Project teams need to use effective strategies to minimize changes to the project scope of work; however, change is inevitable and it arises due to a variety of reasons. Examples include the change in an owner’s needs or expectations, design errors and/or omission, differing site conditions not envisioned in the original contract price, changes to the project scope of work due to constructability issues or conflicts between systems, and modifications due to actions or inactions of third-parties. From a contractor’s perspective, the change may arise due to reasons outside the contractor’s control; therefore, it is important for contractors to know what actions they need to take if a change in the project scope of work arises.
In case of a change to the project scope of work, one of the first actions that a contractor needs to take is to provide a proper change notice to the project owner. It is important to note, however, that owners may not be the contracting party or the only contracting party that needs to be notified in case of a scope change. For example, if a scope change modifies a subcontractor’s scope of work, the subcontractor may need to notify the prime contractor first. Typically, contracts contain provisions that define the requirements for timely issuance of change notices.
Most contracts require contractors to issue proper change notices prior to proceeding with the work. They also require contractors to submit proper supporting documentation in a timely manner for reimbursement. Most contracts require that contractors provide a descriptive narrative, an adequately-detailed supplemental information to specify the changed work, and reasons for the change to ensure the changed scope of work is defined with adequate specificity and it is justified and properly documented. They also require that contractors specify the potential impacts of the change on cost, time, and productivity.
The changes to the project scope of work are categorized into the two main classes of directed and constructive changes. The differences between these two types of change are described in Table 1. The need for proper documentation of the change is more evident when a constructive change arises because, in the case of a constructive change, the owner does not specifically direct the contractor to make a change. Instead, the change arises as a result of non-owner-directed events that implicitly necessitate modifying the scope.
Table 1. The differences between directed and constructive changes
Attribute Directed Change Constructive Change The role of owners It is issued when the owner specifically directs the contractor to make a change. This change is not a result of owner-directed changes. Reason for change The change occurs because the owner’s needs or expectations have changed. The change occurs as a result of non-owner-directed events that implicitly necessitate modifying the scope. Owners’ awareness towards the change The owner is fully aware of the change because the owner specifically directs the contractor to make a change. The owner does not typically have explicit acknowledgment of the change and/or need for change. The role of contractors Contracts typically require contractors to make changes as the owner wishes. The contractor is forced to make the change and/or accept its implications. Ease of recognizing the change It is easier to recognize. It is not easy to recognize. Degree of complexity It is typically not complicated because the owner specifically directs the contractor to make a change. It is typically complicated because the owner does not typically have explicit acknowledgment of the change and/or need for the change; and thus, may dispute the change. Effect on the contract This change may or may not affect the contract price or timeline. This change typically affects the contract price and/or timeline. Type of effect on the contract This change may reduce or add the contract price and/or elongate the expected project duration. This change typically increases the contract price and/or elongates the expected project duration.
Not all contracts allow for proceeding with the work prior to the signing of the change order. Also, some contracts do not contain provisions for constructive changes. Therefore, it is of utmost importance for contractors to know what the contract requirements are for documenting the change and what supporting documentation the owner expect to receive. It is recommended that contractors take the following steps if the owner has directed them to proceed with the work prior to the signing of the change order:
- Fully comply with the change notice requirements and give notices in a fashion promulgated by the contract
- After reviewing the contract documents and making sure that the scope has changed, submit a change order request, provide proper justification for the change, describe the scope of change, and provide estimates of the potential impacts of the change on time, cost and productivity.
- If an adequate information does not exist to prepare accurate estimates of the potential impacts of the change on time, cost and productivity, consider the need for formally reserving the rights to ensure entitlements are not unintentionally waived.
- If the contracting parties are not in agreement on the change or its impact, follow the steps outlined in dispute resolution procedures, and give a notice of intent (NOI) to file a claim, if warranted.
- To the extent practically feasible, keep separate tracks of the costs of change using a cost coding that differs from the cost coding used for the base contract to ensure the cost impact of change can be segregated from the cost of performing the original scope of work.
Taking the aforementioned steps are important to facilitate the resolution of any modification to the project scope of work with the owner and to minimize disputes to the extent possible.