November 14, 2022
Constructive changes are owner-caused or owner-responsible changes but not acknowledged as such. A prime contractor’s unacknowledged changes can create a subcontractor’s constructive change claim.
If the owner or prime contractor’s actions or inactions require the contractor or subcontractor to implement changes, the owner or prime contractor may be obligated to pay for those changes even though the changes were not formally directed. If events during the project have the same effect as a formal written change order, a constructive change may have occurred.
Key terms often associated with constructive changes include “unwritten order,” “additional work or services,” “extra work,” “overly rigid inspection,” “improper rejection,” “errors and omissions,” “ambiguous plans and specifications,” “incorrect interpretation of plans and specifications,” “changing work methods,” “changes in sequencing of work,” “acceleration,” “failure to disclose important information,” “extreme difficulty in performance,” “very excessive cost,” and “defective design.”
A typical changes clause outlines the concept of a constructive change as follows:
Any written order or an oral order (which includes direction, instruction, interpretation, or determination) that causes a change shall be treated as a change order under this clause; provided that the contractor gives written notice stating (1) the date, circumstance, and source of the order and (2) that the contractor regards the order as a change order.
Types of Constructive Change
Constructive acceleration occurs when the owner’s actions or inactions force the contractor to perform its work in less time. The owner’s refusal to grant a justifiable time extension for an excusable delay or the requirement that additional work be performed without granting additional time may result in constructive acceleration.
Constructive deceleration is the opposite of constructive acceleration, where the owner suspends a portion of the work, thereby delaying the project, but refuses to acknowledge this change. The contractor’s field and home office overhead is extended and its labor costs may increase.
Erroneous Contract Interpretation
The owner or its representative’s requirements to follow ambiguous specifications or unduly rigid interpretations of contract documents requiring the contractor to meet higher standards than customarily accepted by trade organizations may result in constructive change. If the owner directs the contractor to perform work in accordance with a contract interpretation that is later proven erroneous, the contractor may be entitled to recover its additional costs.
A flawless design is rare. There is, however, a critical and costly difference between the normal incidence of errors and serious design flaws that cause substantial time and cost increases. These errors or omissions, when discovered, may create a constructive change because the owner impliedly warrants their suitability. Thus, when the owner finds it necessary to make changes in the specifications because they are defective, a contractor may recover the reasonable value of additional work arising from the change. On the other hand, if the owner provides performance specifications, the risk is on the contractor to satisfy the required performance.
Unreasonable Inspection Practices
Unnecessarily harsh and rigid inspection practices that hinder the contractor’s performance or multiple inspections that result in inconsistent directives also may constitute constructive change. Improper rejection of work, requirements to meet a higher performance standard than specified in the contract, interference with the contractor’s performance, and excessive test requirements may all result in constructive change. If an owner or its representative improperly concludes that materials or methods of construction used do not meet the standards of the specifications, an order to change them will result in a constructive change order for which compensation will be due the contractor.
When owner-furnished equipment and/or materials arrive on site late or damaged and the owner refuses to acknowledge the impact, a constructive change may result, enabling the contractor to recover its delay costs and costs to repair the equipment and/or materials.
Method of Performance
Construction contracts generally provide detailed specifications as to the quality of performance to be maintained for the project but not the manner in which the work is to be performed. Unless otherwise specified in the contract, and provided the work is performed safely and in a practical manner, the contractor is entitled to perform the work by its own means and methods. If the owner insists, after contract award, that a more expensive method be utilized, a constructive change may result. Similarly, the selection of the sequence of completing work is the right of the contractor as long as the contractor conforms to the contract requirements. An owner cannot alter the contractor’s sequence without being responsible for extra costs related to the change.
In addition, a contract may be written to give the owner the option to request mechanical completion and turnover of a portion of the work prior to all of the work being mechanically complete. While the agreement is clear that the owner can make this request, the owner should recognize that if this request changes the contractor’s planned sequence of mechanical completion for portions of the work, it may incur increased costs and delay as a result of making such requests. For that reason, the turnover sequence should be defined during the development of the contractor’s project master schedule and/or detailed construction and start-up schedule to avoid this problem.
When the contractor is required to perform extra work due to owner-caused quantity changes (absent clear disclaimers in the contract), performance specification changes, or site location changes, and the owner does not acknowledge the impacts of these changes, a constructive change may result.
Numerous other actions by the owner may constitute a constructive change. Examples include: owner-caused damages to construction work, orders causing higher wages, orders to increase the labor force when it is already adequate, nondisclosure of technical information on matters of substance, and improper disclosure of the contractor’s proprietary information.
These constructive changes or simple breaches are often the result of unfamiliarity on the part of the engineer’s field representatives with all terms. Some specific examples of this type of situation are as follows:
- Imposition of construction tolerances that are closer than those specified, or closer than is normal in the construction industry
- Imposition of acceptance tests where none were specified or that are more severe than those specified—for example, testing of pipelines in small increments rather than by larger sections or testing at pressures exceeding those specified or normally required
- Testing of welds by x-ray where this was not specified
- Operations to improve the appearance of concrete surfaces in areas where the specifications merely require the use of plywood or steel forms
- Sandblasting of construction joints in concrete when that method is not specified
- Imposition of safety regulations beyond those specified or normally required
- Imposition of noise abatement measures not specified
- Refusal to permit the adoption of more economical methods that the contract does not prohibit; for example, use of a less expensive method if an alternative is permitted and the alternative fulfills the technical specification
- Insistence on use of a more distant borrow source for an earthmoving job where an alternative closer borrow source was designated
- Refusal to authorize elimination of unnecessary construction joints in concrete
- Insistence on water curing when use of a curing compound is not prohibited
- Insistence on a brand name when the contract permits the use of materials or equipment of equal quality
Problems Establishing Entitlement
Constructive changes should always be asserted promptly, at least within a reasonable time, and definitely before final payment is made. Common problems in establishing a contractor’s entitlement to compensation for constructive changes include:
- The person ordering the change was not authorized to issue changes as an agent of the owner.
- The order was oral and no documentation or proof exists that the order was given, and often the terms of an oral order are unclear.
- The owner construed that the contractor, by not contesting an order, acquiesced or voluntarily performed the work.
- Courts typically allow constructive changes to be claimed after final payment only under special circumstances.
Timely and proper notice, the importance of which cannot be overstated, can quickly eliminate these problems. It should be noted that refusal by the owner to issue a formal change order does not preclude the contractor from compensation. Three elements typically must be established before the courts may grant a contractor relief for a constructive change. These elements are:
- The minimum performance that the contractor was required to furnish under the contract
- The fact that the work performed exceeded the established minimum
- The performance of the change was required by the owner or its agent.
Work done by the contractor voluntarily might not be compensated. A change element and an order element (by act or omission) must both exist. Only the formality of the writing may be absent in a constructive change order.
Constructive changes are a common cause of construction claims. If the owner’s actions or inactions require the contractor to implement changes, the owner may be obligated to pay for those changes even though the changes were not formally directed. To establish its right to claim additional compensation for constructive changes, the contractor must notify the owner in a timely manner that a changed condition has occurred.
This article discusses contract changes clauses, types of constructive change, problems for establishing entitlement, and contractor’s remedies.
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