Changes, extras and pricing

No construction project is built exactly as drawn. Owners change their minds, designers correct errors, site conditions differ from what was expected, and codes or permits impose new requirements. Every standard form contract therefore gives the owner a right to change the work and a procedure for adjusting the price and the time. Changes are also where much of the money in construction disputes lies: extras that were never authorized in writing, change orders priced without regard to delay, and claims that a direction was a change when the owner says it was always in the contract. This lesson explains the law of changes and how to price and document them.

The right to change the work

At common law, a contract cannot be changed without both parties' agreement. Construction contracts depart from this rule: they give the owner a unilateral right, within limits, to add, delete or alter work, and they oblige the contractor to perform the change in exchange for a fair adjustment of price and time. Without such a clause, an owner could not require any change at all, and a contractor could refuse or demand any price.

Under CCDC 2-2020 Part 6, the owner, through the consultant, may make changes in the work within the general scope of the contract without invalidating it. A change order (GC 6.2) records an agreed change with its adjustment to the contract price and time. A change directive (GC 6.3) instructs the contractor to proceed with a change before the price and time are agreed, with the adjustment determined later on the basis set out in the contract. GC 6.4 deals with concealed or unknown conditions, and GC 6.6 with claims for a change in contract price.

The general scope limit is important. A change so large or different that it transforms the project, such as adding a second building to a contract for one, is outside the clause. Such a change, sometimes called a cardinal change, may allow the contractor to treat the contract as breached rather than perform the change at the contract's pricing terms.

Is it a change?

Many disputes are not about the price of a change but about whether a change happened at all. The owner says the work was always required by the contract documents; the contractor says it was extra. Answering the question means reading the documents as a whole.

• Was the work shown or specified anywhere in the documents, including in general notes, Division 01 requirements or details on another drawing?
• Was it reasonably inferable from the documents? Many forms require the contractor to provide work that is reasonably inferable as necessary to produce the intended result.
• Does a conflict between documents resolve in favour of the more or less onerous requirement under the order of precedence clause?
• Did the contractor discover, or should it have discovered, the issue before bidding, so that it should have asked a question?

Constructive changes are a second category. A constructive change occurs when the owner, without issuing a formal change order, requires work beyond the contract: by rejecting a compliant submittal, insisting on a stricter interpretation of a specification, ordering acceleration, or giving a direction that has the effect of a change. Courts and boards recognize constructive changes, especially in government contracting, but the contractor must usually show that it gave notice and that it did not volunteer the extra work.

Authority and written change orders

Most contracts require changes to be authorized in writing by a named person before the work is done. These clauses protect owners from paying for work they never authorized, and protect contractors from disputes about whether the owner agreed. They create a trap, however, when the site team acts on verbal instructions to keep the job moving.

Canadian courts generally enforce written change order requirements, but they may find that the owner waived the requirement by its conduct, for example by repeatedly ordering and paying for extras without written orders, or that the owner is estopped from relying on it, or that the work was outside the contract altogether so that the contractor is paid on a quantum meruit basis. These are uncertain arguments; the safe course is to get written authorization, even a brief email confirming the direction, before doing the work.

Pricing changes

A change order states an adjustment to the contract price. The usual methods of valuing it, in order of preference in most standard forms, are:

• A lump sum agreed by the parties.
• Unit prices stated in the contract or subsequently agreed.
• Cost plus a fee: actual costs of labour, materials, equipment and subcontracts, plus a percentage or fixed fee for overhead and profit, often called force account or time and materials.

CCDC 2-2020 sets out how the value of a change is determined if the parties do not agree, including the costs that can be included and the contractor's percentage fee, which the supplementary conditions often set. Credits for deleted work are usually valued at the cost saved, sometimes without returning profit.

Time and the reservation of rights

A change often affects time as well as money: added work can extend the critical path, and disruption can reduce productivity across the job. A change order that adjusts the price but says nothing about time, or that contains a clause stating that the adjustment is full and final compensation for all direct and indirect costs, may prevent the contractor from later claiming delay costs for the same change. Courts generally enforce such accord and satisfaction language.

Contractors protect themselves in two ways. They include the time impact and time-related costs in the change proposal, supported by a schedule fragment showing the effect on the critical path. Or, if the impact cannot yet be measured, they sign the change order with a clear reservation of rights stating that time and impact costs are excluded and will be claimed separately. Some owners refuse to accept reservations, which then becomes a negotiation, but signing a full and final change order without pricing the delay is one of the most common ways contractors give away money.

Differing site conditions

Unknown ground conditions are among the largest risks in construction. Most standard forms give the contractor an adjustment if it encounters subsurface or concealed conditions that differ materially from those indicated in the contract documents, or from those ordinarily found in work of that kind.

CCDC 2-2020 GC 6.4 requires the contractor to notify the consultant promptly, before the conditions are disturbed, if it finds conditions that differ materially from those indicated in the contract documents or from those ordinarily encountered. The consultant investigates, and if the conditions differ and increase or decrease cost or time, a change is made. Owners often amend this clause in supplementary conditions to shift ground risk to the contractor, which is enforceable if the words are clear.

Deleted work and credits

Changes can reduce the work as well as add to it. When the owner deletes work, the contract price is reduced by a credit. Disputes arise over how to value it: the owner wants the full value in the contractor's price, while the contractor points out that it has already bought materials, mobilized crews and spread overhead over the original scope. Most forms value a deletion at the cost saved by the contractor, sometimes with a reduced or no return of markup. A contractor should document committed costs for deleted work promptly, and an owner should not use deletions to transfer work to another contractor without considering whether that breaches the contract.