Construction Contract General Conditions: Addressing Risk-Laden Clauses (Part 1)

Introduction

Construction contracts generally consist of the following documents:

  • The plans
  • The specifications
  • The contract: Agreement, General Conditions and Special Conditions

The plans and specifications focus on the specific technical requirements and quality of the end product. These technical requirements specify the nature of the materials, allowable tolerances and acceptable criteria for contract compliance. The plans (which provide the basis for quantity takeoffs) and the technical specifications typically form the baseline of a contractor’s bid. The all too often ignored General Conditions (GC’s) are frequently considered incidental to the work and, therefore, not given serious consideration. But the GC’s set forth the duties, responsibilities and risk allocations associated with the work.

Theoretically, the aim of a written contract is to define with certainty the obligation of each party, avoid ambiguities and preclude ultimate controversy. The GC’s define specific duties, obligations and responsibilities of each party.  Construction contracts, and specifically the GC’s, seek to identify risk and then, allocate the risk of specific contingent events to one of the parties. This is accomplished by including a clause in the GC’s that states the type of contingent event, the risk that is allocated, the conditions under which the risk is allocated and party to whom the risk is allocated.  If the contingent event occurs, the party that bears the risk absorbs the cost associated with the event.

Furthermore, supplemental conditions and/or special conditions may supplement or amend what is written in the GC’s, so it is important to also review and understand these documents and their relationship to the GC’s.

In today’s construction marketplace, most general contractors function as brokers of construction services.  The vast majority of construction is performed by subcontractors.  Most subcontract agreements contain flow-through clauses that bind the subcontractor to the terms of the owner-contractor agreement, such as:

“To the extent the terms of the prime contract between the Owner and Contractor apply to the work of the Subcontractor, then the Contractor hereby assumes toward the Subcontractor all the obligations, rights, duties, and redress that the Owner under the prime contract assumes toward the Contractor.  In an identical way, the Subcontractor hereby assumes toward the Contractor all the same obligations, rights, duties, and redress that the Contractor assumes toward the Owner and Architect under the prime contract.”

Therefore, the subcontractor has the additional burden of reviewing not only its subcontract agreement and GC’s but also the owner-contractor contract and GC’s to fully understand its risks, obligations and rights.

What are these risks? Although not complete, the following represents specific risks confronting general contractors and subcontractors:

  • Major project changes
  • Failure to obtain access
  • Delays in owner-furnished materials
  • Interference by owner or other contractors
  • Defective owner-furnished materials
  • Project funding problems
  • Delays in granting/issuing change orders
  • Exculpatory clauses
  • Inadequate tolerances in construction
  • Unusually severe or harsh inspection
  • Errors and omissions in plans and specifications
  • Slow shop drawing turnaround
  • Late release of construction drawings
  • Failure to cooperate and/or to coordinate
  • Ambiguous and/or conflicting plans and specifications
  • Labor strikes
  • Unusually severe weather, fires, floods
  • Differing site conditions
  • Government interference
  • Third party intervention and delays

This broad listing can be further consolidated by assessing the frequency by which each is contested in a dispute. In perhaps a subjective assessment, the following risks would appear to be most frequently contested:

  • Requests for time extensions and/or constructive acceleration
  • Following the “Changes” clause
  • Proceeding with disputed “Changed” or “Extra” work
  • Tight interpretation of plans and specifications
  • Exculpatory clauses
  • Site coordination
  • Getting timely answers

 

Focusing on Risks

While these items above identify risks, the GC’s provide the additional step of their respective allocation.  In a similar fashion, the most frequently sought after questions to “ask” of the GC’s are:

  • What does the contract allow for recovery of damages?
  • What are the notice requirements?
  • What form does a claim have to be in?
  • What are the scheduling requirements?
  • Does the contract contain a “no damages for delay” clause?
  • How are differing site conditions handled?
  • Is turnaround time for shop drawings addressed?
  • Is the project a performance or design specification?
  • What about variations in quantities?

With this background of generalized risk identification, a review of currently used clauses places these concerns in context.

 

Limitation of Recovery

While most construction contracts provide an equitable provision for contract adjustments, some contracts are not so lenient:

“In determining the amount of any adjustment to the Contract price under this Article 49, the Contractor agrees that the following items shall not be included in its claim and that in any court, arbitration or other proceeding, the award or verdict shall not include payment for the following items:

  1. Profit;
  2. Loss of Profit;
  3. Labor Inefficiencies;
  4. Cost of Idle Equipment;
  5. Project Overhead;
  6. Home Office Overhead; including but not limited to costs of any kind of home office personnel;”

While this language is heavily one-sided against the contractor, most contracts address limitations on a contractor’s potential financial recovery. The contractor’s financial recovery may barred for certain contingent events or recovery may be limited by other contract provisions such as predetermined unit prices or stipulated wage rates, equipment rates, overhead percentage and profit percentage to be used in pricing change orders.

 

Notice Clauses

Many clauses in the GC’s require the contractor to provide notice to the owner to perfect the contractor’s rights of recovery. The requirements for a contractor to provide timely notification extends to a variety of conditions – notification of claims, changes, time extensions, differing site conditions, etc. Failure to comply may waive the contractor’s rights to future recovery:

“It is an express condition of Contractor’s right to make a claim or to receive any recovery or relief under or in connection with the Contract, that Contractor submit a written Notice of Intent to Claim in accordance with the provisions hereof of this ArticleFailure to comply with the provisions hereof shall constitute a waiver by the Contractor of any right, equitable or otherwise, to bring any such claim. The Notice provided above shall be given within ten (10) days after the happening of the event or occurrence giving rise to the potential claim . . . .”

 

Notice requirements vary widely from contract to contract and a contract may contain multiple notice clauses:

 

Delay

If Contractor is delayed in the progress of the work . . . Contractor shall, within twenty-four (24) hours after the commencement of such delay, file with AGENCY a written notice of delay . . .

 Changes

The Contractor shall within five (5) days notify AGENCY in writing when the Contractor has received direction, instruction, interpretation or determination from any source which the Contractor believes may cause any change in cost or time required for the performance of the Work . . .

 

Changed Conditions

Contractor shall promptly, and before the conditions are disturbed, give a written notice to AGENCY of (1) subsurface or latent physical conditions at the Work Site which differ materially from those indicated in this Contract, or (2) unknown physical conditions at the site, of an unusual nature, which differ materially from those ordinarily encountered and generally recognized as inherent in work of the character provided in the Contract.”

The contract should be read carefully to determine the proper notice provision for each clause.  This is a relatively simple process but experienced contractors continually fail to issue timely, contract compliant notice, and thereby jeopardize otherwise meritorious claims.

Notice clauses are often interpreted by contractors as obstructive and punitive.  However, when a change, delay or impact event occurs, the owner must be given the opportunity to investigate and provide a suitable response.  The owner’s right to respond to and mitigate a potentially adverse and costly problem is the primary reason that notice provisions are included in construction contracts.  Therefore, a contractor who fails to provide notice is deemed to have denied the owner the opportunity to mitigate and may not prevail in its claim.

An owner’s first line of defense may be to reject the contractor’s claim for failure to provide timely notice, but lack of strict compliance with timely notice provision need not be fatal to the contractor’s position. Two real defenses are available:

Constructive Notice:  Demonstrate that the owner had the opportunity to mitigate its costs because it already knew, or should have known about the problem via meeting minutes, schedule updates, progress reports or other project documentation.

No Harm:  Demonstrate that the lack of timely notice did not prejudice the owner’s rights to mitigate its costs, because the contractor took the most effective course of mitigation and no possible action by the owner could have further reduced the incurred costs.

Despite these available defenses, a contractor’s claim always stands on firmer ground when notice was provided in accordance with the contract GC’s.

 

Conclusion

Considerable attention is typically given to the plans and specifications when a contractor prepares its bid.  Equally important to the financial bottom line of the project are the risks, duties, obligations and responsibilities defined by the GC’s.  Contractors should take care to understand the GC’s of their contracts.  When project issue arise, timely notice, in accordance with the contract requirements, is crucial for the contractor’s perseveration of rights to pursue additional compensation.

In Part 2, we will discuss inclement weather clauses, scheduling clauses, change clauses and multi-prime contractor coordination.

Construction Delays: Quantification of the Financial Impact

Introduction

During the construction of a project, there are few problems which have a more adverse, financial effect on a contractor or subcontractor than project delays.  Delays result not only in increased costs to specific items of work, but also frequently have concurrent disruptive effects on base contract work resulting in a protracted project completion.  At the heart of the factual evidence required by the contractor for proof of the impact of delays to individual activities is the construction schedule.

Whether a contractor is submitting a construction claim or defending against one, the element of proof is the same:

  • What was the cause of the problem (in this instance, the delay), and
  • What was the effect (the subsequent ripple to activities within the schedule network due to the delay)?

The process of establishing such direct causation can be complex.  Delays on construction projects can be caused by either the actions and/or inactions of entities (i.e., owner, contractor, vendor, etc.) or circumstances (i.e., abnormal weather, trade embargoes, etc.).

Broadly stated, the process of definition reveals three forms of delays:

  • Excusable and compensable
  • Excusable but not compensable
  • Non-compensable and non-excusable

Methods of Proving Delay and Impact

The availability of a detailed network schedule provides the parties with a means of establishing the effects of discrete delays. Such schedule usage provides the means by which time extensions due the contractor can be assessed. Equally important is the issue of concurrent delays.  Simply defined, during the course of construction, work may be proceeding on several activities simultaneously.  One of these activities may experience a compensable delay while, at the same time, a non-compensable delay may impact a parallel activity.  The concurrent delay issue is important because in such a situation damage recovery by the contractor may be precluded.

An evaluation of concurrent delays is necessary when establishing delay claims or, for that matter, when analyzing a contractor’s delay claim on behalf of an owner.  The initial step in the process is to establish the schedule baseline.  Depending on the circumstances, either the contractor’s as-planned schedule, preferably submitted shortly after the Notice to Proceed.  Then, a comparison between the as-planned and the as-built schedules should provide valuable insight into extended activity durations and changes in network logic.

This initial effort focuses on the identification of delay types and the methods available to establish proof of delay and schedule impact.  Performing that exercise establishes the cause of delay. The next step is to identify the effect – the resultant monetary delay damages.

Contractor Delay Damages

The major elements of a contractor’s delay claim may include:

  • Direct craft labor costs
  • Escalation costs
  • Jobsite overhead costs
  • Home office overhead costs

In the majority of construction claims, labor cost overruns are often the predominant element of damage.

Labor Damages

A contractor may have compensable labor damages in several categories:

  1. Increased labor hours required to perform a given task of work.
  1. Loss of production efficiency/productivity as a result of:
  • Out-of-sequence work
  • Impact of changes/disruptions/delays to unchanged work
  • Adverse weather
  • Acceleration – overtime, shift work or increased crew size
  • Trade stacking
  • Restricted access
  1. Labor escalation caused by compensable delays which precluded the performance of work in a lower wage period.

The labor damages identified by Item 2 can often be considerable when project delays are sustained. After initially establishing the basis of recovery for reduced labor productivity/inefficiency, the subsequent step is the actual quantitative assessment of such labor productivity loss. Substantiation of labor productivity loss can often be predicated on a schedule analysis. Delayed project completion need not occur for a contractor to have sustained these labor loss elements.  For instance, an early delay on a project may be completely overcome by an accelerated work effort.  The end result may be timely project completion at the expense of lost labor productivity.

Acceleration

Generally, acceleration occurs when the contractor is required to adhere to the original schedule completion dates despite the existence of compensable or excusable delay. A contractor can employ several means of accelerating the work.

Numerous industry studies have been prepared to assess the impact that various acceleration methods have on craft labor productivity. Figure 1 is illustrative of the cumulative effect that overtime has on productivity.  The data is extracted from a Business Roundtable study entitled “Scheduled Overtime Effect on Construction Projects.”

Cumulative Effect of Overtime on Productivity

50 and 60 Hours Work Weeks

Overtime

Figure 1

 

In addition, acceleration may take the form of increased crew size over what the contractor may have planned to be its optimum crew. Figure 2, based on a Corps of Engineers report entitled “Modification Impact Evaluation Guide,” evaluates the effects of increasing crew size:

“The optimum crew size (for any construction operation) is the minimum number of workers required to perform the task within the allocated time frame. Optimum crew size for a project or activity represents a balance between an acceptable rate of progress and the maximum return from the labor dollars Invested.  Increasing crew size above optimum can usually produce a higher rate of progress, but at a higher unit cost.  As more workers are added to the optimum crew, each new worker will increase crew productivity less than the previously added worker. Carried to the extreme, adding more workers will contribute nothing to overall crew productivity.”

Effect of Crew Overloading on Labor Efficiency

Overmanning

Figure 2

 

A third method of acceleration is the addition of a second shift. Figure 3, based on “Shift Work Impact on Construction Labor Productivity,” illustrates the effect of increased shift work on craft labor productivity.

Effect of Shift Work on Labor Productivity

Shift

Figure 3

 

Adverse Weather

If a contractor sustains a compensable delay which forces more of this work into adverse weather conditions, the loss of labor productivity that follows will likely be recoverable. It has been clearly recognized that work performed during winter conditions will be less productive than the same work performed during the summer.

Industry studies have established criteria by which loss of labor productivity could be correlated to adverse weather. Figure 4, based on the National Electrical Contractors Association data, is illustrative of such a correlation.

Temperature Effect on Labor Productivity

Temperature

Figure 4

 

If all or a portion of a contractor’s work is delayed by the owner, the increased direct costs of labor and material resulting from the delay are compensable.

The data required to calculate and prove a claim for labor escalation include:

  • The planned labor loading schedule
  • The actual labor loading schedule
  • The wage rate in force at the time of bid
  • The actual wage rates paid over the life of the project.

On union projects, the wage rates can be obtained from union agreements. On non-union projects, the information must be obtained from the contractor’s payroll records.

The rationale on material cost escalation is essentially the same except that the contractor must demonstrate that the owner’s delay caused the contractor to make purchases at a later date and at a higher cost. Owner delay may also impact the contractor’s ability to purchase in bulk, the costs of storing, handling and insuring materials.


 

Extended Jobsite Overhead

During bid preparation, a contractor will anticipate (and price) the required jobsite overhead required for the contract duration. Such jobsite overhead normally comprises those necessary field expenses not readily allocated to individual bid items such as:

  • Salary and expenses of superintendents, field engineers, clerks, etc.
  • Temporary site facilities such as office trailers, storage trailers and temporary utilities, among other costs.
  • Tools and equipment allocable to the entire project.

If the project is accelerated, the contractor may also incur incrementally increased jobsite overhead costs during the acceleration period.

Extended Home Office Overhead

Home office overhead consists of those expenses necessary for a firm (construction or other) to do business. Without such organizational structure, the normal course of running the business would be impossible. Because of that, in certain settings, some portion of home office overhead may be recoverable.  For the purpose of definition herein, it is necessary to explain the difference between “extended overhead” versus “unabsorbed overhead.”  These terms have their origins in construction and manufacturing, respectively.

Recoverable extended overhead damages focus on those home office costs that are normally incurred after the original contract completion date but which have been caused by compensable delays occurring during the original project duration. Unabsorbed overhead costs occur during the original contract duration and are costs which the contractor fails to earn because he is precluded from performing the original base contract volume.

Change Clauses, Notice, Extra Work and Reservations of Rights

 

INTRODUCTION

Directing performance of extra work on a construction project was once little more than a rudimentary task for the architect or resident engineer. Unfortunately, such simplicity is no longer the order of the day. Contractors and subcontractors alike are becoming increasingly reluctant to proceed with extra work without complete assurance that all direct and impact costs will be paid. Absent such assurance, they are insisting that the extra work proceed reserving the right to reimbursement for additional time and costs if warranted. Conversely, owners and architect/engineers are equally reluctant to direct additional work if the time and financial aspects are not firmly established. With such an atmosphere, the extra work/change order process in construction has become ripe for controversy.

 

 CHANGE CLAUSES

Traditional contract laws permit the parties to modify their contract by mutual agreement. The construction contract is unique in that it allows the owner to unilaterally direct changes without the contractor’s consent, provided that the change is within the general scope of the original contract work. Therefore, nearly all construction contracts today contain some form of change clause. Typical of many change clauses is as follows:

CHANGES IN THE WORK

Without invalidating the Agreement and without notice to any surety, OWNER may, at any time or from time to time, order additions, deletions or revisions in the Work; these will be authorized by a Written Amendment, a Change Order, or a Work Directive Change. Upon receipt of any such document, CONTRACTOR shall promptly proceed with the Work involved which will be performed under the applicable conditions of the Contract Documents.

 

Typically, a change clause will also require that the cost of the change order be agreed upon before the work is started and that the change order be reduced to writing. Additionally, in instances when, in the absence of an owner directed change, the contractor encounters work that it believes to be “extra work” the contract usually requires that notice be timely provided.

 

In this process, several issues that occur with great frequency on construction projects can result in controversy and disputes:

 

  • Failure on the part of the contractor to provide the owner notice that the work is considered extra.
  • A contractor’s failure to secure a change order in writing to cover the extra work.
  • Acceptance of a change order by the contractor without a reservation for additional time or costs.

 

FAILURE TO PROVIDE NOTICE

Contractual requirements for timely notification of perceived extras are not employed for exculpatory or punitive purposes. If an owner is going to be held liable for a contractor’s additional costs, logic and equity would point to the owner’s right to control or mitigate those costs. Typical contract language such as the following is often used regarding notice:

 

(a)          Any other written order or an oral order (which terms as used in this paragraph shall include direction, instruction, interpretation, or determination) from the Contracting Officer, which causes any such change, shall be treated as a change order under this clause, provided that the Contractor gives the Contracting Officer written notice stating the date, circumstances, and source of the order and that the Contractor regards the order as a change order.

 

(b)          If the Contractor intends to assert a claim for an equitable adjustment under this clause, he must, within 30 days after receipt of a written order or oral order submit to the Contracting Offer a written statement setting forth the general nature and monetary extent of such claim.

 

Although compliance with a notice provision may do little to provide the contractor with immediate compensation, it satisfies a fundamental contractual duty – the duty to protest. This duty extends to both directed and constructive changes.

 

Exception to the notice requirement is often considered when a constructive change has as its cause a defective specification. The correction of a defective specification may result in a dispute as to whether or not it is a directed change. If the owner directs a change in the specifications (despite the fact that the owner may consider the revised specification to be part of the original contract), the contractor is advised to lodge a protest as quickly as practical so as to provide the owner time to reconsider or maintain the said direction. The duty to provide notice has had substantial attention which in general has resulted in court decisions upholding that duty. It is a basic principle of all construction contracts that whenever the owner orders work performed which the contractor thinks is in violation of the contract, or in addition to its requirements, contractor is required to protest against performing the work, or to secure an order in writing before performing the work.

 

Three defenses most commonly employed by contractors to circumvent failure to provide notice are:

 

  • The owner’s position or options were not prejudiced by lack of notice.
  • The specifications were defective resulting in a constructive change not subject to the notice requirements set forth in the changes clause.
  • The owner knew or reasonably should have known that a claim would be forthcoming.

 

In both the first and second of these potential defenses, the matter of owner being prejudiced by lack of notice bears consideration. Constructive changes, even if caused by defective specifications, will often be subject to the prejudice argument prohibiting contractor recovery for costs which may have been avoided or mitigated had the contractor given timely notice.

 

It is nonetheless a highly risky proposition for a contractor to fail to follow the contractual notice requirements and base his chance of recovery on these defenses. Absent a showing of Waiver, parties to a contract will be deemed to be bound by the plain terms of the contract. In a setting where extra work is being directed, the contractor should simply pose the question to himself: Why take the risk and proceed with the extra work without giving notice?

 

In State v. Omega Painting, Inc., 463 N.E. 2d 287 (1984), failure to provide notice proved fatal to an otherwise valid claim. In that case, a painting contractor was verbally directed to sandblast several steel bridge spans to a higher standard than contractually stipulated. The contractor proceeded with the work without providing written notice that such work was considered to be extra work. Accordingly, the contractor was denied recovery by the court:

 

The specifications state, in pertinent part:

 

If the Contractor deems that additional compensation will be due him for work or material not clearly covered in the contract or not ordered as extra work, as defined herein, he shall notify the Engineer in writing of his intention to make claim for such additional compensation before he begins the work on which he bases the claim. If such notification is not given and the Engineer is not afforded proper facilities for keeping strict account of actual cost as required, the Contractor shall make no claim for such additional compensation.

 

Neither party contends that additional blasting was covered by the contract or ordered as extra work. As such, any claim for additional compensation must fall within the parameters of section 105.-16. That section is clear and unambiguous. Absent the requisite written notification, the contractor is without recourse. Where the terms of a contract are plain and clear on the face of the document, such terms are conclusive as to the meaning of the contract and this court will apply the contract’s provisions according to the plain language of the document.

 

 FAILURE TO SECURE WRITTEN CHANGE ORDER

Many of the arguments applied to the issue of timely notice are equally applicable to the circumstance when a contractor proceeds with extra work prior to obtaining a signed authorization, namely a change order. Similar to the usual contractual clause for timely notice, an executed change order is a typically a required precedent for payment:

 

ARTICLE II-CHANGE OF CONTRACT PRICE

 

11.1 The Contract Price constitutes the total compensation (subject to authorized adjustments) payable to CONTRACTOR for performing the Work. All duties, responsibilities and obligations assigned to or undertaken by CONTRACTOR shall be at his expense without change in the Contract Price.

 

11.2 The Contract Price may only be changed by a Change Order or by a Written Amendment. Any claim for an increase or decrease in the Contract Price shall be on written notice delivered by the party making the claim to the other party and to ENGINEER promptly (but in no event later than thirty days) after the occurrence of the event giving rise to the claim and stating the general nature of the claim. No claim for an adjustment in the Contract Price will be valid if not sub­ mitted in accordance with this paragraph.

 

A contractor may be at considerable risk if he elects to proceed with extra work in advance of receiving a signed change order. In federal construction contracts, a contractor may not be precluded from receiving additional costs for work performed at oral direction of the contracting officer who provides assurance that a written change order is forthcoming. However, the various courts and boards are not consistent in their assessment of such oral direction, however.

 

A distinction can also be drawn in those instances where the owner fails to grant a change order because of unwillingness to recognize that the work is extra. In such an instance, the contractor will not be denied additional compensation assuming that timely notice was provided. In the non-federal contract arena, more care should be exercised in proceeding with work which was not authorized in writing. In a situation where the contractor proceeds with the extra work on the verbal promise that a change order will be issued, the contractor may be able to suspend work on the extra if a change order is not forthcoming. Such an action may be vital so as to avoid waiving the right to additional compensation.

 

 CHANGE ORDER ACCEPTANCE ABSENT RESERVATION OF RIGHTS

Perhaps the most vigorous dispute often arising from the performance of change order work is that of acceptance and waiver. In a typical dispute scenario the contractor protests the requirement to perform extra work. The owner and contractor then enter a negotiation leading up to an agreement as to the cost for the extra work. A change order is prepared and executed and seemingly all issues are resolved. Later, the contractor submits a claim for additional time and monetary compensation to cover the impact cost of the change. Obviously, the owner disagrees. Who prevails? In general, a contractor will be barred from asserting a contract claim if the agree upon change order is deemed to constitute full settlement and agreement. This will be particularly true if the change order contains specific language to the effect that acceptance of the change order constitutes full agreement as to its expressed conditions and that any claims of additional costs associated with the change are relinquished. In any event, it is acutely important that a contractor not inadvertently waive or release its right to receive compensation for all of its perceived extra costs. A simple statement on the change order which cites that the payment accepted is solely for the direct costs and that the contractor reserves its rights for time extension and impact cost is will usually suffice. A generic example of such a reservation is:

 

We hereby give notice that the pro­ posed change order provides consideration solely for the direct time and costs of the changes referred to therein and expressly does not provide time or financial consideration to the effects these proposed changes may have on the original contract work and/or other changes to the contract issued before or after the above noted changes. These potential impact or ripple costs and/or additional extensions of time are expressly reserved until such time as they can be ascertained.

 

Owners typically balk at the inclusion of such language, so the contractor is advised to use it in only those instances where there, indeed, may be time or additional cost impact effects. Credibility may be lost when a contractor reserves his rights on clearly miniscule changes.

 

During the negotiation leading to an agreed change order, a contractor cannot initially accept a change order as full payment and settlement and then later at the completion of the project submit additional costs for the previously settled extra work. In Huber, Hunt & Nichols, Inc. v. Moore, 136 Cal. Rptr. 603 (1977) the court barred additional recovery by the contractor:

 

In the final analysis what Contractor actually complains of is that the amount of money which Owner paid Contractor under the 25 (change orders) and the time allowed for the changes or additional work was not sufficient to reimburse Contractor for its total cost and total delay. Contractor argues that somehow the total result exceeded the sum of the 25 parts. Assuming without deciding that such a result is within the realm of logical possibility, we think that the responsibility for the result lies with the Contractor, not with the Architects. It was within the Contractor’s legal power to compute estimated change order costs in a manner which would compensate Contractor for its total loss. It failed to do so. Architects are not legally responsible for that failure. So far as we can tell from this record, Contractor was paid in almost every instance what Contractor requested on the 25 (change orders) issued. Contractor simply did not request enough on those (change orders) which were authorized. A factor of 10% or 15% for administration and overhead was obviously too low if Contractor’s present claims are accurate.

 

 CONTRACTUAL PROVISIONS TO MINIMIZE CONFLICTS

Frequently, the problems discussed herein have their origin not in a fundamental lack of understanding, but instead on the use of unclear and/or contradictory language in the contract documents. During the formation of the general conditions, the following three items would be well worth serious consideration:

 

  1. The Owner (not the Contractor) may direct changes in the work by issuing a Change Order. Keep it that simple; do not add “any other written order or an oral order … shall be treated as a change order”. This just adds to the confusion as to what is a change order and who issues it. To be a valid change it must be directed by the Owner and issued in the form of an official Change Order. Changes or extras requested by the Contractor are an altogether different matter; but, if granted, still must be documented by a Change Order issued by the Owner.
  2. All Change Orders must be in writing. Do not allow oral orders which are subject to controversy and hard to prove after-the-fact. Use a predetermined Change Order form and include it in the Project Manual. This becomes the only form of communication by which the Owner directs a change to the Contractor.
  3. Decide upon the cost and time compensation when the Change Order is issued – before the work is done. If exact price and time is unable to be determined before the work is done, then at least agree upon the terms for measurement and payment in the form of unit prices or time and materials plus mark-up. Include this information on the Change Order form.

 

By following these three principles the spec writer can a) eliminate any question as to what constitutes a Change Order, b) keep the Owner in control of project cost and time and the directing of changes, c) insure that the Contractor gets compensated for his extra work, and d) keep the Owner, Contractor, and A/E working together as an effective team by eliminating possible sources of conflicts that too often lead to unnecessary time spent at the negotiating table or in the court room.

 

 CONCLUSIONS

Since the necessity for extra work on construction projects is almost inevitable, it is to every­ one’s advantage – owner, A/E and contractor – to understand the applicable changes clause.

 

Particular attention must be paid to timely notice requirements as well as to any language which may address whether (or not) a contractor can proceed with extra work prior to receipt of a signed change order.

 

Lastly, a contractor must pay close attention to the extent to which he has priced the change. Acceptance of a change order which expressly denotes that it is full and complete payment for the extra work may well bar subsequent time extensions and cost recovery. If the potential exists for delay or subsequent impact or ripple effect costs because of the changed work, an expressed reservation of rights should be noted prior to acceptance of the change order.

 

Primavera P6 Date and Percentage Fields Explained

Most P3 users have now migrated to P6. One of the most confounding aspects of the transition for former P3 users is the number of new and different fields for activity start dates, activity finish dates and activity percent complete. P6 is not merely an update of the old P3 software, it is new product. And although some fields have similar names in both P3 and P6 those fields perform quite differently in P6. The quantity of new fields in P6 together with a general lack of clear documentation is the source of potential confusion over how to use and interpret the various date and percent complete fields. Whether you are a former P3 user or a new P6 user, a basic understanding of the date and percent complete fields is essential to correctly communicate and manage the schedule on your project. Here is an overview:

P6 Date Fields

Start/Finish: The current Start/Finish dates based on schedule logic and resource availability. This is the equivalent of the Early Start/Finish dates in P3.

Early Start/Finish: The Earliest Date the remaining work for the activity can start/finish and is not earliest start for the entire activity. This causes much confusion for former P3 users. Also, when the Early Start/Finish dates are displayed, actual dates are not followed by an “A,” causing additional confusion for former P3 users.

Planned Start/Finish: If an activity does not have Actual Dates, the Planned Dates are equal to the Start/Finish dates. Once an activity has an Actual Date, the Planned Dates are fixed at the values at that point in time.

Actual Start/Finish: The dates on which an activity actually started or finished. Where actual dates have occurred, the Start/Finish dates are equal to the actual dates. If there is no Actual Start/Finish, the field is blank.

Late Start/Finish: The latest date the remaining work for the activity can start/finish with impacting project completion and is not latest start for the entire activity. The Late dates generally are equal to the Remaining Late Dates unless the project has been leveled maintaining the late dates. When the Late Start/Finish dates are displayed, actual dates are not followed by an “A.”

Remaining Early Start/Finish: The earliest possible dates the remaining work can occur based on logic and resource constraints. The Remaining Dates are equal to the Early Dates unless the project has been leveled maintaining the Early Dates. When the activity is complete, Remaining Dates are blank.

Remaining Late Start/Finish: The latest possible dates the remaining work can occur before impacting project completion. These will generally equal the Late Dates, unless the project has been leveled maintaining the Late Dates When the activity is complete, Remaining Dates are blank.

BL Project Start/Finish: The current Start and Finish Dates for the activity in the assigned project baseline (BL).

BL1, BL2, BL3 Start/Finish: The current Start and Finish Dates for the assigned primary, secondary and tertiary user baselines.

Also, keep in mind P6 has separate date fields for Activities and Resources. These dates are coordinated in the default software setup so that they change simultaneously, but can also be uncoupled and managed separately depending on preferences.

 

P6 Percent Complete Fields

The first thing to consider is that there are three different calculation methodologies to determine Activity % Complete in P6:

  • Duration % Complete
  • Physical % Complete
  • Units % CompleteDuration is the default % complete setting in the software. Selection of percent complete type controls whether the Activity % Complete is tied to the duration of the activity, the quantity of work (Units) associated with the activity or activity physical % complete . Furthermore, there are additional % complete fields for Cost % complete, Units % complete and Work Breakdown Structure (WBS) % complete. 

    Activity % Complete Fields

    Physical % Complete:  The physical percent complete reflects the actual progress made on the activity’s work. Physical percent complete is manually entered to reflect the current status of the activity or it can be calculated based on the completion status of pre-assigned Steps.

    Duration % Complete: The percent complete of the activity duration. Computed as:

    ((Planned Duration – Remain Duration) / Planned Duration) * 100.

    The planned duration is taken from the current plan, not from the current baseline.

    Duration % of Planned: The activity actual duration percent of planned. Computed as:

    (Actual Duration / BL Duration) * 100.

    The value can exceed 100%. The BL Duration is the activity’s at complete duration from the current baseline.

    Activity % Complete: This value is tied to the activity Duration % Complete, Units % Complete, or Physical % Complete, depending on the Activity’s Percent Complete Type selected.  Duration is the default software setting.

    Schedule % Complete: The Schedule % Complete specifies how much of the activity’s baseline duration has been expended as of the schedule data date. This is computed based on where the current data date falls between the activity’ s baseline (BL) start and finish dates. If the data date is earlier than the BL Start, the Schedule % Complete is 0. If the data date is later than the BL Finish, the Schedule % Complete is 100.

    Performance % Complete: Performance percent complete is used to compute earned value and may be based on the Activity % Complete or a pre-assigned earned value calculation rule ( 0/100 rule, 50/50 rule, etc.). The Performance % Complete specifies what percentage of the activity’s planned value has been earned so far.

     

    Cost Related % Complete Fields

    Labor Cost % Complete: The percent complete of costs for all labor resources assigned to the activity. Computed as:

    (Actual Labor Cost / At Complete Labor Cost) * 100.

    Non-Labor Cost % Complete: The percent complete of costs for all non-labor resources assigned to the activity. Computed as:

    (Actual Non-Labor Cost / At Complete Non-Labor Cost) * 100.

    Expense Cost % Complete: The percent complete of costs for all expenses associated with the activity. Computed as:

    (Actual Expense Cost / At Complete Expense Cost) * 100.

    Cost % Complete: The percent complete of costs for all labor resources, non-labor resources, and expenses for the activity. Computed as:

    (Actual Total Cost / At Complete Total Cost) * 100

    Cost % of Planned: The activity actual cost percent of planned. Computed as:

    (Actual Total Cost / BL Total Cost) * 100

    The value can exceed 100. The baseline total cost is the activity’s at complete cost from the current baseline.

     

    Unit Related % Complete Fields

    Units % Complete: The percent complete of units for all labor and non-labor resources assigned to the activity. Computed as:

    (Actual Units / At Complete Units) * 100

    Labor Units % Complete: The percent complete of units for all labor resources for the activity. Computed as:

    (Actual Labor Units / At Complete Labor Units) * 100

    Non-Labor Units % Complete: The percent complete of units for all non-labor resources for the activity. Computed as:

    (Actual Non-Labor Units / At Complete Non-Labor Units) * 100

    WBS Level % Complete Field

    Steps % Complete: The percent complete using the WBS Milestones that are assigned to a WBS level. Computed as:

    Actual Weight of Completed Milestones / Total Possible Weight of All Milestones