Most contractors fail to assert their rights on projects when added costs are incurred. Instead of commencing the change order process, most contractors hope to reach an amiable agreement after the job is completed. Often claims are delayed to preserve or establish reasonable business relationships. The California Supreme Court has dealt a death sentence to that theory in a case against a major electrical contractor.
The villains in the case are a city, a construction management firm and the project architects. During the construction of the facility, an inordinate number of changes were made. Changing technologies or the owner’s indecision at the design stage caused some of these changes; others were made for typical reasons. Perhaps the salient problem was the attitude of the construction manager hired by the city.
The changes amounted to a virtual project redesign. Suffice it to say that issuing 1,018 changes on standard yellow tablet paper was an unorthodox means of communicating altered scopes of work. Engineering News Record (ENR) identified the case as Amelco versus the City of Thousand Oaks, Case No. S091069.
The construction industry’s custom and practice is to issue revised standard-size drawings indicating the changes. These plans encompass the revisions with balloons and further identify the changes with a delta identifier. Some engineers will also provide a schedule of changes to the plans in the title block. This was not the construction manager’s practice in this case. Full-size plans indicate the affected areas and the relationship to planned or already installed work. The drip approach of issuing changes on this project puts the contractor at risk in several ways. Most often, the construction manager then dons his white hat and rides off into the sunset, boasting about the cost savings he or she effected, albeit at the contractor’s expense.
While some changes were issued during the construction process, the court opined that the contractor’s impact claim was still not filed in a timely manner. Its decision did not allow for a substantial loss caused by inefficiencies brought on by the massive changes. The contractor truly described the ordeal as “death by a thousand cuts.”
The Army Corps of Engineers recognizes “impact” damages. These are generally those costs that cannot be specifically enumerated in a claim, but that affect the overall productivity and efficiencies of a contractor’s operation.
The court decision rejected the contractor’s position as it was given to understand the amount of the claim was based on the final cost as compared to the estimated costs plus the allowed changes amount. This narrow perspective is that contractors must detail and segregate their claims into the various components that may be easier for persons and judges not familiar with the construction industry to recognize.
Avoidance of delays when filing claims is the obvious way to avoid negative decisions on your action. Impact damages, including the expense of processing a claim, are described in Guide to Electrical Contractors’ Claims Management, NECA Index No. 40061. These impact costs are easily recognizable. The contractors’ documentation must support the claim so that the offending parties can claim no cloud of doubt.
The key to early action on changes is the field supervision. Communication by foremen with the contractors’ administrative personnel is critical. Their method must be brief, direct and timely. Present technology—including small computers, fax machines and similar devices—has provided many methods to aid this process.
It then requires administrative follow-up with a letter to the contractor. One type of letter is the notification that a change has been effected that impacts both financial and other effects on the job, which may require a change order. It would also be helpful if a set of standard letters were accumulated that could be sent at various stages of a projected claim. This leaves the ultimate decision of whether or not to file a claim to be made at a later time. Obviously, the sooner a change is processed, the better off both sides will be.
It is also important for the contractor to recognize those inefficiencies that may be his or her own fault. One cause may be less-than-complete estimate documentation. Similarly, an ad-hoc approach to changes will yield unfavorable results. Electronic bidding and processing of change orders enables records to be kept with the least impact on the project and the firm.
Undoubtedly, the news will spread to other states. Now is the time to review your company’s change order process. It is also time for all personnel to recognize that procrastination can be costly. EC
DAVID is a professor of electrical technology at Long Beach City College, Calif., a consultant and an expert witness. He can be reached at 562.597.1877 or by e-mail at firstname.lastname@example.org.