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

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11 3. for which an adjustment is provided or excluded under any other term or condition of the contract; or 4. that includes profit. E. Extra Work. When necessary or desirable to complete the project, the Engineer may direct the Contractor to perform unforeseen work for which there is no pay item or unit price in the contract. The Agency will pay for such work as speci- fied in Subsection 109.04. F. Eliminated items. The Agency may partially or com- pletely eliminate contract items. The Agency will reimburse the Contractor for costs incurred before notice of the elimi- nation as specified in Subsection 109.05. The AASHTO specifications contain provisions for compensation for altered quantities using contract unit prices, negotiated prices or lump sum prices, or force account. The force account provision provides for labor, to which a 35 percent overhead and profit factor is applied, bond insurance and tax, material costs, equipment and plant rental, and subcontracting. The AASHTO specifications do not provide guid- ance on the specifics for change order preparation or required parameters or requirements, but leave those to the state transportation agency. The AASHTO specifications also do not mention the con- cept of competitive bidding of change orders. State administrative change order procedures are generally set forth in state administrative manuals and procedures, and specifications. Appendix B pro- vides a detailed listing of the administrative process and procedure followed by 23 survey responders. It also provides a summary of the typical questions and analysis that are conducted for each contract modifi- cation. General requirements include justification, price analysis, and documentation requirements. C. Alternative Project Delivery Many state agencies are now delivering projects using project delivery models that vary from tradi- tional “design-bid-build” project delivery. For exam- ple, they are using design-build, construction man- ager (CM)/general contractor, and public–private partnerships. The specific bidding and procurement requirements and practices vary from state to state and are beyond the scope of this digest. In response to the surveys for this digest, the majority of agen- cies advised that they apply most of the same regu- lations, guidelines, and procedures on contract mod- ification on alternative project delivery projects.51 At the federal level, 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 authors note, however, that alternative proj- ect delivery contracts often contain materially dif- ferent allocations of risk, which will affect the scope and pricing of allowable contract modifications. In general, alternative project delivery projects will still permit changes and will include allowable bases for contract modifications that echo those from tra- ditional design-bid-build contracts summarized in this digest. Although the entitlement bases and jus- tification requirements for them will change based on the allocation of risk among the parties to the applicable contracts, none of the state transporta- tion agencies surveyed reported that this made any difference in terms of decisions about contract modi- fications versus re-bidding the subject work. VII. GENERAL CONCLUSIONS There is a common requirement to procure high- way work by public competitive procurement awarded generally to the lowest eligible and respon- sive bidder. The basic premises of competitive bid- ding are to prevent favoritism in expending public funds, to stimulate competition, and to obtain the best economic result for the public. The example statutes cited in this digest sometimes establish monetary thresholds that trigger, or exempt, public bidding, or recognize situations such as emergencies where bidding requirements are waived or modified. Once a contract is awarded, however, the required (by statute, regulation, and industry) accepted prac- tice is to give wide latitude to agencies to make changes to contracts through the so-called changes clauses. Almost all construction contracts contain a changes clause that permits an awarding agency to modify the scope of the work and time of perfor- mance with or without the consent of the contractor. One set of changes are those ordered by the agency; the other set of changes are those permitted to be requested by the contractor. As discussed earlier in the digest, there are good policy reasons to permit these types of changes, most notably the recognition that changes on construc- tion projects are inevitable, and the best way to deal with them is to allow flexibility to address them to support project completion. The changes clauses provide the owner flexibility and give the agency the unilateral right to make changes based on needs and requirements of the project, without the neces- sity of conducting an additional competitive pro- curement. Changes may be required to facilitate completion, improve quality, correct design errors, provide more details in the plans, or deal with 51 One exception was MassDOT Highway Division, which has a standard provision in its design-build con- tracts, Section 3 (Changes in the DB Work), that set forth change order provisions that are different from its stan- dard specifications (on file with the authors).