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CHANGE ORDERS ADMINISTRATION
Change order administration is a name given to an organized effort to eliminate unnecessary cost and time impact as a result of processing project work outside the original scope of the contract.
To think that a project or a construction contract can be executed without change orders is a fallacy unsupported by experience.
Change orders are just part of every day business in project management environments. The important issue is to recognize their implications and set up an effective management system to take care of them. An effective administration of change orders can minimize their cost and time impact and prevent costly legal action.
Construction change orders represent modifications to the contract between the contractor and the owner. The construction contract may be adjusted to reflect design changes, clarify documents, resolve unexpected conditions at the construction site, and accommodate substitutions.
Change orders can be initiated by owner's deletion or addition of work, designer's clarification of the contract, or any other change in the scope of the work, contract time or compensation. Repeatedly, the work covered by a change order cannot wait until its negotiation is over, and there may be disagreements between the owner, contractor, and designer over responsibility for the change, all these factors make change order administration a complicated and difficult subject while at the same time justifying project management teams need for a discipline approach to achieve better results.
Sources of Changes
Every kind of construction has a pattern in the development and number of changes, but they usually arise from one of the following:
- Unanticipated site conditions; and
- Owner requested design modifications.
Simple changes, such as substitution of comparable materials, may be carried out with little or no problem, however, more complex changes as those involving substantial judgment to interpret apportioned costs, and assess the impact on project schedules, are more common.
Change orders may get extremely complicated depending on the size, time of issuance, schedule progress, criticality, and concurrence with other changes.
Contractual Aspects
The contractual review of a change order involves a meticulous examination of contractor, designer, and owner compliance with the contract requirements, and the time and money negotiated as part of the change order.
Usually, legal reviews focus on satisfaction of:
- Notice requirements;
- Equity of payments versus actual costs; and
- Adjustment of project schedules.
Project management's daily attention to changes and their reasonable compensation, may find frequent disagreements over:
- The precise scope of the change;
- Equipment rental rates;
- Acceptable profit; and
- Overhead costs.
Unless these specific items have been outlined in the contract or some other standard agreement has been reached, these issues will probably persist through all the negotiations. This point must be emphasized because there are no universally adopted:
- Tables of costs;
- Definitions of change in scope; and
- Guidelines for overhead and profit reimbursement;
Besides the predictable concern over:
- Direct costs; and
- Schedule delays.
Increased legal and management attention should be given to:
- Indirect costs;
- The impact of changes on later aspects of the work;
- The indirect effect of numerous changes;
- The relationship between changes and productivity;
- The additional supervision required to handle changes; and
- Associated impacts.
Most contract provisions addressing changes provide a detailed listing of items compensable when a change occurs, and typically only the cost of schedule modification directly attributable to the change is covered.
Attention should be given to the consequential effects of a change on the project schedules, such as the effect of multiple changes on the efficiency of the labor and supervision, the disruptive effects of changes on the efficiency of the contractors and their morale, and other costs the contractor incurs but may not be able to directly link to specific changes.
Strictly speaking, other costs not directly linked to the change may not be considered compensable. However, the contractor will attempt to include the impact of all of these items in the resultant change order agreement.
The evolution of a reasonably simple change into one that has a large impact illustrates the basic elements of a simple change and how it can readily mushroom into something ponderous and nearly unmanageable as the contractor attempts to recover related but separated costs.
In most cases, the contract language is directed at the scope of the change and compensating the contractor for associated, direct costs. But, citing a breach of the contract, force majeure (an unanticipated major event), or other legal concept, the contractor may be able to substantially expand not only the scope of the change but also the compensable costs and time delays.
The most interesting development these days is the systematic use of the project network schedules along with other contract documentation as:
- Progress reports;
- Productivity analysis;
- Daily and weekly meetings;
- Correspondence;
- Survey reports and the like,
to prove the impact that is not easily visualized by other means.
As-planned and actual scenarios should be compared at the time when the change order is approved. Then the actual performance schedule should be depicted before the introduction of the change order and compared to the actual situation after the change was incorporated.
Change order administration involves a practical and realistic interpretation of the contract language in light of the proposed changes in the work.
Change order administration should be an exercise of applying contract language to a relatively discrete situation. But it may be much more than that, because it involves:
- The degree of control the contractor, designer, and owner have over one another;
- How the change is being administered;
- Types of documentation that are required for its approval by both sides; and
- The ability of the parties to establish the actual scope of the change.
Contract provisions related to changes are used to guide both parties in reaching an agreement. However, owners and contractors can use the contract language in their favor.
Out of self-defense, many contractors have found the best way to ensure recovery for changes is to aggressively and promptly pursue each prospective change in the contract. This may be achieved by giving prompt notice to the owner along with documentation of all costs involved, schedule delays incurred, and the precise presentation of this information with the proposed change order.
When the contractor is well prepared and the owner is not, the contract has been turned from a document for the mutual benefit of both parties into a potential weapon used by one to exploit changes as means of gaining additional compensation.
The sponsoring of projects by multiple owners as a joint venture and large financial institutions providing money and seeking project participation may have an impact on change order approval or processing in general.
Third parties may provide some funding, but frequently also claim control over specification provisions and the review of change orders. In principle, since third parties funding is involved, they wish to ensure the project scope is maintained despite the occurrence of change orders, and to ensure change orders are reasonable.
Similar restrictions on the contract language used and requirements on the prior approval or right-to-review change orders may be exercised by each of the partners in commercial joint venture projects and the funding organizations.
With projects having multiple sources of finance or control, there are several common forms of distortion in the change order process. "Prior Approval" may be required before the work proceeds, actual funding may be delayed until after all participants have approved the change, and sources of finance may reserve the right not to participate in change orders even though they are within the original project scope.
Insistence on prior approval of changes has a particularly adverse effect on construction. The contractor encountering interferences in the work, changed conditions, or other obstacles must stop further work in the area until the change is acknowledged and approved. Otherwise, the funding for the change may not be approved, regardless of the actual merit of the change. This interruption of the work and restarting later invariably results in:
- Reduced labor efficiency;
- Adverse impacts on the project schedule; and
- Greater costs.
Reservation of rights to participate in the change order or to approve the change much later can also have a severe impact. Some Project managers, fearful of an arbitrary or restrictive review of change orders by funding agencies, deliberately deny reasonable requests for change orders in a ploy to either hide the costs or to appear as a rigorous enforcer of the contract.
Change Orders Elements
There are at least six key elements in the successful administration of changes during construction; they are:
- The contract approved schedule revised on the day the change was approved;
- The approved progress reports;
- The full scope of the change identified and understood;
- The detailed records of all related aspects;
- Information to all affected parties, and assessment of their role in the change; and
- The evaluation of alternative strategies available for minimizing the impact of the change.
Change Order Strategy
Establishing the Scope of the Change
When starting the design or construction phase of a project, a great deal of effort is invested in carefully defining the scope of work and its associated costs. A particular effort is made to minimize and control ambiguous details which will affect costs, quality, and schedules. Even with the most schematic of construction drawings, the designer will prescribe basic dimension, materials, and key characteristics of the work.
By contrast, with changes, the scope is often narrowly and poorly defined, and estimates of the associated cost and schedule impact are considered approximate at best. In effect, the contractor, designer, and owner may agree that something must be done, but may not agree on its full description and its associated costs.
In principle, when assessing whether or not a change exists we compare characteristics of the alleged change with the contract requirements, and based on this review agree on the existence of a change. A great deal of attention is given to the specific contract wording and its reasonable interpretation.
It is not enough, however, to simply acknowledge that a change exists according to the contract language; it is also essential to define its scope and impact on the actual project. But it is difficult to assess the full impact of the change or there is simply no time to fully understand it.
When establishing the scope for a change, look beyond the simple contract wording and consider the potential impacts of the change on other areas of the project construction and operation, events which may ease or worsen the effects of the change, and any consequential cost and schedule impacts which may be incurred.
This is not to say that we will set aside the contract or ignore its provisions, but indirect or consequential issues associated with the change may have a large effect on its eventual cost and schedule impact.
Even if the direct impact of a specific change can be readily established, its indirect effects can be much harder to assess. The following checklist is a guideline for change orders scope recognition.
- Evaluate the full scope of change;
- Evaluate the full impact of change on related work;
- Evaluate the schedule impact locally and overall;
- Analyze daily and weekly meeting minutes;
- Evaluate progress reports;
- Establish productivity profiles;
- Visit the site;
- Take photographs; and
- Establish cost estimate.
Maintaining Detailed Records
If full credit is to be granted for the change, legal precedent and good practice requires all related issues to be thoroughly documented, from initial notice of the change through its final impact on the project cost and schedule.
Unfortunately, lack of time on the construction project makes the development and maintenance of detailed records difficult. Furthermore, contractors, engineers, and architects often resist exact record keeping on the grounds that outsiders interpretation may be inaccurate.
Several approaches have been used to help develop good records some of them:
- Isolating the schedule portion affected by the change, impacting it with the change and incorporating it back to the overall schedule for further identification of impacts;
- Maintaining a verbal commentary while filming the work with a video camera;
- Requiring the contractor to hire a professional photographer to maintain a detailed photo log of the work; and
- Using a professional court recorder to transcribe the minutes of all periodic meeting among contractor, designer, and owner.
Contract administrators, contractor personnel, and legal staff from both sides may then work with these records to establish the impact and relative responsibility for each aspect of the changes. Records may be used to develop background for future projects.
If there is a more serious administrative or legal dispute over a single change or the impact of multiple changes, the maintenance of detailed, clear records will not only substantially increase the probabilities of a fair settlement, but decrease the associated legal and administrative costs.
Establishing Proper Processing Time
In the simplest of cases, the representatives of the contractor and owner negotiate and reach a direct agreement on the change immediately after it has been identified. Agreement may be reached without having to receive approval from other outside parties.
In practice, there is usually a point where other parties must be consulted and their approvals received, and inordinate amount of time is often spent documenting, explaining, and justifying the existence of the change. The key point here is that the time required to respond to a change is often much longer than any party might reasonably expect or want.
Because many change orders are requested by the contractor, and certainly much of the documentation must originate with the contractor, it is often tempting to say that delays in the change order processing are attributable to contractor delay and inaction. Consequently, many owners and designers attach a lower schedule and financial priority to change orders that to other aspects of their work.
Contractors often contribute to delays in change order processing by delaying their request for a change until all of their costs are known, or until later in the project when the impact of changes is clearer.
In many respects, though, their delay is exacerbated by contract notice requirements, the contractor must notify the owner of any potential change as soon as it occurs or lose the opportunity to recover later. Therefore, the contractor files a notice with all potential changes, when in fact most are not realized and many are not documented until well after the initial filing.
Then, given this large time gap between initial notice and actual request for compensation, it appears that protracted delays in change order processing is a natural and relatively benign development. In fact, this is not the case. From experience, the more rapidly owner and designers respond to potential and claimed changes in the work, the lower the direct and indirect costs the owner will incur.
Keep in mind that delaying change orders processing until the end of the project increases the probabilities of the contractor recovering claims and net owner administrative costs. Deferring resolution of change orders until the end of the project allows the contractor an opportunity to identify more costs associated with the change and more complete records.
It is a well known fact that after-the-fact data analysis by the contractor brings substantial increase on constructive change orders claims. Many good reasons are given for not pursuing the prompt resolution of change orders. But it is important to recognize that the net costs will be lower for all with more expeditious handling of their identification and processing.
Establishing a plan of action
Change orders must be treated as small contracts within the contract. As such, they must have their own:
- Budget;
- Working approved schedule;
- Manpower crew loading;
- Other resources allocation;
- Progress measure system; and
- Analysis and evaluation frequency.
Parallels may be drawn between the administration of a change and that of a simple project. In either case, good management requires us to establish a goal or objective, to organize the people involved, and then to monitor the work as it progresses.
But no matter how small, effective administration of changes often requires greater management skill, for here we are not only responding to a new task or objective, but we must also deal with a whole universe of related, evolving tasks making up the original project.
In spite of the importance of good project scheduling, few contractors and owners develop and maintain strong schedules for the project as a whole. Reasons vary, but most often it is because lack of time to develop and update it, and lack of the technical background needed for more sophisticated systems.
It is seeing, however, a great deal of interest in the use of microcomputer-based systems, where the project personnel may use simple software systems to plan their work over the next two to three weeks. These commercial systems allow personnel to easily enter critical activities and to better examine alternate strategies for completing the work.
This ability to use a sophisticated, but user friendly system to evaluate alternate sequences, equipment, and personnel for a particular task results in more effective planning of the work. When field personnel have control over the schedule development system and when they may use it as a planning tool to evaluate alternatives, they get more involved and become very effective in planning and monitoring the impact of changes.
The use of schedule and work planning systems at the project site, operated independently from remote main-office computers, should be encouraged.
The Construction Schedule
As with almost every other aspect of the relationship between owner and contractor, scheduling must be established in the contract. If a construction contract contains no schedule or no completion date, courts will infer that a reasonable time is allowed for the contractor to complete the project. Needless to say, few project owners are willing to trust the fate of their project to such an amorphous standard of performance.
The Contractual Schedule
Most construction contracts contain the statement that time is of the essence. To understand the purpose of this statement, it is necessary to recall the distinction between material and immaterial breach of contract discussed in previous discussions.
By stating that time is essential, the owner is putting the contractor on notice that a failure to meet the completion requirements will be a material breach of contract which would justify a default termination of the contract. As a practical matter, an owner would be on shaky ground if it kicked a contractor off a job simply because the contractor was a few days behind the established progress schedule.
However, if the owner could show that the contractor has no reasonable chance of completing the project on time, a default termination would be upheld.
Establishing a completion schedule is quite simple. Sometimes the owner simply states the date by which the work must be completed. The preferred method, however, is to state the number of calendar days the contractor will be allowed for performance of the work. This method is superior because it allows for greater flexibility and specificity when it becomes necessary to make adjustments in the completion date. These matters will be discussed later in this chapter.
If a contractor is allowed a certain period of time to perform the work, for instance, 420 calendar days, it is obviously necessary to establish when the period starts to run. Some construction contracts state that the performance period starts to run on the date of the contract itself.
Frequently, however, the contractor is not authorized to begin work immediately upon contract signing. Problems with site access or project financing may force the contractor to wait weeks before actually beginning work.
It is common for contracts to state that the contractor will receive a notice to proceed within 30 or 60 days of contract execution and the contractor must commence work within 5 days of receipt of that notice.
Construction contracts should also establish how the date of completion will be established. Considering the financial consequences of late completion, this should not be determined on an ad hoc basis.
The most prevalent and appropriate benchmark for a contractor completion of the work is substantial completion. Substantial completion is achieved when the project is sufficiently complete so that the owner can take occupancy and put the structure to use for its intended purpose.
There may be a large number of remaining punch list items which the contractor is contractually obligated to complete, but if the contractor achieves substantial completion within the stated number of calendar days, it has met its completion obligation.
The fact that certain finish work needs to be touched up or certain hardware is missing should not enable the project owner to levy harsh financial penalties against the contractor. The owner received that which it bargained for. It is occupying and making productive use of the project within the stipulated period of time.
Sometimes construction contracts will state that the contractor must achieve final completion of the project within the stipulated number of calendar days. This means that all the punch list must be complete and the owner must formally accept the project and release final payment.
This arrangement is quite unfair to contractors. As will be seen in the final chapter on project closeout, a great deal must be done between substantial completion and final completion and acceptance of the project. Many of these matters are beyond the control of the contractor.
Why should the contractor be held financially responsible, for instance, by way of liquidated damages, for this period of time, particularly when the owner has the beneficial use of the project. For this reason, courts prefer to interpret completion of the project to mean substantial completion. If a contract explicitly requires final completion and acceptance within the stated number of calendar days, however, this requirement will be enforced.
The Contractor Construction Schedule
Considering the complexity and extent of a typical construction project, it is apparent that a great deal of planning and scheduling is required. A detailed examination of scheduling techniques is beyond the scope of this book, but a basic understanding is useful.
Until recent years, most construction scheduling was performed using simple, manually prepared bar charts. Each bar represented a particular activity and indicated when it must commence and when it must be completed.
These milestones are usually expressed as the number of elapsed calendar days of work on the project. The timely commencement of follow-on activities would of course be contingent upon the timely completion of the earlier ones.
Some bar charts are quite crude, breaking the activities down only according to trade. Some are quite elaborate, however, with separate bars for virtually every identifiable activity.
In recent years, the use of bar charts has been largely replaced by the use of computerized critical path method (CPM) schedules. These schedules are based on the same concept as a bar chart, but the activities are tracked on a computer-generated network drawing. CPM schedules tend to break the activities down with far greater specificity than even the most elaborate bar chart, thereby giving contractors greater ability to monitor their progress and properly coordinate the various activities.
The term critical path refers to that sequence, or path, of activities which is critical to the timely completion of the project. For some activities, the scheduling constraints are not severe, as little or no follow-on work is dependent upon their timely completion. Other activities, such as the pouring of the foundation, are sure to be on the critical path.
The fact that CPM schedules are computerized adds greatly to their usefulness. It is common for contractors to generate an as-planned CPM schedule prior to starting work. As work progresses, an as-built schedule is maintained. This enables the contractor to carefully monitor its own progress. As will be seen later in this chapter, it also provides a powerful tool for documenting the extent of various delays, their effect on the critical path, and their effect on the actual completion of the project.
Traditionally speaking, progress schedules have been prepared by contractors strictly for their own use. The attitude of contractor and owner alike was that the contractor was responsible for the proper scheduling and coordination of its work. As long as it met the completion date, this scheduling was no one else business. In recent years, however, project owners have insisted on getting into the act. It is now common for contracts to require that the contractor submit a proposed progress schedule to the owner within so many days of contract execution. This schedule is to be reviewed and formally approved by the owner. Adherence to this schedule is a requirement of the contract.
Project owners feel that by reviewing and approving a contractor schedule, they will gain more control over the contractor and be in a better position to hold the contractor accountable for its progress or lack thereof. From a managerial standpoint, this is probably true. From a legal standpoint, however, this is a dubious proposition.
As mentioned earlier in this chapter, an owner will not be able to terminate a contract for default simply because a contractor has fallen behind its approved schedule. The owner must be able to prove that the contractor was so far behind schedule that it had no reasonable chance to complete the project on time. In the absence of that showing, the owner must give the contractor an opportunity to pick up its pace and complete the work on schedule.
The owner formal approval of a contractor progress schedule is also a double-edged sword which can come back to harm the owner. On any construction project, the owner has certain obligations that must be met in a timely manner. The site must be accessible. Decisions and approvals must be made. The work of separate contractors must be properly coordinated. If the owner fails to carry out its responsibilities in a timely fashion, it may very well be held liable to the contractor for delay damages.
By formally approving the contractor progress schedule submittal and making it a part of the contract, the owner has gained a slightly higher degree of leverage with the contractor. It has also made a contractual representation that it will carry out its responsibilities in a manner which will enable the contractor to meet the approved schedule. If the owner fails to do so and the contractor performance is delayed as a result, the approved progress schedule will be Exhibit I in the contractor delay claim against the owner.
Categorizing Delay
Before examining the relationship between owner and contractor regarding delay, it is useful to discuss the three basic categories of delay. All construction delay can be characterized as excusable not compensable, excusable compensable, and non-excusable.
Excusable delay is delay which occurrence is due to factors beyond the control and without the fault of either party. Bad weather is the most common example. Generally speaking, excusable delay will entitle the contractor to an extension of the performance period, but no additional compensation.
Nonexcusable delay occurs as the result of the contractor failure to meet its contractual obligations. For instance, material was not procured on time or insufficient labor was furnished.
CASE STUDY 1
The contract allowed Contractor 290 days to complete construction of a fire station. Some of the drawings furnished by Owner proved to be defective. This delayed the Contractor performance of the work.
Owner became dissatisfied with the pace of Contractor progress and terminated the contract for default. Contractor contested the termination.
Contractor delays were beyond its control and therefore excusable. Owner was obligated to extend the performance period to compensate for the delay. If the proper extensions had been granted, Contractor progress would have been satisfactory.
Therefore, the default termination was reversed.
If a non-excusable delay results in the contractor failure to complete the contract within the stipulated number of days, the contractor will be held financially responsible to the project owner for the delay.
Compensable delay is a delay caused by the owner failure to meet its obligations. For instance, the owner failed to provide timely access to the site or failed to review shop drawings within the contractually allowed period. Generally speaking, compensable delay entitles the contractor to an extension of the performance period and an increase in the contract price to compensate it for the increased costs caused by the owner delay.
Sometimes, two separate causes of delay occur concurrently. If an excusable or compensable delay occurs concurrently with a non-excusable delay, the contractor will not be entitled to a time extension or increased compensation for the period of non-excusable delay. The rationale is that the contractor would have been delayed anyway because of its own shortcomings.
Similarly, if an excusable delay occurs concurrently with a compensable delay, the contractor will be entitled to a time extension, but no compensation, for the period of excusable delay. After all, the contractor would have been unable to work notwithstanding the owner shortcomings.
To understand the concept of concurrent delay, consider these illustrations:
The owner denies timely site access to the contractor. Ten days later, unusually severe rain begins to fall. Ten days after commencement of the rain, the rain stops and the owner provides site access. The first 10 days of delay would be compensable. The next 10 days of concurrent delay would entitle the contractor to an extension of time for the excusable delay but would not be compensable.
The contractor is unable to obtain a piece of equipment necessary to perform the excavation. The owner, however, has not provided access to the site. The occurrence of the non-excusable delay cancels the effect of the owner compensable delay. The contractor would not be entitled to a time extension or additional money.
CASE STUDY 2
Contract called for construction of an air traffic control tower. Inadequate Government specifications for fasteners resulted in problems with installing masonry panels. Work was halted.
As soon as work stopped, serious deficiencies in the workmanship of Contractor masonry subcontractor were discovered. These problems were corrected while Government resolved the problems with its specifications. Contractor later brought a claim alleging that the entire period of delay was compensable.
The U.S. Claims Court ruled that the delay was initially compensable because it was the fault of Government. As soon as the deficient workmanship was discovered. however, the compensable delay became concurrent with a non-excusable, contractor-caused delay. Contractor was not entitled to any additional compensation for the period of concurrent delay.
The contractor fails to obtain the necessary piece of equipment, and no work takes place for 10 days. Unusual severe rain then begins to fall and continues for 10 days. By the time the rain stops, the contractor has obtained the equipment and is ready to start work. The first 10 days of delay are non-excusable, and to the extent this delay causes late completion, the contractor will be liable to the owner.
The contractor will not be responsible for the next 10-day period of concurrent delay, however. The excusable delay negates the effect of the contractor shortcomings, as the contractor would not have been able to work anyway. The contractor will not be entitled to an extension of time for any period when it did not have the equipment available, however, as it would have been delayed notwithstanding the rain.
Contractor Entitlement to Extension of Time
It is important to emphasize that a contractor entitlement to an extension of time is dependent on the terms of the contract. If the contract does not expressly authorize time extensions, the owner will be in a position to argue that the contractor is obligated to complete the project on schedule regardless of any occurrences. The owner will not necessarily prevail in this argument, as courts sometimes recognize that an act of God will excuse nonperformance of a contract. But the door will be open for the owner to make the argument.
The contractor entitlement to an extension of time is usually dependent on the definition of excusable delay; so the examination of this issue must begin there.
Excusable Delay
As stated earlier in this chapter, excusable delay results from occurrences beyond the control and without the fault of either owner or contractor. Most construction contracts spell out occurrences entitling the contractor to an extension of time. This is seldom labeled a excusable delay, but the fact the contractor is allowed additional performance time indicates that the delay was recognized as being beyond the contractor control.
In the absence of a contract clause authorizing extensions of time, there will be great confusion as to what, if any, events will justify an extension of time. Courts would probably excuse the delay only in the face of catastrophic natural disasters. A time extension clause is therefore crucial from a contractor point of view.
Weather, of course, is the most common cause of excusable delay. It is also the most misunderstood.
In order for adverse weather to be an excusable delay, it must be so severe or unusual that it could not have been reasonably anticipated. When bidding and scheduling their jobs, contractors are expected to anticipate bad weather. It would be foolish, and certainly not beyond the control of the contractor, to price and schedule work on the assumption that every day will be warm and dry. Normal seasonal and geographic factors must be considered. A week of rain in April might be adverse, but in most locations, spring rain should be anticipated.
To prove entitlement to a time extension, contractors must rely on the weather records for the locale of the project. The weather occurrences for the period in question must be compared with the historical weather data for that time of year. Ultimately, it comes down to the inherently subjective judgment call as to whether or not the weather conditions were so severe or unusual for that location at that time of year that the contractor could not have reasonably anticipated their occurrence.
Another misunderstood cause of excusable delay is acts of governmental authorities. Again, the key is foreseeability. If a contractor knows it is required to get certain permits from public authorities, it must anticipate that a certain lead time will be required. Delay in obtaining these permits will usually not be excusable. The delay will be excusable only if the contractor was without fault and the nature or extent of the delay could not have been anticipated. A classic example would be when an environmental organization files suit and obtains an injunction shutting down the project.
Notice Requirements
Most contract clauses authorizing extensions of time for excusable delays require the contractor give the owner prompt notice of the delay. For instance, AIA Document A201 requires the contractor to make a claim in writing within 20 days of the commencement the delay or the right to a time extension will be waived. Many contracts require written notice within a much shorter period of time.
The question arises, does the contractor failure to give the owner timely written notice actually result in a waiver of the right to a time extension? The answer is, it depends on whether or not the owner was prejudiced by the lack of written notice.
If the owner was aware of the delay, it is hard to see how the lack of a written notice would affect the owner options or decisions. This is frequently the case, as an owner representative usually visits the site regularly and would be aware of a work stoppage.
Even if the owner was unaware of the delay, the lack of written notice may not prejudice the owner interests, particularly if the delay is caused by bad weather. Even if the owner had been given notice, what could it have done?
In order for the failure to give written notice to operate as a waiver of the right-to-an extension of time, the owner must be able to show that had it been given notice, it would have taken certain actions to mitigate the problem. Then, the lack of notice did adversely and irrevocably affect the owner interests. In this situation, courts will enforce the written notice requirement against contractors.
Effect of a Time Extension
The effect of a time extension is quite simple. The contractor is allowed to complete the project at a later date without incurring financial liability to the owner. As will be discussed later in this chapter, most contracts call for liquidated damages to be assessed against the contractor for every day the project remains incomplete after the stipulated completion date. A time extension enables the contractor to avoid liquidated damages for that period of delay attributable to excusable causes.
REFERENCES
Emory C.W. : "BUSINESS RESEARCH METHODS" , R.D. Irwin Inc., 1995
Pfaffenberger R.C. and D.A. Walker,: " MATHEMATICAL PROGRAMMING FOR ECONOMICS AND BUSINESS", The Iowa U. Press, 1976
Hackney J.W.,: "MANAGEMENT OF CAPITAL PROJECTS", John Wiley & Son, 1995
Bu-Bhsait K, Manzanera I, CLAIMS MANAGEMENT, Project Management Magazine, England, 1992
Buffa E.S. : "MODERN PRODUCTION MANAGEMENT", John Wiley & Son 1985
Specthrie S.W. : "INDUSTRIAL ACCOUNTING" , Prentice-Hall, Inc., 1989
Lucey T.,: "QUANTITATIVE TECHNIQUES" D.P. Publications 1993
Peters M.S. and K.D.Timmerhaus,:"PLANT DESIGN AND ECONOMIC FOR CHEMICAL ENGINEERS" McGraw-Hill, 1996
Buffa E.S. : "MODERN PRODUCTION MANAGEMENT", John Wiley & Son 1995
Kaoru Ishikawa, INTRODUCTION TO QUALITY CONTROL, Juse Press Ltd., 1989
Ignacio Manzanera, PROJECT MANAGEMENT REFERENCES, Aramco Press, 1992
W. Edwards Deming, OUT OF THE CRISIS, Cambridge University Press, 1994 |
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PM is all about preventing people to fake accomplishment
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