Consultant Corner: A Practical Approach to Claim Avoidance

The 2022 Global Construction Disputes Report published by Arcadis shows that construction claim disputes are increasing in length, with the global average dispute duration increasing from 13.4 to 15.4 months between 2020 and 2021. Prolonging disputes can negatively impact project timelines, budgets, and stakeholder relationships. According to the report, poorly drafted, incomplete, and unsubstantiated claims were the leading causes of disputes, highlighting the need for practical strategies to mitigate such risks. This post will discuss the various stages of the change order process and the best practices to implement during each stage.

Step 1: Change Identification – Identify potential changes to the contract. Types of changes may include:

1. Design Changes: Modifications or revisions to the original design.
2. Changes to the Contractors' Means and Methods/ Work Sequencing: Unforeseen circumstances or issues resulting in changes to construction techniques, materials, equipment, or sequence of work.
3. Delays to Owner's Scope of Work: Delays to the owner's work, resulting in delays to the completion of the contractor's work.
4. Differing Site Conditions: Unforeseen conditions may necessitate changes to the original scope of work.
5. Scope Change: Any modifications made to the original project scope.
6. Delayed, Denied, or Restricted Jobsite Access: Limited or difficult unanticipated access to the job site.
7. Owner-requested Acceleration or Deceleration: Owner's direction for the contractor to either accelerate or decelerate the work.
8. Force Majeure: Unforeseeable and uncontrollable events, such as natural disasters or labor strikes.

Best Practice: Identify the change events as soon as they occur, or the contractor becomes aware of them.

Step 2: Submission of Change Order Request – The next step involves providing timely written notice of the proposed change. The contractor must provide a detailed explanation of the requested change, including the reasons for the change, the impact on the project schedule and budget, and any other relevant information.

The contractor must establish their entitlement to the change based on the contract terms. To prevent owner confusion and ensure timely approval of the change order, demonstrating clear entitlement and support for the causal event is crucial during this step.

It is important to document the impacts of the changes as they occur, which may include taking photos with a date and time stamp. Any photos should be well-organized, along with any other impact documents, to ensure that they are easily accessible and can be used as necessary. In addition, the purpose of each photo should be clearly documented. The following examples show clear change documentation using drawings, photos, and explanations:

Figure 1: Photo showing drawing, job site picture, and a narrative

Figure 2: Documentation showing drawings and photos from two different dates to identify a flooding event

Figure 3: Documentation showing drawings, actual pictures, and a narrative

Best Practices:

a. Provide timely notification of the proposed change per the contract.

b. Demonstrate clear entitlement and the occurrence of the causal event.

c. Maintain regular communication with the owner to address concerns.

d. Provide effective documentation that includes drawings, photos, and explanations.

Step 3: Owner Evaluates Entitlement – The next step involves the owner’s evaluation of the contractor’s entitlement to the change. The owner will identify the type of change order request (e.g., Added work, weather delays, differing site conditions, etc.) and review the request to ensure the contractor has provided sufficient evidence of entitlement, as per the contract. The owner’s decision to approve or reject the change order request may significantly impact the project and may require further negotiations or revisions to the project scope or budget.

Best Practice: Once the owner has been notified of a change order, they should promptly explore ways to minimize or eliminate any schedule or cost modifications.

Step 4: Contractor Prepares Proposed Change Order (PCO) – The next step involves the contractor’s preparation of a PCO. The PCO is a formal document that outlines the scope of work, costs associated with the change, and any other relevant information. In addition, the PCO should include a detailed description of the change, including references to the relevant drawings and specifications, and a delay analysis and/or a time-impact analysis, which provide an assessment of the change’s impact on the project schedule.

The PCO should include a price estimate for the change, including field overhead costs, additional material and labor costs, home office overhead costs, and profits, along with appropriate backup documentation. The contractor should refer to drawings, pictures, and any analyses performed to ensure the PCO is accurate and complete. In addition, the contractor should meet with the owner to provide any necessary clarifications.

Accurate schedule analysis is crucial during the change order process to ensure that all impacts of the change are accounted for and properly compensated. The analysis should identify the primary delay and its impact on the longest path of the schedule. The contractor should also take responsibility for any delays caused by the contractor or its subcontractors. Concurrent delays, where multiple delays occur at the same time, should also be considered and accounted for. Additionally, weather events that may be non-compensable should be taken into account. It is important to ensure that all delays and impacts are properly documented and analyzed to avoid disputes in the future. By taking the time to do a thorough analysis and accurately identify all impacts of the change, contractors can increase the chances of getting the change order approved and avoid potential disputes with the owner.

Best Practice: Provide a clear, detailed, and supported change order that the owner can easily understand.

Step 5: Owner Reviews PCO – The next step involves the owner’s review of the contractor’s PCO. The owner must evaluate the PCO to ensure that it meets the necessary requirements and that the costs and time impacts are reasonable and justified. Based on this review, the owner may approve the proposed change order if it meets the project objectives and contractual requirements. However, if there are any concerns or questions regarding the proposed change, the owner may request further discussion or negotiation with the contractor to resolve any outstanding issues.

Best Practice: – Try to resolve change orders promptly and avoid leaving them until the end of the project with a “wait and see” approach.

Step 6: Finalization and Execution of Change Order – The final step involves the finalization and execution of the change order. If the owner and contractor agree on the proposed change order, both parties sign and execute it. If the parties cannot agree on the proposed change, the owner may choose to cancel the changed work. This step of the change order process ensures that necessary adjustments to the project schedule, scope, and budget are properly documented and executed.

Best Practice: If all the parties agree with the change order, execute the change order before more changes occur. 

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Author Avi Sharma (Associate Director, Delta Consulting Group) is an award-winning construction claims professional with over a decade of global construction experience in commercial construction, high-rise buildings, heavy civil, power, and water & wastewater infrastructure projects. Avi advises and helps top general contractors, attorneys, owners and subcontractors worldwide on construction operations, claims, scheduling best practices, risk avoidance, and mitigation.

Author John Cleary (Associate Director, Delta Consulting Group), with over 10 years of experience, is an accomplished construction claims and project controls professional with a focus on the execution of large and mega capital projects. John specializes in critical path scheduling analysis and construction claims analysis, and his experience includes analysis of impacts and entitlement of contractor and subcontractor claims in the United States and abroad.

Editor Thanh Do is an Associate in Thornton Tomasetti, Inc.'s Forensics practice group. As a structural engineer, structural failure analyst and investigator, Dr. Thanh Do examines infrastructure inadequacies and determines the root cause of the alleged failures. He specializes in Design-Build project delivery, quantity growth investigation, building collapse investigation, standard of care assessment, construction defects and design errors/omissions evaluation.