Toolbox Talk Series Recap – Maximizing Profits while Experiencing Changes During Project Performance

In the May 30, 2024 edition of Division 1's Toolbox Talk Series, John Wolf and Jose Pienknagura presented on using a contract management control process to help maximize profits on construction projects.  While their guidance is useful on all construction projects, it is particularly applicable towards federal contracts.

The contract management control process should be geared towards:

• Identifying potential issues that could affect profitability when bidding on a contract (i.e. omissions, ambiguities, etc.);
• Timely recognition of both directed and constructive changes to provide contractually required notices and documentation to preserve rights; and
• Assuring project team is sufficient at all times to handle claims submissions and prepare for any potential dispute resolution process.

Wolf and Pienknagura focused primarily on the second and third aims of the contract control process.

Regarding recognizing and responding to directed and constructive changes, they first discussed the distinction between formal Directives and Constructive Change Directives (CCDs). A formal directive is initiated from the Owner down and has the contractually required documentation.  On the other hand, CCDs are where means and methods are used that are different than what is called for in the contract – so-called “handshake deals.”  There are various challenges associated with CCDs that make resolution difficult, including recognizing that there is a CCD and assuring the proper contractual procedures are followed.  Generally, informal deals like CCDs make it more difficult for a contractor to enforce its rights.

Wolf discussed how he sometimes finds that contractors are too worried about “winning the next job” and that mindset impacts their performance on the current job. He emphasized that a contractor should insist on following the contract and notice provisions without concern for being perceived as unfriendly or uncooperative.  Instead, following the contract provisions is the best way to minimize claims during and after a Project, which is often more important in winning the next job.

Wolf and Pienknagura also discussed strategies to employ during a Project to minimize a backlog of pending change orders, including a built-in time period where change orders are subject to re-pricing if unresolved and a cap on the amounts of CCDs that can be pending at any given time. Further, Wolf recommends that Contractors carefully review the language on pay applications to avoid unintentional waiver of CCDs.  One effective option is to include an exclusion list of pending items to protect against any such waiver.

Regarding the third point above on assuring a project team is equipped to handle claims submissions and dispute resolution processes, Wolf and Pienknagura mentioned how crucial it is for contractors to engage outside expertise to augment project teams at the appropriate teams (generally sooner rather than later). These experts can help ensure the contract management control process stays intact and can help paper claims to preserve Contractor’s rights in the event of a formal Dispute.

Thank you to Wolf and Pienknagura for the valuable information and insight.

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Author Douglas J. Mackin is a construction attorney with Cozen O’Connor in Boston, Massachusetts. Douglas counsels owners, developers, contractors, and subcontractors in all phases of a construction project, from contract negotiation through to completion, including disputes, litigation and arbitration. Douglas can be contacted at dmackin@cozen.com.