Because change orders are ubiquitous in the construction industry, they are often prepared with less scrutiny and attention to detail than is needed. Each change order is intended to be a modification to the original (prime or sub) contract. Because they have such significant implications, parties should treat each change order with care. In the heat of a busy job, brevity is tempting, but this can lead to confusion and disagreement later on. Contractors may want to consider the following issues:
- Scope: Think of all the aspects and impacts of the changed condition when preparing a detailed scope description (e.g., the type of work to be performed; the quantity of materials and labor; overtime labor; expedited material delivery; areas of the job where each aspect of the changed work will occur; how additional work may impact other trades). A generic work description without a location (e.g., additional fireproofing) and reference to specific drawing details could invite an argument that a prior change order precludes a future one on the same or a similar topic.
- Time: For change orders that do not involve a time extension, a specific statement to that effect may help prevent an argument that a change order for additional scope implied a reasonable time extension. For change orders involving additional time, consider whether all deadlines are extended or only certain ones. Consider the likelihood of cumulative and incidental impacts. If the project involves liquidated damages, consider whether all or only part of the liquidated damages is impacted by the schedule adjustment.
- Writing/Signature: A pressing schedule often leads to on-the-spot verbal agreements for additional time and/or cost. To avoid a future dispute regarding the validity of an unsigned or oral change order, consider identifying the date on which the agreement was reached in a confirming letter or e-mail and having a representative of the upstream party sign daily tickets and work descriptions to eliminate as many disputed issues as possible. Best practice is to send an e-mail or other writing confirming direction to perform the extra work, the changed condition, and your reliance on that direction or agreement in performing the work.
- Accord and Satisfaction: From an upstream perspective, consider whether the details of a change order preclude the possibility of a second bite at the apple—a later attempt to obtain a change order for work (time and/or cost) covered by an earlier one. Also, consider including release language in your change order templates. From a downstream perspective, best practice is to include all probable costs and time impacts resulting from the changed condition or event. If anticipated costs are presently unknown, it may be prudent to reserve in the change order submission the right to seek those probable costs.
- Entire Agreement: Courts will interpret change orders like any other written contract, first looking to the four corners of the written document to determine if the intentions of the parties are clear from the document alone. If a court finds a change order to be legally ambiguous, it may entertain testimony from witnesses who may offer discussions and details one party did not intend to be part of the deal. Language confining the agreement to the change order document may help prevent protracted disputes of this nature.
The attorneys in Ogletree Deakins’ Construction Law Industry Group will continue to cover developments, news, and legislation pertinent to the construction industry on our Construction blog.