Contractor's Guide to Change Orders

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Uncover hidden cost items and receive full compensation for them. Each chapter of this great book contains step-by-step procedures, checklists, full-size forms, and word-for-word letters to help you increase your acceptance rate and get paid for all changes on the job -- without disputes or misunderstandings.

Shows how to find, document, and negotiate payment for every added delay and expense that slips past your "early warning system."

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Weight	2.160000
ISBN	1-55701-427-2
Page Count	382
Author	Andrew M. Civitello Jr. with William D. Locher, J.D.
Publisher	BNi Building News
Dimensions	8-1/2 x 11

Table of Contents

Contents: Preface, vii; What This Book Will Do for You, ix; How to Use This Book, xiii
Part One
INDUSTRY AND CONTRACT ENVIRONMENTS: The Contractor's Move to Power, 3; 1.1 Introduction, 4; 1.2 The Changing Building Industry, 4; Contract vs. Contact: Parlaying Subtle Differences into Dramatic Advantages, 6; 2.1 Introduction, 7; 2.2 Ending the Confusion About Contract Structures, 7; 2.3 Clarifying Contract Responsibilities to Garantee Accurate Assessments, 13; Proven Strategies for Applying Construction Contracts, 36; 3.1 Strategic Interpretation: Applying Contracts to Secure Power Positions, 37; 3.2 The Contract Documents: Simplified Descriptions to Prevent Oversight, 38; 3.3 Rules of Contract Interpretation: The Cards Up Your Sleeve, 41; 3.4 Applying Construction Contracts Without Resistance, 44; Reference, 54
Part Two
CHANGE ORDERS EXPOSED: Change Order Diagnosis, 61; 4.1 A Normal Part of the Construction Process, 62; 4.2 Clarification or Change?, 62; 4.3 Reasons for Change Orders (Additions and Deductions), 63; 4.4 Change Order Categories, 63; Understanding How Change Orders Arise, 67; 5.1 Introduction, 68; 5.2 Defective Specifications, 68; 5.3 Nondisclosure, 72; 5.4 Lack of Coordination Among Design Disciplines, 72; 5.5 Incomplete Design, 73; 5.6 Latent Conditions (Defects), 73; 5.7 Owner Changes, 74; 5.8 Improved Information, 75; 5.9 Improvements in Workmanship, Time, or Cost, 75; 5.10 Illegal Restrictions, 76; 5.11 Nonapplicable Boilerplate, 77; 5.12 "Intent" vs. "Included", 77; Using the Change Order Process to Your Maximum Advantage, 78; 6.1 The Six P's of Change Orders, 79; 6.2 Prospecting for Change Orders (Discovery), 79; 6.3 Preparing the Change Order, 80; 6.4 Pricing the Change Order, 89; 6.5 Presenting the Change Order, 92; 6.6 Performing the Work, 93; 6.7 Change Order Payment, 95
Part Three
PROSPECTING FOR CHANGE ORDERS AND THEIR COMPONENTS: Where and Now to Find Potential Change Orders, 101; 7.1 Introduction, 103; 7.2 Predesign, 103; 7.3 The Contract and Bid Documents, 111; 7.4 Plans and Specifications, 121; 7.5 Site, 162; 7.6 Change Order Discovery Checklist, 169
Part Four
CHANGE ORDER PROPOSAL PREPARATION AND PRESENTATION: Designing and Constructing Effective Change Order Proposals, 181; 8.1 Change Order Components, 183; 8.2 Developing the Change Order Proposal, 190; 8.3 Finalizing the Proposal, 212; Substantiating Change Order Prices: Settling Arguments Before They Begin, 224; 9.1 Introduction, 225; 9.2 Lump-Sum Prices, 227; 9.3 Detailed Cost Breakdowns, 231; 9.4 Time and Material, 233; 9.5 Unit Prices, 237; 9.6 Historical Cost Records, 238; 9.7 Industry Sources, 239; 9.8 Invoices-Records of Direct Payment, 239; 9.9 The Schedule of Values, 240; Using Project Records to Discover, Define, Support,and Track Change Orders and Claims, 241; 10.1 Introduction, 243; 10.2 Establishing Dates in the Correspondence, 244; 10.3 Daily Field Reports, 245; 10.4 Payroll Records, 251; 10.5 Photographs--What, When, and How, 255; 10.6 Construction Schedules, 258; 10.7 Using Job Meetings to Establish Dates, Scopes, and Responsibilities, 261; 10.8 Shop Drawings and Approval Submittals, 271; 10.9 Time and Material Tickets, 274
Part Five
CHANGE ORDER AND FILE PRESENTATION: Keeping Change Orders Under Control: How to Save Time and Improve Records with Administrative Housekeeping, 281; 11.1 Introduction, 282; 11.2 Establishing Easy-to-Research Change Order Files, 282; 11.3 File Content, 284; 11.4 Correspondence File, 287; 11.5 Tracking Change Order Trends, 288; 11.6 Approval Submissions, 294; 11.7 Sample Letter of Transmittal, 309
Part Six
DISPUTE RESOLUTION: Winning in Change Order Negotiation, 315; 12.1 Introduction, 317; 12.2 Acceptance Time, 317; 12.3 Agenda, 317; 12.4 Gentleman's Agreement, 318; 12.5 Agreement vs. Understanding, 318; 12.6 Allowances, 318; 12.7 Alternatives, 319; 12.8 Arbitration and mediation, 320; 12.9 Aspiration Level, 321; 12.10 Assumptions, 321; 12.11 Authority, 321; 12.12 Averages, 322; 12.13 Boilerplate, 322; 12.14 Catch-22, 323; 12.15 Change Clauses, 323; 12.16 Change the Negotiator, 323; 12.17 General Contractor as a Conduit, 324; 12.18 Contingency, 325; 12.19 "Convenience" Specifications, 325; 12.20 Concessions, 325; 12.21 Constructive Clauses, 326; 12.22 Correlation of Contract Documents, 327; 12.23 Cost Perceptions, 328; 12.24 Credits-Turning Them Around, 328; 12.25 Deadlines, 329; 12.26 Deadlock, 329; 12.27 Deliberate Errors, 329; 12.28 Level of Detail, 330; 12.29 Discipline, 330; 12.30 The Eighty-Twenty Rule, 331; 12.31 Elaboration, 331; 12.32 Empathy, 331; 12.33 Designer's Estimates, 331; 12.34 Equitably Adjustment, 332; 12.35 Exceptions, 333; 12.36 Excusable Delays, 333; 12.37 Use of Experts, 334; 12.38 Face-Saving, 335; 12.39 Job Meetings, 335; 12.40 The Power of Legitimacy, 335; 12.41 Letter Wars, 336; 12.42 Lost Notes, 337; 12.43 "Nonnegotiable" Demands, 337; 12.44 Objections, 338; 12.45 Off-the-Record Discussions, 338; 12.46 Patience, 339; 12.48 Presentations, 339; 12.49 Proceed Orders, 340; 12.50 Promises, 341; 12.51 Questions, 341; 12.52 Quick Deals, 342; 12.53 Reasonable Review, 342; 12.54 Reopening Change Proposals, 342; 12.55 Split the Difference, 343; 12.56 Statistics, 343; 12.57 Telephone Negotiations, 343; 12.58 Plain Hard Work, 344; 12.59 Unit Prices, 344; 12.60 Value of Work Performed, 345; 12.61 Conclusion, 345; Preparing for Winning When Changes Become Claims, 346; 13.1 Introduction, 347; 13.2 Turning Around Change Order Rejections, 348; 13.3 Arbitration/Litigation/Mediation-What Is the Difference?, 355; 13.4 Finding an Attorney, 362; 13.5 Selecting Consultants, 364; 13.6 Construction Claims Checklist, 366; Appendix: Sample Contract Change Order, 369; Index, 375

Intro Chapter

1.1 INTRODUCTION

The construction industry is comprised of a large number of small companies operating in one of the most intensely competitive work environments ever to evolve. In this country, all construction firms, large and small, share remarkably similar characteristics: The competitive economic factors affecting resources, time, and management are nearly the same for all businesses.

Moreover, the construction contract agreement on a $1 million job will be very similar to that on a $50 million job. The plans themselves may be more elaborate on the larger project, but the bid documents, General Conditions of the Contract, and the Working Procedure will all be very similar. In addition, the functions, rights, and duties of the owner, design professionals, prime contractors, and subcontractors will likewise be fundamentally the same. So, again, the factors affecting the interpretation of our construction contract documents are nearly the same for all businesses, regardless of size or organizational complexity.

As a result of the current competitive environment, many contractors have seen their profitability decline. But some companies continue to record superior rates of growth. These successful firms have recognized that work environments and the nature of the business have changed, and they have moved to accommodate these changes.

In the discussions that follow, we review how the contractor's power and importance have increased as a result of the changes in the contracting environment.

1.2 THE CHANGING BUILDING INDUSTRY

1.2.1 The Contractor in Control

A hard lesson was learned by the building industry as a result of the recessions of the 1970s and early 1980s: Increases in the cost and complexity of doing business dictate that all costs must be tightly controlled to preserve profits. This means that if a contractor is going to win a bid and earn a profit, the contract documents must be interpreted in a lean fashion. There is no longer any room in a contractor's vocabulary for the concepts of "contingency" or "absorbed costs." As a matter of survival, contractors have had to become intimately familiar with contracts, their components, structure, meaning, and interpretation.

Contractors have now come to know their contracts better than the designers who produced them. They control their application more effectively. What the architect would have previously "clarified" is now a change order for which the contractor will get paid.

1.2.2 Claims Consciousness

Many contractors became very good at getting what they were after. When necessary, they recovered damages through a "claims" procedure that introduced damages through the courts or arbitration. These became hot news items, often because the dollars won in many of the awards were very large. The concept of being paid for a time delay, for example, was much more attractive than the historic "granted time extension." Contractors became very interested in developing these techniques. Some even began to look upon the whole idea as a profit center in itself.

The courts became inundated with construction claims. The American Arbitration Association (AAA) became a more visible, prominent force in the contracting legal environment. The AAA began accepting construction cases for arbitration in 1966, but didn't begin to maintain comprehensive records until 1973. From that point, as Figure 1-1 presents, the number of construction arbitration cases submitted per year nationally doubled in the decade that followed, and continues to increase at the same rate.

Even if a contracting company is not particularly interested in pursuing an aggressive claims posture, a responsiveness to the system has now become absolutely necessary to at least maintain an ability to accurately operating problems as they occur. An intimate awareness options has now become the most fundamental prerequisite for responsible contracting management.

Claims consciousness is a matter of prevention. Many problems in construction although varying widely in their specific composition, fall within common recurring categories. Errors and omissions, acceleration, delay,interference and latent conditions will make most lists. It is, therefore, necessary to develop coordinated systems for their prevention, early detection, prompt resolution, and defense before these activities actually become necessary.

Back Cover

STOP PROFIT-ROBBING CONSTRUCTION
CONTRACT DISPUTES BEFORE THEY START

With this expanded new edition of Contractor's Guide to Change Orders in hand, contractors working on projects of any size - from remodeling jobs to skyscrapers - will have all the ammunition needed to:: Keep hidden construction delays and expenses from draining profit. (Only a fraction of chargeable amounts are ever identified by the owner or architects involved.); Identify trouble spots in the contract, plans, specifications and site that are likely to result in added costs or delays.; Find, document and negotiate payment for every added delay and expense that slips past your "early warning system."; Negotiate and resolve change order disputes at every level so you are always a step ahead.; Put all the facts on your side so that, if all else fails, you have ironclad evidence to support your claim during arbitration or ligitation.

THIS BOOK IS LIKE HAVING A LAWYER ON CALL TO HELP YOU OUT AT A FRACTION OF THE COST: Detailed checklists that help you prevent costly oversights, support change order prices, record actions taken, and much more.; Sample forms and worksheets that are job-tested on projects of nearly every size and type. You can reproduce and use these forms right away to simplify your job and save hours of time.; Model letters that are professionally written and handle nearly any situation, from assigning job responsibilities to warning notices or corresponding with architects and engineers.; And much more!

ABOUT THE AUTHORS

Andy Civitello has managed construction projects of all types and sizes, for a wide variety of clients. He is a nationally recognized project management specialist and construction claims consultant skilled in contract management, claims entitlement and valuation. A "shirt-sleeve" veteran, clients include owners, contractors, design professionals, and attorneys on a wide variety of public, institutional and private projects. He is an active panelist for the American Arbitration Association and author of bestselling construction books.

William D. Locher, J.D., is senior partner with Gibbs, Giden, Locher & Turner, a Los Angeles law firm. He has represented owners, contractors and material suppliers in construction and related matters and disputes for over 20 years. He lectures regularly on contract law issues including administration, change orders and construction contract claims.

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