Changes in the scope of work on a major project are a common occurrence in the construction industry. Contractors are accustomed to directed changes, that is, those changes ordered by the Owner or the Owner’s agent under the change order clause of a contract. However, the nature or extent of construction work is often changed without the initiation of a change order. The question of compensation or time extension for this type of change is not as clearly addressed by the contract as are the responsibilities mandated by directed changes. This situation is commonly referred to as constructive change. A constructive change arises when the Owner acts in a manner that has the same effect as if a formal change order were written.
If an unwritten change occurs, which would have been enforceable as a directed change under the contract had it been in writing, then it is a constructive change. Conduct of the Owner’s representative that has the effect of requiring a Contractor to perform work in a manner different from that stipulated under the original contract may also be a constructive change.
If the constructive change is instigated, but is not formalized in writing as a directed change, how then does the change occur? The constructive change need not be a direct order. In fact, constructive change is frequently the indirect result of the conduct or actions of the Owner’s representatives, such as:
- An interpretation of the contract that increases the scope of work
- An interpretation of the specifications that increases the Contractor’s cost
- A threat to penalize the Contractor or to terminate for default for lateness in the face of delays not due to the Contractor
Types of Constructive Change
Constructive change may be difficult to identify and may involve controversy over the interpretation of the Contract documents. We list below several types of constructive changes that have generally been recognized in the industry, with a brief definition of each.
Constructive Acceleration is a constructive change created by the following series of events:
- Delays occur for which the Contractor is entitled to a time extension
- The Contractor requests a time extension due to these delays
- The Owner refuses a time extension or fails to act
- The Owner threatens a penalty or directs the Contractor to finish on time regardless of the delays
- Acceleration measures are undertaken by the Contractor to mitigate the impact of the delay
Deficient and Defective Contract Documents produce a constructive change when errors or omissions in the Plans and Specifications lead to changes in work scope or methods that could not have been anticipated from the contract; or, when the Contractor performs the work in accordance with the Plans and Specifications but cannot produce the desired result, despite his conformance with the Plans and Specifications.
Defective Inspection/Misinterpretation of the Contract leads to a constructive change order when the Owner’s rejection of conforming work, over-inspection, rejection of “or-equal” substitutions or other misinterpretation of the Plans and Specifications leads to work scope or methods that could not have been anticipated by the Contractor.
Interference and Disruption cause a constructive change that arises from acts or omissions of the Owner that interfere with the Contractor’s schedule or methods of work.
Owner-Furnished Items lead to a constructive change when material or equipment that the Owner furnishes to the Contractor is late, defective, or different in nature from that which was anticipated.
Superior Knowledge and Misrepresentation produce a constructive change that occurs when the Owner fails to disclose information to the Contractor that would have influenced the Contractor’s bid price or planned method of operation.
Differing Site Conditions can cause a constructive change that arises from a variation in physical conditions which, had it been known before bid, would have materially affected the Contractor’s bid price or planned method of operation.
Impossibility of Performance can produce a constructive change when the Contractor attempts to perform the work but finds that it is actually, or practically, impossible to do so.
Contractor’s Action When Change Is Encountered
Whenever a change from the Contractor’s original plans occurs and the change is not the clear responsibility of the Contractor, the Contractor should immediately give written notice to the Owner that a change has been made. If any possibility exists that the change will lead to a request for additional compensation from the Owner, the Contractor should state this as the case directly, reserving the rights to make such a claim.
Contractors should not wait for absolute clarity of the situation or for final calculation of cost or delay. Before taking action in a constructive change situation, Contractors should include in the notice to the Owner a description of the change and of its impact upon schedule and cost. If cost and schedule impacts are indeterminate, the Contractor should let the Owner know this, advising that full particulars on these impacts will follow when known.
The Contractor should follow up this notice with a detailed quantified request for change order and time extension as soon as practicable.
Owner’s Action When Change Is Encountered
The Owner or Owner’s representative should respond promptly to any notice of change from the Contractor. In many constructive change situations, prompt action and decisions may be required in order to deal with the situation encountered in a manner that is economical to the Owner. When a change order or time extension is requested, the Owner or Owner’s representative should act within the terms of the contract, enforcing the contract and any notice requirements. If the Contractor’s request appears to be contractually and factually correct, it should be approved. If, as is so often the case, contractual entitlement is ambiguous or exact costs are uncertain, the Owner, as well as the Contractor, is best served by endeavoring to reach a prompt, negotiated solution.
Source: Interface Consulting
Released: July 30th, 2007 11:00 AM
Phone: (713) 626-2525
Category: construction claims analysis
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