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Getting paid for changes before construction is over, Part
2
In my last article, I was responding to an electrical subcontractor
who was having difficulties getting its change orders signed
(and paid for) due to a design change to increase in the power
needs for the building. This increased the rating of the main
switchgear from 3,000 amps to 5,000 amps.
The changes caused delays to the subcontractor during the
submittal stage and during the equipment manufacturing process.
The subcontractor incurred extra costs for the increase in
labor, a volatile copper wire market, additional rental on
its jobsite trailer, as well as other increased general conditions.
Even though the subcontractor has been properly paid to-date
on the original value of its subcontract, it has had to foot
the bill for the increased costs by having to pay its suppliers
for the more expensive materials.
Before you zone out and stop paying attention, keep in mind
that many contracts you may have seen or signed probably either
used an AIA 201 for their general conditions, this includes
some public works contracts. Also, despite a contract not
physically looking like an AIA document, many people use provisions
in their custom written contracts similar to what I am about
to go over. Most contracts can be confusing, boring or just
dry reading, and I will be the first to admit this.
But, contracts can also help you or hurt you; it is all about
understanding your contract rights and obligations. The subcontract
was the AIA A401- 1997 standard form of agreement between
contractor and subcontractor with the AIA A201-1997 general
conditions of the contract for construction governing the
prime contract and the subcontract.
Changes to the subcontractor’s work are covered in section
5.2 of the A401, and allow the Contractor to order changes
in the Subcontractor’s work. Before beginning the changed
work, the subcontractor is required to submit written claims
“for adjustment to the subcontract sum and subcontract
time” for the changed work within the requirements of
the “subcontract documents.” The “subcontract
documents” include the A201 and prime contract to the
extent they apply to the subcontractor’s work.
Despite the change orders not being signed before the changed
work was performed, there is ample documentation to support
the argument that the work was ordered by the contractor in
writing under A401, section 5.2, and was also ordered under
A201, section 7.3 as a construction change directive. A construction
change directive is “a written order prepared by the
architect and signed by the owner and architect, directing
a change in the work prior to agreement on adjustment, if
any, in the contract sum or contract time.”
In this case, did the contractor, architect, or owner issue
formal written construction change directives? They probably
didn’t. It is not unusual for the parties to conduct
themselves in ways that don’t fit neatly into the formal
procedural requirements stated in the contracts. But, new
electrical plans would have had to been issued by the architect
and passed down from the contractor to the subcontractor.
Plus, the architect formally approved the revised submittals
reflecting the changes, and the contractor released revised
equipment for production.
This may be enough to be deemed to be in compliance with the
intent and purpose of the requirement for the issuance of
written orders and directives under both A401 and A201. The
amount the subcontractor is entitled to for the changed work
is vague in the A401, which states that the subcontract Sum
and subcontract time shall be “adjusted accordingly.”
Thus, looking to A201, payments for changed work performed
before an agreement as to the cost of the change is dictated
by A201, subsection 7.3.6, which reads like a time and materials
contract. Then, under subsection 7.3.8, any amounts not in
dispute for the cost of the change in work would be included
in a payment application along with a change order reflecting
the amount not in dispute.
The problem in this case is that no one on the owner’s
end of the equation has done anything to approve, or for that
matter disapprove, the cost of the changes submitted by the
subcontractor. To add to the analysis of what happened here,
under A401, section 5.3, the changes are considered a “claim”
by the subcontractor. And, the claims procedures found under
A201, section 4.3.2 require that the contractor submit claims
within 21 days after the claimant first recognizes the condition,
giving rise to the claim. But, under A401, section 5.3, the
subcontractor must submit its claim to the contractor in time
for the contractor to comply with the timing in the prime
contract, but “not less than two working days preceding
the time by which the contractor’s claim must be made.”
Whew! No wonder so many people hate reading contracts! If
you made it this far and are still paying attention, give
yourself a pat on the back for hanging in there. In this case,
the change orders submitted by the subcontractor probably
would suffice as notice of its claims. Where does all that
leave us in helping this subcontractor get paid for these
changes?
The answers to these questions, and more, will be addressed
in Part 3 of this series in my next article.
If you have a construction question, submit it to: info@constructionlaws.
com
General disclaimer The information in this article is based
upon California law and is for general information only. Any
information or analysis presented here is intended solely
to inform and educate the reader on general issues. Nothing
presented or referenced to, regarding facts, documents, or
applicable laws, constitutes legal advice. Before acting or
relying on any information, including any information presented
here, consult with a qualified attorney for your specific
situation.
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