Construction contracts are unique in some ways among legal contracts. They anticipate and plan for changes during the project not included in the original contract. In fact, some industry surveys suggest the typical commercial project will involve as many as 50 change orders or more.
All design changes will be governed by the “Changes Clause” in the contract. The “Changes Clause” could be the most important clause in a construction contract because it specifies how the owner can make changes or other alterations the owner deems necessary to complete the work.
The design professional, on the other hand, is obligated by the changes clause to perform changes to the work according to the owner’s instructions, provided the contract provides for the contractor to be compensated.
To avoid claims and potential lawsuits, a design professional should pay special attention to the “Changes Clause” in both the design professional’s agreement – and in the prime contract. Before taking on a project, a design professional should clearly understand what is required and how they will be compensated for design changes during the project.
Some design changes may be minor. But too often, design changes lead to costly claims and lawsuits because the design professional relies on an handshake agreement with an owner or contractor regarding the design changes to be made.
Any design professional who fails to obtain a written change order may find it difficult to prove the change was not his fault and even more difficult to get paid.
In my experience, most design changes occur to correct faults in the original contract and several other common factors, including:
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a poorly defined scope of work;
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compressed project schedules;
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unrealistic cost constraints;
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time and material changes; and
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owner-directed acceleration.
A design change simply is the difference between what is called for in the original contract and what is requested after construction begins. Changes can be requested by an owner, contractor or any third party. Changes may be directed changes or constructive changes. Such changes typically are expected and are accounted for in the contract.
Direct changes usually are easier to identify. These changes usually originate from the owner. They may include changes such as: additions or deletions of work, or a change in materials or scheduling.
Constructive changes are typically caused by the action or inaction of the owner or others involved in the project. They may arise from such things as a failure to disclose conditions on the job site, untimely inspections by government entities, or a failure of a subcontractor to meet a deadline.
Constructive changes frequently give rise to claims because the owner or contractor may be unwilling to acknowledge that a design change is necessary, or the design professional was not at fault for foreseeing and planning in advance for the changed condition.
A “Cardinal Change” arises where the purpose of the original agreement has been frustrated or made impossible by the extent of the requested change. A “Cardinal Change” amounts to the owner breaching the contract, and the design professional would be relieved of performance.
For example, assume the design contract called for the construction of a restaurant with an outdoor playground. Should the owner choose to eliminate the playground, the original purpose of the restaurant would not be violated, and the design change likely would be permissible under the contract. But if the owner sought to elimination of the restaurant entirely, it would violate the purpose of the original contract and constitute a breach of the contract.
Most claims from design changes can be avoided. Never relay on a verbal design change or promise to pay by a contractor or owner. Always document design changes in a written change order. When the need for a constructive change arises during construction, check the contract immediately to determine any deadlines to provide notice to the owner or contractor.
Typically the contractor owes the duty to put the owner on notice, But if in doubt, confirm that the responsible party has provided the owner timely notice. The notice clause prevents a contractor or design professional from prejudicing the owner’s rights to investigate, mitigate, and document the change.
Never rely on the contractor without confirming notice was provided in writing. A design professional who relies only on the contractor, depriving the owner of rights to object to the change, may find it difficult to get paid for any work performed related to the design change. At worse, the design professional may become the subject to an owner’s claim or lawsuit for damages.
Confirm the scope of work anticipated by the design change. Confirm the amount of reimbursement and the terms of payment are clearly spelled out before work on the change begins. When a potential change is identified, create a potential change order file. It is important to correctly classify the nature of the change early in the process.
Review the contract to determine whether the change meets the minimum contract requirements. Be sure to follow the correct procedures to document the change. Be thorough.
Documentation Is the key to avoiding costly claims and future lawsuits. At the beginning of a project, the project management staff should insure the use of standardized procedures and logs. The project team should maintain a documents log that includes all relevant contracts, specifications, proposed changes, reports, analysis, or other documents..
In addition, create an issues log. At a minimum it should contain the date created, a description of the issue, the party responsible for the issue’s resolution, personnel or work affected by the issue, documents involved, and the date closed.
Implementing best practices to systematically document the need for design changes, confirm authority to proceed, and define the scope of the design change and reimbursement, can avoid future costly claims and potential lawsuits against you.
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Timothy B. Soefje is the Managing Member and head of the professional liability section at the boutique firm of Seltzer │Chadwick │Soefje, PLLC based in Dallas, Texas. For regular information about professional liability matters, follow him on Twitter at @TimSoefje and search #ProfessionalLiability. For more information, visit us at www.realclearcounsel.com or contact him at tsoefje@realclearcounsel.com.
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