumstances supporting the claim during the course of the project.

Notice provisions are vital to construction contracts insofar as they serve to protect owners and builders and assist in disentangling complex construction disputes which remain a fertile area of construction related litigations. As each construction project is unique, a project specific approach to contract administration should be developed and implemented in concert with standardization and storage and retrieval systems for construction and contract documents.  In the event of a dispute, the entity with the most effective contract administration and document retention policies will many times gain advantage in the presentation and refutation of claims and other technical information. 

The Construction Experts Group at Bert L. Howe & Associates, Inc. is experienced in providing Project Management and Monitoring Solutions to owners, builders, risk managers, and public entities.  To discuss a claim or contract administration solutions for your organization please contact us today.

Early Recognition and Evaluation Of Change Order Issues

Initial steps in evaluating change order issues and related claims concerns evaluation of the contract and construction documents to determine whether a reasonable basis for time or price adjustments exists. 

Maintenance of project documentation and expedited analysis of notice requirements are fundamental to initial change order claims evaluation. Knowledge of change order clauses and general construction law are helpful in avoiding or unknowingly accepting a nonconforming quantity or price or method of performance.

Senior PM/CM staff should be familiar with construction documents, plans and specifications.  Superintendents, foremen and consultants should be able to understand and identify situations that might give rise to a change order. In addition they should be able to distinguish between differing site conditions that would require an owner initiated change order and other conditions that should be construed as part of the original contract.

Scheduling regular job meetings and setting expectations at the outset of a project will enable field personnel to quickly document and address potential change order issues and report to management in a timely manner so as to mitigate the impact of the condition.

The early identification of potential change order conditions require that management and subordinate field personnel develop a policy of documentation and evaluation which will enable the authorized agent to make an informed decision on whether a change order should be issued or not.

Each change order, job walk, modified drawing, or RFI should be archived in a manner that facilitates rapid contextual access to that documentation should a dispute arise. Minor changes may not have a significant fiscal impact on a project, but a succession of changes at inopportune moments in the schedule can lead to site crowding wherein subcontractors' work progress is slowed due to congestion at the jobsite, or increased labor and overhead charges relevant to an expanded construction schedule are necessitated by the successive change orders.

Ideally, a sort of internal cost benefits analysis should be developed in order to determine whether the alterations or modifications justify the exercise of generating a change order. The total impact to design professionals and contractors should also be evaluated when making the decision to initiate a change order. Some change order related claims seem unavoidable, once it is determined that an issue warrants a change order claim, thorough documentation and supporting information should be promptly assembled.

The monetary value associated with the changed work or associated time impact will usually determine the amount of effort and cost associated with this step. Relevant documentation pertaining to the change order(s) should be assembled, archived and reviewed prior to additional efforts being undertaken. The effects of the change order(s) are often in a state of flux, so additional efforts should be given to the documentation and assembly of information as this may form the basis for the change order or its monetary value.

This sequence of tasks should be approached with the goal of successfully resolving the change order in the official setting of an arbitration or litigation, while still seeking early resolution through arms length negotiations. If resolution is not accomplished, complete preparedness at an early stage forms a useful platform for developing a plan and an accurate body of documentation to be relied upon as a resolution of the change order status is ongoing.

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John Tolman JOHN D. TOLMAN
Licensed General Building Contractor, B-410125, State of California
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Doctorate of Law — Western State University
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Experienced in residential, commercial and catastrophic property claims with certifications from National Flood Insurance Program (NFIP), California Earthquake Authority (CEA), State Farm, Allstate, Tower Hill, Liberty Mutual, St. Paul/Travelers and Licensed Insurance Adjuster in Five States
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Licensed General Building Contractor, B-900929, State of California
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Member, International Conference of Building Officials
ICC Certified Building Inspector (IBC), #5028454-B5
ICC Certified Building Inspector (UBC), #5028454-10
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Licensed General Building Contractor — B, State of California
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ICC Certified Building Inspector
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Bachelor of Science in Business Administration, California Polytechnic State University, San Luis Obispo
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Master of Business Administration, Major: Construction Management, Alameda University
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Licensed Contractor, New Mexico
Bachelor of Arts Degree, Architecture, University of California, Berkeley
IICRC-Certified Water Restoration Technician, Applied Microbial Remediation Technician
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Licensed General Building Contractor, B-778968, State of California
Certified Waterproofing Applicator
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ASPE-Certified Professional Estimator

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Licensed General Contractor, State of California
Licensed Concrete Contractor, State of California
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Carpenter’s Apprenticeship Program - San Bernardino Valley College
Member American Society of Professional Estimators
Certified Waterproofing Applicator
Certificate-IICRC & AGGIH Mold Remediation in Buildings

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Licensed General Contractor, California
ICBO Residential Building Inspector
Certified Mold Remediation Contractor

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Southeastern Community College, West Burlington, Iowa
University of Iowa, Iowa City, Iowa
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Certified Project Manager, Department of Energy
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International Code Council
Society of Manufacturing Engineers
American Society of Mechanical Engineers
Project Management Institute
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Home Builders Association of Metro Denver

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M.B.A, Business Administration, State University of New York at Buffalo
B.A. Biology, State University of New York at Buffalo
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American Society of Safety Engineers
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Air and Waste Management Association

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Member, American Institute of Architects

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Licensed Architect, State of California
Registered Residential Designer, State of Nevada
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California Supplemental Oral Examination Commissioner, California State Board of Architectural Examiners
Organizational Member, American Concrete Institute

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Licensed Architect, California
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University of Arizona, Bachelor of Architecture
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Mark Chapman Mark Chapman
Bachelor of Science, Civil Engineering, 1991, California State University, Long Beach
Registered Civil Engineer for California, 52142, 1994
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Licensed General Building Contractor, B-632445, State of California

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Michael Hughes MICHAEL HUGHES
Stanford University, MBA
University of California at Berkeley, MS Civil Engineering
Rutgers University, BS Civil Engineering
General Contractor’s License (Class B #868620) in California
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B.S., Mechanical Engineering, University of Utah
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Vitaly Feygin VITALY FEYGIN
M.S. Structural Engineering, Kharkow Academy of Transportation
Licensed Professional Engineer, Maryland
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Licensed Professional Engineer, Pennsylvania
Publications: Sea Wall Systems (STRUCTURE Magazine, December 2009)
Rational Approach to Design and Analysis of Piers and Marginal Wharves (STRUCTURE Magazine, slated for July 2010)
US and International Patents: Diaphragm Sea/Retaining Wall (Patent Pending)
Universal Feygin’s Cofferdam System (Patent Pending)
Awards: 2008 ACI Grand Prize for Excellence in Concrete Design and Construction for Harrah’s Chester Casino and Racetrack Bridge
2008 ACI Grand Prize Award for Excellence in Concrete Design and Construction for Ritz Carlton Water Front Development, Baltimore, Inner Harbor
2008 Facilities Engineering Award Winner-American Association of Port Authorities

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