Permissible Changes in Scope of Work for Construction Contracts (2015)

Below is the uncorrected machine-read text of this chapter, intended to provide our own search engines and external engines with highly rich, chapter-representative searchable text of each book. Because it is UNCORRECTED material, please consider the following text as a useful but insufficient proxy for the authoritative book pages.

3PERMISSIBLE CHANGES IN SCOPE OF WORK FOR CONSTRUCTION PROJECTS By Eric M. Kerness, Kerness Consulting, and Kurt Dettman, Constructive Dispute Resolutions I. INTRODUCTION Due to the unpredictable nature of construction projects, it often becomes necessary to change a con- tract after it is awarded to account for unforeseen circumstances or different conditions than antici- pated at the time of bid and award. There are two basic types of changes: 1) changes ordered or directed by the awarding agency and, 2) changes requested by the contractor for reasons permitted by the con- tract or by law. Underscoring this relative flexibility to make changes to existing contracts in order to accomplish the project is another fundamental requirement: public works contracts must be competitively bid. There are sound public policy reasons underlying both of these seemingly contradictory requirements. The focus of this digest is to explore whether there are statutory, procedural, and/or legal tests to deter- mine when the issuance of a contract modification (sometimes referred to in this digest and supporting materials as a “change order”) triggers the obliga- tion to competitively bid the added or modified work rather than process it as a contract modification to an existing contract. This digest will cover the following topics: the pol- icy issues underlying restrictions on contract modifi- cations; state and federal statutes and regulations affecting contract modifications; case law defining tests and examples of where contract modifications triggered competitive bidding requirements; the importance of including contract modification provi- sions in construction contracts; and case studies of how representative state departments of transporta- tion determine the permissibility and scope of con- tract modifications versus competitive bidding. Preparation of this digest commenced with a review of relevant federal and state statutes and regulations, as well as general “best practices” sourcebooks regarding bidding requirements and contract modifications, all as referenced in the foot- notes to this digest. Initial interviews were con- ducted with representatives from the Massachu- setts Department of Transportation (MassDOT) Highway Division, New York State Department of Transportation (NYSDOT), Vermont Agency of Transportation (VTrans), Rhode Island Department of Transportation (RIDOT), and Ohio Department of Transportation (ODOT). Surveys were then sent to 47 transportation agencies. The surveys covered each agency’s statutory, regulatory, and procedural requirements and practices for public bidding and for the issuance of contract modifications. The authors analyzed the 23 survey responses, and fur- ther communications were conducted with certain survey responders to elicit more detailed informa- tion that resulted in the case study in Section VIII.1 Appendix A is a summary of the survey results and a sample of the survey. Appendix B gives a useful summary of the varying approaches taken by state departments of transportation on the use of contract modifications to existing contracts. It provides statu- tory references, rules and regulations, and factors that sample state transportation agencies consider in the contract modification approval process. II. COMPETITIVE BIDDING BASICS State and federal laws nearly always require that public works projects are procured through a com- petitive bidding process.2 The nation’s Interstate Highway System was procured using this competi- tive bid system. Most transportation construction has traditionally utilized the “design-bid-build” method through competitive sealed bidding. Under this system the transportation agency designs the project with its own staff or through a consultant, prepares the project specifications and plans, and advertises the project for bids to an eligible pool of bidders. The agency then selects the lowest eligible and responsible bidder to build the project in accor- dance with the project specifications and plans. Some agencies are also using alternative project delivery methods, including design-build, construc- tion manager (CM)/general contractor, and public– private partnerships. For example, the 2000 Ameri- can Bar Association (ABA) Model Procurement Code for State and Local Governments (ABA Model 1 Surveys were returned by transportation agencies from New York, Massachusetts, Connecticut, Rhode Island, Oregon, Maine, Minnesota, Kentucky, New Jersey, Tennessee, Montana, Vermont, Virginia, Ohio, Nevada, Michigan, Wyoming, Texas, Florida, Delaware, Colorado, West Virginia, and California. 2 See, e.g., Graydon v. Pasadena Redevelopment Agency, 104 Cal. App. 3d 631, 164 Cal. Rptr. 56 (1980).