Contract Modifications

Volume 5, Chapter 13

INTRODUCTION

Contract modifications are changes in the work required during construction. This chapter discusses the means of accomplishing these changes:

  • Field orders
  • Change orders

Guidelines for approving substantial change orders and granting time extensions are also given.

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13.1 FIELD ORDERS

References:

    - Long Form, General Conditions.

If a change in the work must be accomplished before the University and contractor agree upon all terms of the change, a field order describing the change in the work scope and estimated contract sum and contract time adjustments, if applicable, may be issued by the University with or without the contractor's agreement.

Field orders are used only when (1) emergency conditions exist where life or property are endangered, (2) the extent of the work cannot be determined due to unknown conditions, or (3) a delay in proceeding with the work would affect the critical path and cause a delay to the entire Project. Field orders are not to be issued when the scope of the work and an estimated cost can be determined. A Change order or a directed change order must be used instead.

The contractor is required to promptly proceed with a field order. If the contractor does not agree with the order and does not sign it, the University's Representative must adjust the contract sum and contract time based upon back-up documentation provided by the contractor to justify actual costs and time, if applicable. A field order contains a statement that it shall be superseded by a change order that includes the actual adjustments, if any, to the contract sum and the contract time, as well as the change in the scope of the work.

13.1.1 Payment for Work Directed by a Field Order

References:

    - Long Form, General Conditions.

When a contractor is directed by a field order to perform work, payment is made for the actual cost of the extra work plus a contractor fee in accordance with General Conditions, Subparagraph 7.3.5.4; however, payment cannot be made until a change order is issued incorporating that field order.

Field orders must be incorporated into change orders at the earliest possible time in order not to delay payment to the contractor. When the extra work on a field order extends over a lengthy period of time—more than one month the Facility converts the field order by issuing a "not to exceed price" change order. This special type of change order will allow the contractor to be paid for actual costs with the normal monthly progress payments.

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13.2 CHANGE ORDERS

References:

    - Long Form, General Conditions.

A change order is a post-award modification to the contract. A change order may revise, add to, or delete previous requirements of the work, adjust the contract sum, or adjust the contract time.

By signing a change order, the contractor agrees to the cost and time, if applicable, of the contract modification; however, the University has the right to order changes in the work by issuing a field order (see 13.1). Change orders are not to be used in pre-award negotiations to negotiate a change in the scope of work, contract sum, or contract time. Change orders may not be executed until the contract has been signed by University and contractor.

Expected market rate for worker’s compensation (WC) on a Change Order (CO) can be calculated using the following formula:

Expected Rate = Current approved WCIRB (Workers Compensation Insurance Bureau of California) base rate by class code X contractor’s EMR (Experience Modification Rate) X 1.1.

WCIRB publishes approved rates by class code for all trades twice a year; these rates can be obtained from Campus Risk Management. EMR for a contractor can be verified at www.compline.com, for a fee. Alternatively, a campus may request the Compline EMR report from a contractor with their Change Order Request. 

To expedite payment to the contractor, a directed change order may be issued by University without contractor's signature.

13.2.1 Cost Proposals

References:

    - Long Form, General Conditions.

Before a change order can be prepared, the cost of the change must be determined. Four methods are used to determine the cost: 

  • Unit prices listed in the construction Agreement.
  • Agreed-upon unit prices.
  • Agreed-upon lump sum supported by a Cost Proposal.
  • Actual cost plus a contractor fee.

When requested by the University, the Cost Proposal form, or an approved version thereof, must be used by the contractor. Instructions for the contractor are included on the form. The contractor's fee, which includes overhead and profit, is defined in the Cost Proposal and in General Conditions, Subparagraph 7.3.4. The University's Representative is required to review and recommend the submitted proposal.

Agreed-Upon Lump Sum Supported by a Cost Proposal. General Conditions, Subparagraph 7.3.5.3, authorizes compensation for extra work by a lump sum agreed upon by the University and the contractor. The lump sum proposed must be determined to be fair and reasonable. Require the contractor to provide an estimate with detailed backup using the Cost Proposal contained in the Exhibits.

Actual Cost Plus Contractor Fee. General Conditions, Subparagraph 7.3.5.4, authorizes compensation for extra work based on actual cost plus a contractor fee. The contractor is paid for the actual time spent by the contractor's employees and subcontractors and the materials they actually used. In addition, the contractor is paid for overhead and profit. The contractor is required to keep daily records of its actual costs, and submit them on a weekly basis for approval by the University's Representative.

This compensation method is used when the University and the contractor cannot agree on payment based on unit prices or a lump sum. In these cases, the University orders the work to be performed by issuing a field order (see 13.1). The field order must stipulate a "not-to-exceed price."

Unit Prices. General Conditions, Subparagraphs 7.3.5.1 and .2, authorize compensation for extra work based on unit prices stated in the construction documents or agreed-upon by the University and the contractor. This compensation method is used when the cost of a procedure can be estimated, but the quantity cannot be determined prior to beginning work. For example, if the contractor is required to perform excavation for a building foundation, the contractor may be required to excavate until the soil encountered is of specific physical properties. In this case, the contractor knows the cost of removing a unit of soil, but does not know how much soil will be removed before the excavation operation is considered complete.

The unit-price method of costing is usually anticipated before the project goes out to bid. Unit price amounts are usually stated in the Bid Form; however, unit prices may also be agreed upon during construction. The contractor's overhead and profit are included in unit-price figures.

13.2.2 Change Order Execution

After the Facility Project Manager reviews and recommends the change order, and the accounting office verifies sufficient funds are available, and the University's Representative recommends the change order, it is sent to the contractor for acceptance. After receipt of the signed change order from the contractor, the Facility approves the change order. Executed change orders are then distributed to all signature parties. The original and all backup is placed in the project file. (See 13.2.10 for restrictions on executing certain change orders.)

13.2.3 Change Orders and Beneficial Occupancy

References: 

    - Long Form, General Conditions.

According to General Conditions, Paragraph 9.6, the University may occupy and use part or all of the project prior to its completion. If this "Beneficial Occupancy" is taken, a Certificate of Beneficial Occupancy is required (see 17.1).

13.2.4 Change Orders and the Notice of Completion

Change orders may be issued to adjust the contract time or contract sum after the Notice of Completion (see 18.5) is filed. Such change orders must not change the scope of the work because the Notice of Completion represents that all work is complete. Work includes receipt of as-built documents, guarantees, manuals, and all required submittals.

13.2.5 Contractor Disapproval of Change Orders

References:

    - Long Form, General Conditions.

The contractor may not agree with the content of a change order and, therefore, may refuse to sign the order. The Facility may issue a directed change order without contractor's signature when the Facility determines it is in it's best interest for the contractor to receive an adjustment of the contract sum or the contract time, as Facility believes to be properly due contractor, even though no agreement has been reached between the contractor and the Facility.

Promptly reject any attempted qualification the contractor adds to its agreement to the terms of a prepared change order on the face of the change order or in an accompanying letter. In unusual circumstances, General Counsel will provide language for accepting a qualified change order.

13.2.6 Substantial Changes to the Work After Contract Award

Substantial changes to the work may be required after contract award. If such changes are known during bidding—and their design is complete – use alternates that are exercisable for a stipulated period of time after award (see 13.2.9). If the design of the substantial change is not final and cannot be bid as an alternate, the substantial change may be accomplished as a change order only if the conditions of [II]:3.2.7, below, are met.

13.2.7 Guidelines for Substantial Change Orders

Additive Change Orders
If the cost of a change in the scope of work to be accomplished by a change order or series of change orders exceeds $100,000, or if the proposed changes in design are not incidental to the scope of the work as bid, the work may not be performed by change order unless it can be convincingly demonstrated that no advantage would be gained by conducting an advertised bid for the work.  Breaking down an addition to the work such that it falls below the $100,000 for the purpose of avoiding the substantial change analysis is not acceptable.  Also, note that changes to the work known after the bid date but prior to award are generally not acceptable because of the appearance of a non-competitive bid process. Changes made to Design-Build, Unit Price, Cost Plus and CM at Risk contracts have particular exceptions to the $100,000 threshold. 

It is the Facility’s responsibility to document the rationale for a substantial change order. The written justification for the substantial change order shall identify the primary factors supporting the decision to proceed by change order. In addition to the primary factors, all of the following factors also must be considered in the written justification to determine if a change order is justified.

  • COST  – Will competitive bidding save money? To what extent will site conditions, storage, limited accessibility, etc. restrict interest of bidders for new work if the new work is bid as a separate project and thereby increase cost?
  • REWORK – To what extent will rework be necessary to coordinate with new work? Will competitive bidding of new work affect the University’s ability to obtain correction of deficiencies in specialty work or integrated systems due to a division of responsibilities?
  • INCIDENTAL – Is the new work incidental to existing work?  A change order is inappropriate if there is a significant difference in function or in the programmatic features or additions to the as-bid design.
  • SCHEDULE  – To what extent will competitive bidding of the new work affect the existing/current schedule?  To what extent will competitive bidding of the new work affect use of the completed space if the new work is competitively bid either during the performance of the existing contract or later?

Additive Change Orders to Design-Build, Unit Price and Cost Plus contracts  
Change orders exceeding $100,000 to Design-Build, Unit Price and Cost Plus contracts are expected as a matter of course to assign detailed scope and costs to the contractor.  These change orders typically involve scope clarifications and cost accounting; they do not increase the total cost of the contemplated contract as bid. Such a change order is substantial but is automatically justified if the scopes of the work and the cost have already been appropriately competitively bid through the contractor selection process or otherwise. The Facility must document the change in the Project File, noting that it is a function of the delivery method and is within the contemplated cost and scope. However, if the change alters the programmatic scope or the total contemplated cost or if the change is not incidental to the scope of the work as bid, then the change is substantial and is not automatically justified. The factors listed above must be used to determine if proceeding with the change as a Change Order is justified. 

Additive Amendments/Change Orders to CM at Risk contracts

  • Prior to award of bid package:  Bid-packages (in phase 2) for CM at Risk contracts most commonly exceed $100,000 and are executed as Amendments and not Change Orders. This is a matter of course when assigning detailed scope, schedule and costs of the bid-packages to the contractor. The Amendments are substantial and justified because the work is competitively bid by the CM Contractor following University competitive bidding rules and procedures. The contractor’s fee to assume responsibility and risk of this work is included in the CM at Risk contract.
  • After award of bid package:  However, if a substantial change associated with a particular scope of work of a bid package is proposed after award of the contract for that bid package, the change must be evaluated as any typical change order would be, and the factors listed above must be used to determine if proceeding with the change as a Change Order is justified.
  • Increase in the CM’s fee: At any time, an increase of $100,000 or more in the CM’s fee is a Substantial Change and must be justified in accordance with the requirements of this section 3.2.7 to be implemented as a change order. 
    The use of an independent design professional, cost consultant, construction scheduler, or contractor may be appropriate to document the justifications for proceeding with a substantial scope change by change order. A proposed additive substantial change order and the adequacy of the justification for using a change order instead of competitively bidding the work may be discussed with the Office of the President and Office of the General Counsel. 
    It is the responsibility of the facility to maintain a written record as part of the contract file of the facts and conditions which justify the determination that the change order is justifiable in accordance with the factors above. 
Deductive Changes. A proposed change order that will delete substantial portions of the work does not require justification as to competitive bidding but does require review as a change to the scope of work (see section 3.2.8 below).

Delay Cost Considerations. The possibility of contractor claims for reimbursement of indirect costs (e.g, extended overhead and loss of efficiency) because of the impact of a proposed change order on the work is evaluated by the Facility. Such an evaluation is especially pertinent if the cumulative value of contract sum adjustments exceeds or will exceed 5 percent of the original contract sum, or if the project is already significantly behind schedule, and completion would be further delayed by the proposed change order.

A change order which extends the contract time, when the contractor is already subject to Liquidated Damages due to delay in completion of the project, will forfeit the University's right to collect Liquidated Damages based upon the original contract time (see 13.4.1).

13.2.8 Change Orders Changing the Scope of Work

Certain steps must be taken prior to approving a change order which changes the formal scope of work for a capital project. A "change to the scope of work" is defined as any change that alters the programmatic capability or requirements as delineated in the project's approval document (e.g., Project Planning Guide, state-approved Preliminary Plans or Working Drawings).

Scope of Work Changes. Examples of changes to the scope of work include (1) significant changes to assignable or gross square feet, (2) number of housing units or classroom seats to be provided, and (3) functional capacity (e.g., sewer, electrical, or mechanical). Examples of what are not considered changes to the scope of work include (1) "technical" changes (e.g., unforeseen site conditions, errors in existing as-builts that require additions or revisions to work); and (2) requests for information from the contractor which require changes to the contract documents. Questions concerning scope changes should be addressed to the Office of the President for clarification.

State-Funded Projects. Change orders that change the scope of work are not permitted for state-funded Major Capital Improvement projects unless authority has been granted by the state, as coordinated through the Office of the President. For state-funded Minor Capital Improvement projects, the project description should be revised and forwarded to the Office of the President for approval.

Non-State-Funded Projects. For non-state-funded projects, the appropriate approval body must be notified. In the case of Chancellor-approved Minor and Major Capital Improvements, a Facility approval process should be in place. For both Regents and Office of the President approved projects, the change in scope must be forwarded to the Office of the President for information required and approval.

In all cases, should the most recently approved Capital Improvement Budget require a budget augmentation due to the change order, the appropriate budget augmentation request procedure must be followed (see FM3).

13.2.9 Change Orders for Post-Award Alternates

Post-award alternates are alternates that the University may accept after award of the contract (see 17.3.2). Alternates are listed in the Agreement by number, price, and time required for acceptance. The alternate's scope of work must be described in Specifications, Section 01100.

Post-award alternates are accepted and added to the contract by change order. Contractual conditions are not changed. Track the time limits for accepting post-award alternates, as listed in the Agreement. If a time limit expires, the contractor is not obliged to accept the change order.

Alternates which do not stipulate a delayed time for acceptance may not be incorporated by change order.

13.2.10 Authority Needed to Negotiate and Execute Change Orders

The Facility may negotiate and execute a change order if the cost of the change is within appropriated funds and if the conditions below are met. If the new contract sum, including the cost of the change order, is in excess of appropriated funds, contact the Office of the President to obtain specific authorization by Resolution of The Regents.

  • Before a change order is issued that changes the exterior appearance of a building design previously approved by The Regents, the proposed exterior changes must be submitted to The Regents for approval.
  • Approval from the Office of the President is required when a change order alters the scope of a major capital improvement project or the description of a minor capital improvement project (see 13.2.8).

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13.3 MODIFICATION OF CONTRACTUAL CONDITIONS

When a modification of contractual conditions is desired as distinguished from a change in work scope, contract sum, or contract time the modification is made by change order. Refer such change orders to the Office of the General Counsel for approval.

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13.4 TIME EXTENSIONS RESULTING FROM DELAYS

References:

    - Long Form, General Conditions.
    - Long Form, Specifications, Section 01310.

The contract time may be extended by the number of calendar days that certain causes or events prevent work from being completed. All time extensions are granted by means of a change order (see 13.2). Space is provided for stating the adjustment of contract time, if any, on the Change Order form.

General Conditions, Article 8, authorizes the granting of an extension of time for delays in completion if six conditions are met.

To be eligible for a time extension for delay, the contractor must submit a Change Order Request (see Long Form, General Conditions, Article 4) to the University's Representative within 3 working days from the date on which a delay begins. The University's Representative is required to determine whether the cause or event identified in the request will prevent the project from being completed by the completion date (as adjusted) and, if so, the number of calendar days that the contract time is extended.

Time extensions may need to be granted for delays to completion resulting from ordered changes in the work.

Allowable Delays. Delays caused by conditions beyond the contractor's control and without the fault or negligence of the contractor may entitle the contractor to an extension of contract time. These delays are:

  • Fire.
  • Strikes, boycotts, or like obstructive actions by employees or labor organizations.
  • Acts of God.
  • A man-made unforeseen site condition.
  • An error or omission in the contract documents.
  • The University's change of scope of the work.
  • The University's decision to suspend the work.
  • The failure of University or University's Representative to timely perform any contract obligation.

Non-Allowable Delays. Delays of the completion of the work beyond the expiration of the contract time and resulting from causes other than those listed under "Allowable Delays," above, or "Compensable Delays," below result from causes under control of the contractor. Non-allowable delays are:

  • A naturally occurring unforeseen site condition.
  • The financial inability, misconduct, or default of the contractor, a subcontractor, or supplier.
  • The unavailability of materials or parts.

Compensable Delays. Compensable delays are events caused by the negligence or acts of the University, its employees, or of the University's Representative. These delays may entitle the contractor to an adjustment of the contract time and the contract sum. Examples of compensable delays include, but are not limited to, the following:

  • Change in the scope of the work.
  • Errors or omissions in the contract documents.
  • Lack of timely direction, problem resolution, or approvals by the University's Representative.
  • Stopping the work for University's convenience.

Compensation for delays is limited to adjustments to the contract sum as determined by General Conditions, Article 7.

13.4.1 Guidelines For Granting Time Extensions Resulting From Delays

References:

    - Long Form, General Conditions.

In general, a delay is an occurrence that stops or detains the work for a period of time. Some delays adversely affect work completion, and an extension of the contract time may be granted. Other delays either do not affect work performance, do not prevent timely completion, or may be the responsibility of the contractor, and a time extension must not be granted (see 13.4).

The University's Representative is designated as the initial interpreter of the contract documents. The University's Representative, therefore, determines whether a timely request for a time extension has been made and, if so, whether there has been cause for delay. The University's Representative then determines if a time extension may be granted and the length of the extension.

Use the following guidelines to evaluate proposed time extensions:

  1. To be eligible for a time extension, the contractor must submit to the University's Representative a written change order request for a stipulated time extension within 3 working days of the beginning of a delay. If the University's Representative approves the contractor's request, a change order that adjusts the contract time is issued.
  2. Any extension of time relieves the contractor from the assessment of liquidated damages for the period of the time extension (see 15.6).
  3. To be eligible for a time extension under General Conditions, Article 8, the contractor must meet the six conditions listed in General Conditions, Subparagraph 8.4.1. These conditions are:
    1. When the event causing the delay commences, the contractor has complied with all the contract requirements.
    2. The delay is critical.
    3. The delay is supported by the contract schedule.
    4. The contractor submits a change order request within 3 working days of the date the contractor discovers the cause of the delay.
    5. The delay is not caused by any of the three causes listed in 13.4, "Non-Allowable Delays."
    6. The delay is caused by one or more of the eight causes listed in 13.4, "Allowable Delays."
  4. If two or more events occur at the same time and delay the work, the contractor may be entitled to a time extension unless the contractor is responsible for all the events. If a delay that is the contractor's responsibility occurs concurrently with a delay that is the University's responsibility or that is not the responsibility of either party a time extension may be granted to the extent of the duration of the excusable delay. A time extension granted for concurrent delays cannot be computed consecutively in any case.
  5. If strikes, boycotts, or like obstructive actions not caused by any act or conduct of the contractor delay a work activity on the critical path schedule, a time extension may be granted. The fact that a trade strikes during the course of work is not an automatic ground for a time extension. For example, if elevator workers go on strike for 30 days during the middle of a two-year project, but the strike does not affect a work activity on the critical path schedule, a time extension is not to be granted.
  6. A shortage or delayed delivery of materials is not an authorized ground for a time extension unless the shortage or delay was caused or contributed to by the University.
  7. The contractor may be granted a time extension if a change in the scope of the work adversely affects a work activity on the critical path schedule of the contractor.
  8. The contractor may be granted a time extension if Beneficial Occupancy (see 17.1) adversely affects a work activity on the critical path schedule or prevents the completion of the work as scheduled.
  9. The contractor may be granted a time extension if the work of another contractor, under separate contract with the University, adversely affects a work activity on the critical path schedule of the contractor.
  10. If a work activity on the critical path schedule is delayed by a denial of site access, lack of timely approvals or the like, the contractor may be granted a time extension for the period of effect of such a delay. Delays caused by the contractor or subcontractors cannot be the basis for a time extension.
  11. The contractor may be granted a time extension if a work activity on the critical path schedule is delayed by errors or omissions in the contract documents or by lack of timely direction, problem resolution, or approval by the University's Representative.
  12. Minor field changes, instructions, or clarifications cannot be the basis for a time extension unless the change extends the critical path past the completion date.
  13. The contractor may be granted a time extension if alternates quoted in the bid form are exercised after the contract is awarded, and such alternates include adjustments of the contract time.

Document the effective date and length of a delay to prevent the possible overlapping of time extensions from various causes. Effective dates of time extensions granted are extremely important information in the event that disputes arise about alleged delays or the timely completion of the work. Grant an extension of time for only the period of effect of a delay, and if two delays occur on the same date, grant only one calendar day of time extension.

Arriving at a New Completion Date. The contract time is based on calendar days. General Conditions, Article 14, implies that the work normally be performed only on weekdays. The total number of days required to complete the work is therefore determined by estimating the number of workdays (weekdays) and then by adding intervening Saturdays, Sundays, and holidays.

The completion date would then be determined by adding those calendar days to the previous completion date. For example, if the original contract time is 365 days, and the scope of the work was increased by change order that took the contractor six working days to perform, the time extension granted would be for eight days, and the new completion date would be determined by adding those eight days to the previous completion date.

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13.5 TIME EXTENSIONS RESULTING FROM FACTORS OTHER THAN DELAYS

References:

    - Long Form, General Conditions.

General Conditions, Paragraph 7.2, provides for adjustments in the contract time for work covered by a change order (see 13.2).

A time extension may result from a claim made by the contractor as stated in General Conditions, Paragraph 4.3. The University's Representative makes decisions on such claims, and a time extension may be granted as a result of the University's Representative's interpretations or decisions required by the provisions of General Conditions, Paragraphs 4.4 and 4.5.

Either the contractor or the University may appeal the University's Representative's decision on a claim. The appeal may go to mediation, arbitration, or litigation (see 16). The arbitrator or court may award a time extension, or may increase or decrease given time extensions.

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Revised October 5, 2012 (Change # FM 12-013-P)

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