Understanding Constructive Change Orders

A constructive change order occurs where an action or omission in the initial contract on the owner/client’s part forces you, the contractor, to perform additional work beyond what was originally agreed upon.

This type of change is not formally acknowledged by the owner as an amendment to the contract. How should you deal with this?

Constructive Change vs Formal Change Orders

Constructive change orders vs. formal change orders, i.e. a normal change order, are associated with disputes or disagreements regarding contract interpretation. This can arise from a number of issues, not necessarily out of any maliciousness on the part of the owner but still a failure to communicate on some level. 

Constructive change orders can relate to defective plans, accelerating work, non-contractual increases in scope, or some other misinterpretation of the originally agreed-upon contract.

The 4 Main Types of Constructive Changes

Owner informally asks for or orders more work than was initially agreed upon

If the owner contacts the contractor, verbally or in writing, but a formal change order isn’t issued, then it may qualify as a constructive change. Any additional accrued costs and delays need to be well documented at this point, as the contractor is generally entitled to the extra compensation for it but it may have to be proven in case of dispute.

Defects in architectural and design plans

The Spearin doctrine is a US Supreme Court decision dating back to 1918. Paraphrased, it states that if the owner (not the contractor) is the one supplying the plans and specs for a project, the contractor cannot legally be held liable for an unsatisfactory final result that can be attributed to those defects.

For instance, if some failure of the project occurs, at a later date or during construction, that is due to bad architectural plans supplied by the owner, then you’re not liable.

Remember this is only the case if the owner is the one supplying the plans and it has to be specifically caused by, and only by, bad plans. This can include things such as bad placement in a flood area, or plans for an otherwise structurally unsound building that you build exactly to their specs.

The contractor must also show good faith for this to uphold. This means informing the owner if you notice anything is amiss with the plans. You should get this in writing to cover your bases especially if they refuse to acknowledge the issue.

Owner misinterprets the contract and either rejects work that does satisfy the contractual requirements, or otherwise demands an unreasonably high standard. 

This occurs generally with an owner who is over inspecting a job site and demanding things to be done in very specific ways that are not covered in the contract. They may use ambiguity within the contract, sometimes written in such a way intentionally, to attempt to sway things in their favor.

Unless the contract specifies the exact methods and materials to be used on a job, the contractor is generally assumed to have some leeway in their preferred method to get things done. 

If the owner demands something along these lines that is not mentioned in the contract and it ends up costing the contractor monetarily or delays the project, then this may be a constructive change.

Owner denies a contractor’s request for a reasonable and justified time extension.

This phenomenon is also known as “constructive acceleration.” The constructive acceleration doctrine allows for the recovery of additional compensation by the contractor for extra expenses that resulted from the owner’s refusal to approve the time extension.

The owner will generally avoid giving specific orders to accelerate the project, and instead de facto increase the pace of the project by refusing reasonable time extensions. For this to be upheld the contract has to prove a few things:

1. The delay is excusable
2. Timely notice of the delay was given
3. The time extension was refused
4. The owner demands the project stay on schedule
5. The contractor accrued costs in an attempt to accelerate

Documentation, then, is key once again to make sure you’re covered in the case of constructive acceleration.

Tips for Handing Constructive Change Orders

Here are some helpful tips and best practices for navigating constructive change.

Keep detailed records of all negotiations with the client.

This is a big one. Some contractors will go so far as to keep audio logs of any meetings. That much may not be necessary but having at least written accounts of what is going on and is being asked of you can help out significantly if you need to prove a constructive change.

Work with a contract specialist.

Having someone to confer with over the wording of a contract and whether a client is likely within their rights or not can be immensely helpful and stress relieving in case a dispute arises. It will also help your case if there is a third party involved to help negotiate things out, as they may be seen as less biased.

Avoid complying with requests that involve doing additional work without extra compensation.

If you give them an inch, they’ll take a mile. The old adage is incredibly true on a job site. Do not placate unreasonable requests without compensation, they’ll simply ask for more. Even if it is an otherwise pleasant client, some owners just feel the need to try to tell you how to do your job. 

Make it clear that it will cost more if they wish to deviate from the contract.

Conclusion

This is why we built Trak Changes for efficient change order management.

Trak Changes allows you to instantly update your client, and anyone else involved, with any changes that are occurring at the job site and their respective costs. 

They can then choose to digitally and legally sign off on the change agreement – no need to have a big meeting about change orders, it can just be solved in an email.

Furthermore, Trak Changes acts as a form of easy-to-prove notification and documentation for everything going on at the job site. No lost documents, and no questions about who said what and when. Trak Changes keeps it all organized in a streamlined, simple-to-understand format.

Check out our free trial to get started today!