No construction project goes exactly as planned. Throughout the life of the job, there are typically numerous changes and alterations made to the project specs. Typically, these changes are made via change order. However, when the contractor and owner can’t agree on changes, an owner may be able to override their contractor via change directives.
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What are Change Directives in Construction?
Construction change directives are changes that are mandated by the owner. When a contractor is given a change directive, that contractor is tasked with making the changes to the project – and they don’t really have any say in the matter. Change directives are also known as “force account work”.
What’s the Difference Between Change Directives and Change Orders?
Despite the name, a change order is generally made upon agreement between the owner and the contractor. With change orders, either party will present the other with a proposed change, and then both the owner and the contractor will decide how to make that change, as well as other adjustments to the price and the schedule.
Change directives aren’t an agreement to make a change – they’re mandatory. Change directives are literally a directive, given by an owner, that a contractor must abide by. Often, a change directive will follow a disagreement between the owner and their contractor.
Can an Owner Just Alter the Contract All By Themselves?
Change directives can only be made if they’re allowed in the contract. So, if the contract doesn’t explicitly allow for an owner to issue change directives, a contractor isn’t bound by an owner’s unilateral demand to alter the project.
What’s more – even when change directives are allowed, there’s a limit to how much an owner can alter the contract. That’s where the cardinal change rule comes in.
If a change directive (or even a change order, for that matter) changes the contract so much so that the change results in an abandonment of the original contract, that change directive can’t be made. Well, it can be made, but a contractor might not have to follow it. If a change directive foundationally alters the original contract in such a way that constitutes a cardinal change, that could be considered a breach of contract. It makes sense – if the contract doesn’t have to be followed anyway, what’s the point of the agreement?
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What Happens When a Change Directive is Made?
Change directives can be a useful tool for owners, but they can create a miserable situation for contractors. This is particularly true for smaller contractors who aren’t capable of sustaining business operations while trying to resolve the dispute.
When a contractor is faced with a change directive, they generally have a few options, such as:
- Agreeing to the change, the price, and the timing proposed by the owner;
- Proposing alterations to the change directive (be that for the work itself, the price for that work, or for the schedule)
- Disputing an issue with the change directive after the additional work is completed; or
- Walking off the project, facing the possibility of breach of contract.
When a contractor disputes the adjustment, they should submit a written statement. This serves as a declaration that they are proceeding under protest, and it could reserve the right to make a claim for payment after performance.
What About Payment?
As for actual payment for work under a change directive – that might get tricky. For things like time and material contracts, determining a price for changes might be simple to calculate. However, when the contract price can’t easily (and fairly!) be adjusted for new or additional work, it might take a little more effort to determine what’s owed. Obviously, the most preferable route is to come to some understanding about what should be owed – and that will be a lot easier if good relationships have been established on the project.
Ultimately, though, billing a change directive just like a change order makes a lot of sense. If an owner disputes that invoice – the standard options apply. First and foremost, talking out the issue – and potentially negotiating the matter – is preferable to initiating a payment dispute. But, if that won’t work, escalating the matter to some degree might make sense (like with a Notice of Intent to Lien or other payment threats). And, if talking it out or escalating the issue doesn’t work, it might be time to make some form of payment claim.
Best Practices for Owners and Contractors
The best way to deal with change directives is to avoid them altogether. Think about it – when a change directive is issued, that means that the contractor and owner can’t get on the same page and an owner is having to impose their will. This is problematic for obvious reasons.
Contractors don’t want to be forced to do things against their will (especially when they aren’t even based on the contract). A change directive erodes the relationship between the owner and the contractor – so future dealings tend to be icier. Plus, deciding on the price, schedule adjustment, and execution of a change directive opens up all sorts of opportunities for an issue. All in all, change directives create a contentious atmosphere that’s ripe for a payment dispute.
Avoid Change Directives Altogether via Communication and Collaboration
By really communicating with a property owner from the start, beyond just the bare-bones project and contract discussions, a contractor can better understand what the owner is looking for in the project. Plus, through this communication, it will be easier for an owner to pick up on any misunderstandings between the parties. Plus, through the sheer habit of communication, it becomes easier to talk out any issues that will pop up down the road.
When both parties feel comfortable with each other, proposed changes to a project’s scope or specifications can be discussed in a civil manner. That way, both sides have input in how the change will be undertaken, and a regular-old change order can be made to enact those changes. Of course, with thorough communication before the contract is executed, changes could even be avoided in the first place!