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

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8the solicitation for the original contract adequately advised the offerors of the potential changes during the course of the contract that in fact occurred, or whether the modification is of a nature which poten- tial offerors would reasonably have anticipated under the change clause.”38 Again, under today’s modern transportation con- tract forms, the aforementioned test has limited applicability since standard transportation con- tracts contain the three federal changes clauses per- mitting contract adjustments for significant changes in the character of the work, the suspension of work orders, and differing site conditions. However, the “scope of competition” test may have some applica- bility for other project delivery methods involving lump sum contracts that may not include the three federally mandated changes clauses. The authors have not discovered any applicable case law for transportation contracts discussing the application of the three changes clauses and the “scope of com- petition” test. V. FEDERAL REQUIREMENTS The selection of contractors for federal agency construction is governed by 41 U.S.C. § 5, which requires, with certain exceptions, that construction contracts be awarded through competitive bidding. Similar statutes apply to federal aid highway pro- gram contracts awarded by state agencies. However, alternates to competitive bidding may be allowed where the state agency can demonstrate that another method is more cost effective or that an emergency exists.39 Federal regulations also require award to the lowest responsible bidder.40 Each bid- der is required to file an affidavit that it did not engage in any action in restraint of free competition in connection with an awarded contract.41 Title 23 U.S.C. provides very broad authority for the Secretary of Transportation to prescribe regula- tions to carry out the federal aid highway program. However, there are no specific statutes dealing with contract modifications other than those required under 23 U.S.C. § 112(e), requiring the use of the standard changes clauses previously discussed. 23 C.F.R. § 635.109(c) addresses the use of changed condition clauses for design-build contracts. FHWA encourages, but does not require, the use of such clauses in design-build projects. The FHWA procedures for review for federal participation in change orders and extra work are detailed in 23 C.F.R. § 635.120. 23 C.F.R. § 635.121 describes the procedures for FHWA review and approval of time extensions. Neither of these provisions has been updated since 1991. FHWA does offer some guidance by way of policy memos.42 An FHWA memorandum dated November 15, 1996, indicates that the cardinal change doctrine still has some viability, even after the adoption of the aforementioned changed conditions clauses. Illustrative of this is the FHWA guidance memoran- dum involving a New Jersey transportation project, wherein NJDOT was seeking to add a $10 million bridge rehabilitation change order to the $40 million Parsippany Road Interchange Reconstruction. The Utility Transportation Contractors Association sought review of the FHWA Administrator’s rejec- tion of the change order. FHWA stated: Contracting under the Federal-aid highway program is based in the premise that competitive bidding is the best way to keep costs low while achieving a quality product. Indeed Federal Law requires competitive bidding unless some other method is more cost effective or an emergency exists…. We recognize that after a contract gets under way conditions may change or conditions or circumstances may exist that were not anticipated during preparation of the plans…Our governing legislation and our implementing regulations allow for change orders within the scope of the work covered by the contract. In awarding federal-aided highway projects, the State transportation departments must include a stan- dardized clause on changed conditions to provide for an adjustment of contract terms if the altered character of the work differs materially from that of the original contract or if a major item of work increased or decreased by more than 25 percent of the original contract value. The key to the change order process, however, is that the change must involve the scope of the work covered by the contract.43 FHWA in its guidance memorandum determined that the change order added reconstruction of a new bridge and did not involve the scope of work covered by the contract.44 FHWA concluded that approving the change order would award a federal aid contract under the guise of a change order and would not only violate federal law, but also be unfair to other contractors who wished to bid on the bridge project. Although there are no more specific FHWA regulations, some change order modification 38 Id. at 1207 (citation omitted). 39 23 U.S.C. § 112(a)(b) (2012); see 2014 Supplement I-30; 23 C.F.R. § 635.204(a) (2015). 40 23 U.S.C. § 112(b)(1) (2012). 41 23 C.F.R. § 112(c) (2015). 42 See FHWA Construction Program Guide (Policy) http://www.fhwa.dot.gov/construction/cqit/changes.cfm (reference paragraph no. 4) (last visited Feb. 26, 2015). 43 See FHWA Memorandum Letter, Nov. 15, 1996, http:// www.fhwa.dot.gov/programadmin/contracts/111596.cfm (last visited Feb. 26, 2015). 44 Id.