CLE: Change Order Disputes
Change order disputes can derail a construction project. Change orders can affect a contractor’s liability and put their payment at risk. This presentation will address recovering payment on construction projects when disputes over change orders are involved.
Attorneys Meredith Thielbahr, Partner with Gordon Rees Scully Mansukhani, and Brenda Radmacher, Partner with Akerman, will lead this free digital CLE course that will dive into change order disputes.
At Levelset, we help construction companies get paid on time using our suite of tools and network of construction attorneys.
Sign up for this webinar where you’ll learn:
- The significance of having thorough documentation
- How you can prepare for change orders at the outset of a job
- How they directly affect payment
This webinar will be useful for construction businesses, in addition to attorneys.
Attorneys: In California, Texas and Florida, this course is approved for one CLE credit hour. To receive information about how to obtain credit, contact Julie Gelderblom at email@example.com
To obtain CLE credit in all other states, check with your local State Bar for acceptance of out-of-state credits or approved jurisdiction guidelines.
Speaker 1 (00:00:05):
All right. Hi, everyone. Welcome to today’s webinar and CLE for the attorneys we have on the call. This CLE is about change order disputes and recovering payment for your project. And we welcome we’re are excited to have you here with our two speakers Meredith Thielbahr of the Spokane office for Gordon Rees and Brenda Radmacher of Akerman in Los Angeles. I’m going to turn it over to them now and they’ll introduce themselves. But first we will go over some CLE information for all the attorneys on, on the call today. So if you’re in Texas or Washington, you just need to email me your bar number and we level set reports your attendance with your bar number in Texas in Washington. And if your Florida, you will self-report with this course number. And I’m also going to email all this information to you, to the attorneys in California, the credit is pending. The state just takes a very long time to approve and get all that process done. And in other states, you can just check with your local bar for the requirements and to self report and most states have a reciprocity agreement with other state bars. All right, so go ahead, Brenda.
Speaker 2 (00:01:38):
Great. Thank you everybody. First of all, Catherine and level set, thank you for having us, us and hosting this webinar, which frankly I think is a topic that is important to everyone. I’m very excited to be here. As mentioned, I’m a partner with acre LL P I head up our firm’s construction work out on the west coast based out of our Los Angeles office. My work really covers the gamut. I am historically a litigator for a very long time. And in the last probably 10 years, I have been doing more and more work with clients on the front end of projects bringing to bear sort of both sides, working with developers and owners with contractors and design professionals on a all aspects of construction projects, construction disputes, and hopefully resolution of those disputes. So I am very excited to, to be here and joined by my good friend there steel bar. So Meredith Le introduce yourself.
Speaker 3 (00:02:39):
Hi everyone. Thank you for joining us yeah, as Brenda said, the change order issue, I keep seeing it just pop up more and more. I think a lot of that’s just things that have happened with COVID and the language of the change order provision, and then obviously other provisions of the contract that impact your entitlement to a change and later a formal claim. So this is definitely a timely topic and we saw a lot of interest in it. So I’m glad that it will hopefully be helpful to each of you. I am the managing partner of our Spokane office. I am a partner for Gordon race, Cully man county. I previous lived in Seattle and then I moved east. So I have a fair amount of work still on the west side, but I am licensed in Idaho, Oregon, Washington, Alaska, and DC. Cause I do a fair amount of government work as well. And Brennan and I had the opportunity to work together for a little bit. And so I still respect her very much as a colleague and I see her all the time at events and I’m looking forward to this presentation with her.
Speaker 2 (00:03:45):
Thanks, Meredith. And you know, I think the number of folks who’ve responded to the invitation who are here joining us today really demonstrates that change order disputes are a hot topic. Let me lay out a little bit of what we’re gonna cover. Meredith and I are going to hopefully have a little bit of a discussion. We will have time for questions and answers at the end. If there’s an option for Q and a on your screen, if you click in and type in your questions, as we proceed, we’ll have some time for answering. You can also use the chat function. So we’ll be monitoring that if you we’d have any questions, we’d, we will try to answer them. And if we are unable to get to them each time, we will be happy to reach out afterward. And I know some people have asked if we’ll be able to share the PowerPoint deck and we’d be happy to do that.
Speaker 2 (00:04:36):
And our contact information we’ll be at the end, or we can contact level set and they’ll get you a copy. So with those logistics out of the way, yeah, we’re gonna cover a little bit on the basics of what is a change. What is the change order process and talk a little bit so that we have a foundation to discuss we’re gonna spend a good amount of time talking about notice and, and notice is because what we have found in handling all sorts of issues is that notice is sometimes a area that people think they have handled. And it’s a hiccup. Oftentimes in the end result of resolving change order disputes, we’re gonna spend a little time talking about, I think the hot topic of everything right now is price escalation and COVID 19 issues as well as force.
Speaker 2 (00:05:23):
And, and we’re gonna talk about it not necessarily, I mean, there’s, we could do a webinar for a full day on some of these issues. So this is going to be more of a high level on some of those issues and how it folds into the change order process and change order disputes. And then we’re gonna talk a little bit about out delay the images, and again, we could spend a whole whole conference on, on delay images. We’re not gonna dig into a ton of, of issues on delay damages, but again, tying it back to what the change order process entails and what you want to hopefully avoid and how to deal with those issues from a peremptory type of a basis. However, we’re gonna end with talking about setting yourself up correctly for a claim for delay damages and other claims arising out of the change order process, so that we’re gonna be covering today.
Speaker 2 (00:06:19):
I’m gonna begin by talking a little bit about change orders and what is a change. And you know, this is as, as indicated, you know, and I think it seems simplistic that a change, you know, is when something is altered in the construction industry, this term really is specific. It’s an industry term for a change of the contractor’s scope of work. It may also impact time or price. It, or manner even we, you obviously got changes if there’s a means and methods or something that has to change that might be defined by the contract, that can be part of a change change can be a variety of things. It can be an additive change, or it can be a deductive change or where it may change the pricing. Usually time isn’t a deduction because face it, we always need more time.
Speaker 2 (00:07:12):
So I, I, frankly I don’t think I’ve ever seen a reduction in time on a, on a deductive change order. The interesting thing to be aware of, of what is a change, and we’re gonna talk a little bit about this in detail of looking at what contract you have and what the language actually states in your contract, what are the formal procedures that are laid out, if any I’ve seen some, I have no terms about change orders but it’s very critical that you are aware of what it states and that you’ve agreed in advance about the process. A couple of notes to be aware of if you’re using an AIA contract or a consensus docs agreement form, you know, a lot of times I’ve seen clients say, well, I’m using the a 2 0 1, 2 17 from AIA. Well it’s, well, I, you know, very most often they’re modified.
Speaker 2 (00:08:09):
So just cuz you think you might have a form document, you need to take a look and be sure that, you know what changes, you know, your counterpart may have made and what the impact will be. I think it’s also interesting to think about, about these forms is understanding the perspective that coming from. If you’re using the AIA contract article seven really puts the architect is a highly involved party in the change process. The consensus to does, does not have that provision. And in fact, you know, the unilateral changes can be made by the owner. It’s called an interim change that if there’s a dispute, the owner then actually pays 50% of the disputed amount of this, of the change amount and it’s resolved through the dispute resolution process later. So it’s important to now and think about that, but ultimately a change, first of all, it has to be a mutual concession of the parties to change the work, to change the price, the schedule and the, those types of things.
Speaker 2 (00:09:16):
So with that as a, a foundation of what is a change, what is a change order process, and as many of those who are here participating today will know you’re gonna have some type of a proposal or request sometimes a change order proposal or change order request C R C O P. The one thing that’s fascinating is I’ve got a matter right now where co R is used. It has absolutely nothing to do with change orders. And there was a lot of confusion because in all of the communications, by the parties, they were referring to a co R and it, it, it was a completely different acronym. So be careful be aware of what you are referring to if you’re using acronyms. But what your change order process you’re coming in with the one party is asking a change to the agreement.
Speaker 2 (00:10:05):
If it is a formal, then you end up with a formal change order once it’s agreed and executed, hopefully executed the change order directive is primarily going to, to be by the owner as a request for a change. And most contracts do allow for unilateral change by the owner, again, be aware of, of what the implications are based on your contract language and where you are located, what jurisdiction as you know, depending on where you are, you’re going to have certain, an abilities to do things. If you have a Cardinal change implication. So it unilaterally change the scope so much that it erodes the purpose or the fundamentally alters the work. It would be deemed as an, a breach by the owner. And I actually recently had a case where we had this very issue come in is in California.
Speaker 2 (00:10:58):
And the parties were disputing whether or not the change orders had so altered the scope of the work that it was essentially a new contract. And then the issue was not only was there a breach by the owner, but whether or not there was a new contract then formed between the owner and contractor for this new scope. Because there was an agreement we had signed change orders. And one of the arguments that we proffered was that the ch the contractor actually abandoned the contract because it was sort of a mutual dispute over, we we’re gonna general start all over and a contract form through the change order. So it was, it’s important. It’s hard to think about sometimes when you’re at the outside of your process, but it’s critical to think about and know that you have a change order process and what it’s.
Speaker 2 (00:11:52):
So what do you do to prepare? And I think Meredith and I would probably both agree. The more preparation you can do at the outset of your project, the better regardless of where you stand. Again, everyone in the construction process, the owner, the general contractor, the subcontractors, the subtiers, the suppliers change orders impact everyone. And it is really important to prepare and advance expect. There will be changes on your project and whether you have bargaining power or not in your contract, some of these areas, you may be able to negotiate, but you need to know these are really critical portion of your contract. And I can’t emphasize it enough where I have so many clients who you know, once were in a dispute, they thought, oh, I didn’t know that provision was in there. I actually never really read their contract, or it was negotiated by someone else was in their organization who was no longer then involved once he got through preconstruction or things along that line.
Speaker 2 (00:12:53):
So it important to read your documents, understand your terms, know your scope. What’s excluded, make sure it’s clear in your documents, understand what the damages and delay claims and provisions entail. We’re talking about change orders, so understand what the various provisions in your contract are and how they interact with the change order process. Critically notice. We’re gonna talk about that and formal claim procedures, understanding upfront what your dispute resolution process is. As I alluded to initially where the architect’s involvement, what the architect’s role is, if any, in dealing with change orders. Sometimes we see it where, you know, if it’s payment dispute and we’ll talk a little bit about payments as well, it’s a payment dispute, but you’ve got a progress payment or a pay application’s been approved by the architect. Did that pay application what change orders were included or not and what was approved. So being aware of what those, those roles are, and of a, of other issues, we’re gonna talk about some of these issues, but really focusing on how they impact either a contractors’ right to entitlement or defense of a change request. So Meredith with that, let me turn it to you to talk about the very, very critical part of notice.
Speaker 3 (00:14:13):
Yeah. And really quick Brenda hit on it and we don’t talk too much about applicable law and venue. And obviously that could be a whole, each of these topics could be their own discussion point, but take a look at that and this’ll be a tone throughout our presentation, but I mean, we had a, I just had a recently a case that was sitting in the Southern district in New York. And it it had arbitration that was required in Philly and it, it applied different law. So, I mean, take a look at what your contract says. And I mean, I, I had another case where it was sitting in Utah, but applied Wyoming law, which if some of you know, there’s not that much law in Wyoming and the arbitration was sitting elsewhere. So it, it can get costly. It may be favorable unfavorable to your claim, but it might be something that you wanna work out with your contract, you parties prior to even starting a project, because, you know, gosh, forbid you dispute.
Speaker 3 (00:15:11):
Why would you wanna litigate all over the country with different laws applying? I mean, even if you have an issue between the two of you or the three of you, or however many parties, it may be, it could be very expensive if you get into unavoidable litigation with the, you know, intersection of all those things. So that’s something to troubleshoot and take a look at prior to, if you can. So notice, I love the topic of notice. I cannot tell you how many times people get into issues with notice and they think, well, I have a claim and I sent, ’em an email I talked to ’em on site and we shook hands and agreed, and that’s not sufficient. So notice in most jurisdictions, it’s very jurisdictional and it varies. So for example, New York Washington Jersey, Maryland, those are very strict states.
Speaker 3 (00:15:57):
Other states are not as strict, so substantial compliance or actual notice may SICE and other states, it doesn’t matter. You could take a deposition. The project manager could say, I got notice, but they didn’t provide notice according to the contract, it doesn’t matter. So this, this notice provision almost always applies to obviously change order requests that form the basis of a formal cost and time claim. So common elements to look for when it comes to contractual, notice requirements are time requirements. Is it five days? I mean, I’ve seen very short periods. Is it three days? Is it five days? Is it 30 days when, you know, the party seeking relief becomes aware of the basis of the claim? So that can be a short timeframe that you, you might blow description of the claim and evidence supporting the claim. How much detail do you need to have when you’re notifying, you know, someone up the ladder of the basis of your claim, oftentimes it needs to be in writing.
Speaker 3 (00:17:00):
Sometimes it can be electronic. Sometimes it needs to be, you know, a hand letter, does it need to be delivered certified mail? All those things, you’re seeing more that electronics. Okay. but you need to check that and make sure you pull with those provisions generally notice has to go to a certain party that has the authority to either approve, reject, or negotiate, that change order request. Again, I tell you how many times you see in a contract a, a line that says these are the only people that have notice, and then nobody’s filled in, no names are filled in for who has no, who has a and needs to get noticed. So walk through those provisions and make sure, you know what you need to do. One of the things I always tell clients when they’ve gotten themselves into situations, you know, lesson learned for the next project is review these provisions and create a matrix.
Speaker 3 (00:17:52):
Just like you would for lie law, you know, in Washington, you know, you have eight months to foreclose on your lean and then you have preliminary requirements in between those periods. So when it comes to notice, provisions create a little matrix on, okay, we uncovered, we encountered something that could, you know, turning to a change. What’s the preliminary notice that we need to do. Do we have to do ongoing notice while we don’t, while we’re trying to resolve it, what’s the notice for change and make sure that everyone from, you know, your field into the in office know those requirements. Oftentimes what I tell clients is if you’re not quite sure, send a preliminary notice from the outset and say, Hey, we’ve encountered the geotechnical. You know, evaluation was not sufficient. We’ve encountered this change. We’re sending to you sending you this without waiver of cost and time, please reach out and then keep a paper trail or electronic fit trail in your project files that documents those changes. So you’re really well organized. And we’ll talk about this a little bit later, but you’re really well organized if it ever has to turn into a formal claim because you have all those, all those change order requests, whether you have one through five or one, one through a hundred, depending on how big your project is, you have them all very well organized, the preliminary notice, ongoing notice, and then formal change order requesting claims all packaged together.
Speaker 2 (00:19:18):
And let me jump in Meredith, because I think it’s really important. You know, one of the areas I’ve worked a lot of clients and we’ve found extremely effective is communicating upfront with your construction parties and partners. You know, if you’re a subcontractor communicating with the general and having a discussion before we under, you know, changes, changes mean a mistake necessary, you know, there are changes that may be an anticipated conditions that have been found. It may be, you know, the owner coming up with the changes of variety of reasons for the change. The, but if you communicate up front and saying, we expect there may be changes, and we’re gonna need to communicate about that. Here’s what we’re going to do. And I have a client that’s done where they, they create for their field personnel, a little template form that they can keep either on their tablets or their phone.
Speaker 2 (00:20:07):
That’s a couple of checkpoints and that they can write a little bit of note in it. It’s for them to then take and they send it and it is set up from up front. So a lot of times I find that people are not wanting to give notice because they’re afraid that maybe it’s not gonna turn into a claim. So we won’t, we don’t know. We’re sort of, you know, we’ve got, depending on our contract, we may have five days. We may have 21 days. We may have two days to give, give notice of what we believe is claim. When do we do that? You know, well, we’re really not sure what the impact may be. And my advice has always been this, like you said, Meredith notice sooner rather than later, don’t wait. But if you have the communication of, for going upstream and having a communication understanding of what you will have happened during your project and having your team trained to know what to do, then you’re going to be in a position to have much more effective use of your notice and making sure you’re getting the notice that you need to without having to go back and say, well, I sent the text message, wouldn’t that count?
Speaker 2 (00:21:12):
And maybe it does, and maybe it doesn’t.
Speaker 3 (00:21:15):
Yeah. And defenses, I didn’t, we touched on this a little bit, but again, actual knowledge is a defense. If you didn’t send the notice correctly, in some jurisdictions, it is not in others. There can be an argument in some jurisdictions that if the owner materially breach the contract and that’s a whole different requirement, materially breach the contract, you are excused, the contract doesn’t become void, but the non breaching party is excused of further performance. So I’ve seen this in examples where owner terminates a contractor when they’re 98% complete, well, we’re off the job. And that was a breach of the termination provision. And it’s obviously material that the requirements to follow change order provisions from there out is excused. Now that doesn’t mean you wouldn’t have to delineate with change orders that were noticed before that termination and change orders after that can get messy.
Speaker 3 (00:22:08):
It’s not something that can’t be done, but it’s better to preserve your claims prior to, and, and like Brenda said, you can simply cite in a pre notice letter. You could simply cite, you know, in accordance with paragraphs such and such of the contract, I’m providing you this notice, you know, we looked forward to resolving this. You can definitely be a friendly letter. You, it does not need to be, you know, abrasive. You obviously wanna keep your working relationship going. This is during the project generally. So that’s not, you can, you, the tone of a letter can be friendly that it’s not ill received.
Speaker 2 (00:22:46):
So, so Meredith, let’s talk about if the there’s, you know, this claim provision issue a little bit of some detail for our attendees and, and what are some of the things that they need to be aware of, particularly if you’re using an AIA form.
Speaker 3 (00:23:03):
So, you know, you, they denied your change order or change order requests. Generally under your contract, you’re using a, a 10, a book contract it’ll save claims and disputes again, take, read the whole contract, but you generally have time limits when you have to turn change orders into formal claims. And again, the contract should define the difference. If it doesn’t, that’s something to take a look at with an attorney to make sure you understand what these words mean and how, how they are components of the claim process. So generally you have to do it within a period of substantial completion. Even the formal claim generally has to be initiated with an X within a certain period of the occurrence of the event. So that could be in conjunction with the change order. You might have to do a change order notice within, you know, 10 days of the event, giving rise, which, you know, for example, for a, a different site condition that can be tricky.
Speaker 3 (00:23:58):
And then a formal claim might have to be initiated within a certain period thereafter and talked a little bit about this too, but take a look at the dispute resolution procedures. Oftentimes you have to have an initial decision maker which could be, or, you know, onsite or office field folks that have to meet and discuss things from there. You might have to do a mediation under, it could be AAA. It could just be using a strike list that you select private mediator. Sometimes you need to have a certain, a panel of mediators. And then again, take a look at the applicable law, any venue requirements you might have to, a lot of times in construction, you’ll see that it’s gotta be, you know, AAA arbitration is not gonna be sitting in a, a district court or superior court, and then your ability to her costume fees.
Speaker 3 (00:24:47):
This is huge. I mean, if you have a multimillion dollar project, you might not be as worried about costume fees, if you and your claims are significant, not to say that hiring an attorney is ever, you know, an affordable process, but I’ve had cases where it’s in the ballpark of 500, a thousand dollars, $350,000. And if you don’t have the ability to recover fees and costs, that’s something that you really need to evaluate on the front end from a business perspective. So if you are down the line in a contract and you don’t have a lot of negotiating power to as far as fees and costs to at least, you know, what you’re up against but take a look at that based on the, the size of the job and the cost, if that ability to recover fees is gonna be problematic for you. Again, some claims it’s statutory and you might get them, but generally for change orders, unless it’s in the contract, you’re not gonna get them.
Speaker 2 (00:25:47):
Yeah, I think, you know, knowing that the, that, as I mentioned, knowing at the outset of where you may end up is also very important as you’re negotiating your contract as you’re evaluating the, the scope of the work and the job that you’re going to be doing if you’re a contractor or subcontractor for the owner side and developer understanding what those ramifications are. A lot of times contractors will ask for certain terms to be included and you need to understand why and what those terms are, where they might seem in a, in Oculus you know, as far as the initial decision maker process or venue. But you need to make sure you understand what that means. School change, order processes and, and disputes as a result of those Meredith, you’re a hundred percent right? The, the recovery of costs and fees.
Speaker 2 (00:26:35):
And I think the last bullet point ties in really importantly to that, where I have had several projects where the prime contract provides for recovery of attorney fees and costs, but the subcontract agreements don’t and or for the venue and whether or not, if you’ve got an arbitration provision in one set of contracts, you have it across the board of it consistent because that will impact your change order disputes and requests as to how you resolve these. And very infrequently are construction disputes of one issue matter. You know, where you often will have payment disputes that may come out of change order issues. It may be a rising out of other disputes. You may have con construction defect allegations and usually it’s kind of ends up being a mishmash. Many of the cases I’ve seen in the last two years have started with lean claims and the lien is on a, whether it be a progress payment or a final payment retention not being paid and we then end up getting actually, and digging down.
Speaker 2 (00:27:45):
And a lot of these cases are arising from an initial dispute over change orders, and that have spiraled into those issues. If you can you don’t have, I mean, that’s interesting is way we talk about, you know, with claimant dispute, you don’t have to wait to wait till the project is substantially complete and all these issues. However, it’s, it’s a very delicate balancing act. I’ve had clients say, okay, can’t we sit down now while we’re in the midst of this process it’s tricky because, you know, people want to maintain a good looking relationship. So there’s a lot of considerations though. I think that as you are considering, if you’re going to make a claim to, to really think carefully through and strategize, and don’t just kind of throw it out there and we’ll figure those issues out later.
Speaker 3 (00:28:34):
Yeah. And take a look at the order of precedence, because I have, I’m dealing with the client right now who has a subcontract that doesn’t allow fees, and he’s an ex excavation sub on a public job. And I said, well, the pub, the general term tease terms and conditions, and the prime contract govern if there’s a conflict, but we don’t have a copy of the prime contract, which we need to get. So it may be helpful to him in making decision on, you know, how he wants to proceed. But take a look at the order of precedence, because generally you could have multiple contract documents and how do they interact with each other is, is important to take a look at.
Speaker 2 (00:29:10):
And along that line, same thing would be slow down provisions as well. I have dealt with a number of cases where nobody actually, you know, you had a flow down from the prime contract and people didn’t actually ever get a copy of the prime contract to know what provisions flowed down to them and, you know, were shocked and, you know, surprised to find that I thought I had recovery for attorney Feess and oh, lo and behold, I don’t. So be aware of, of those things that, you know, can, can come back and get you now. I think the next thing we wanna talk about, which is very timely of where we are with price escalation and, and COVID 19. I wanna start us out just, you know, looking at some of these statistics in the ag did a study that they published.
Speaker 2 (00:30:03):
It’s a little bit outdated at this point because it was March, but they were collecting data in March of, of last year. That 52% of projects were reporting delays as a short, a result of shortage of materials and price increases at the, at that time, we’re looking at 29 to 30% price increases since then, it’s skyrocketed. I heard as much as 60% on some materials of, of price escalation issues much of the supply chain shortages have also been impacted by labor shortages, not necessarily on projects. A lot of projects are experiencing labor shortages, but also from the supplier side, the transportation side from even even trucking and, and the like that has also impacted those supply chain issues, but the price escalation items. Interestingly, I think too is, you know, construction, we in our industry has really embraced the lean principles of trying to really streamline our projects and what with the COVID 19 impacts on the supply chain.
Speaker 2 (00:31:15):
We’ve seen lean price that also incre impact the supply chain, which again, flows back to price and avail ability. One of the things that was very interesting, I was talking with a couple of suppliers and as they’ve kind of been talking to each other, particularly with steel that, you know, sometimes we think, oh, I’ll just go to another supplier or the, you know, that either the contractor, the subcontractor or the owners, we’ll just go get it from somewhere else. It, if it’s not available. And what we’re finding is that a large percentage of all construction materials, there’s really only a handful of sources. So it is impacting entireties of projects of how these price escalation issues are coming into bear for the reality. And, and I think it’s, and Meredith talk a little bit about what the contracts kind of say, but I think that my comment about thinking about these statistics is the contracts say something, but what are you doing on your projects? And, you know, if we are gonna hold people to the terms of the contract, what are the results of that? And that’s something to be considering as you’re evaluating even how price escalation are coming into play in change order disputes, but Meredith talk a little bit about what are we seeing in generally seeing in some of our contracts with price escalation language.
Speaker 3 (00:32:40):
So you might obviously, if it’s a time and material job, this is not gonna be a huge issue for you, but if, if you have a, a fixed price or a GMP contract, generally the contractor is gonna bear the risk of any increased cost. And if you have a six month job, you might not have a huge risk for that. If you have a five year job, you might the job started two years ago, you might be experiencing it right now. So the best chance for succeeding on a price escalation claim is where the contract expressly provides for an economic, you know, either time and price adjustment in the event that market conditions change. So one of the things I always tell contractors is, or clients when I’m reading their escalation laws was sometimes they’re included in the agreement. They might be bullet plate.
Speaker 3 (00:33:22):
Sometimes they’re not included at all is how specific can you be and how specific do you want to be? And the same is true for a force juror clause, which we’ll talk about in a minute. But going back to Brenda’s example, if you’re a steel supplier, you might know exactly, you know, what, what materials would increase if you experience market escalation, it might be pretty specific that you can write that language into your agreement. So it’s clear that the contracting parties negotiated that at arm’s length from the outset, and you could say a price increase exceeding 10%. It could say, you could say no 20%, you know, whatever the parties agree to, but you might have the ability to be specific enough to write those express variables into the escalation class, you might not be able to do that. You can still say, you know, for example, you could still say including, but not limited to the price of X, Y, and Z, which could be the materials that you’re providing on that job.
Speaker 3 (00:34:21):
And then you really cover yourself. And it’s clear that you, you put that contract provision into the agreement specific to this transaction. But again, like Brenda said, relationship and communication are key. I mean, you don’t want to have such a rigid contract that the you’re gonna increase the cost from the outset to compensate for these risks. So you really want to just be entitled to relief if, and when those instances occur. And if you can write that language into the agreement from the outset both parties will generally equally share in the risk and get a equitable result in the event of price escalation.
Speaker 2 (00:35:07):
Yeah, that’s, that’s great. And, and I mean, and it’s interesting where, you know, what are the courts doing is a interesting question too, with price escalation. A lot of people are asking we’ve, we’ve seen some cases that are specific, but what we’re generally seeing, I’ve seen it interesting, particularly in New York. Not much weight is given to sort of these other arguments. If you have an argument that maybe you don’t have a price escalation clause in your contract that is helpful for your position then you may want to argue impossibility or frustration of purpose. New York courts have not really embraced that, those as arguments to be prevailing. In fact they’ve said that financial interest in financial hardship does no excused performance under impossibility or frustration or purpose. There’s a case that cited Latino versus clay, LLC. That was in the Southern district of New York in may of 2020.
Speaker 2 (00:36:09):
And really sort of showing that some of the courts are saying, you know, a little bit about, we’ll talk about with abortion next similar types of issues where we’re seeing courts say, well, was it really impossible? Was it, or, or was it just, you know, you, you struck a bargain, you took a gamble and you, you know, either you won or you lost depending on which, which place you sit in. So it’s important to be aware and we’re seeing changes. So staying up on what the law is, is doing in your jurisdiction and where you’re building is important to be aware of how are the courts interpreting price, escalation, clauses, and being as precise as you can, if you have the ability to do so is extremely helpful. So Meredith let’s talk a little about, about force your clauses.
Speaker 3 (00:36:58):
Yeah. This is, everybody loves this clause right now. So force major think about the, like, like an escalation clause, think about the project and the work, and try to tailor a force clause specific to your transaction. Try not to have a be bullet plate. Again, it will show that you negotiated it on and it’s specific to the project and courts do look at that when attempting to enforce it. And hopefully if you’ve negotiated it, you won’t have to ask the court to in enforce it because it will be very clear that this specific event happened. We agreed to it, and we’re entitled to a leave whether that’s cost time or both. So there was, again, there’s not a lot of case law yet on some of these COVID impacts, but there was a recent Florida case where a public university spent suspended, in-person learning, but offered online learning, which obviously we’re seeing a lot of institutions do a student of that university sued for failing to offer in-person educat and the force clause read no refund in the event.
Speaker 3 (00:38:05):
The operation of the university is suspended, was too vague. So if you’re seeking to enforce a force clause, you have the burden of proving that. So the school had to approve that, obviously not the student, because they were seeking the relief and the court refused to grant summary judgment to the school ruling that the force major clause did not apply to the COVID 19 pandemic because the school’s breach was not suspending its operation, but was rather offering an alternative mode of teaching. So, I mean, even, even as an attorney, I could read that and say, oh, they’re covered. And it wasn’t specific specific enough in that instance to get them out for summary judgment. Now, I haven’t looked at the whole case opinion on whether it evaluated the merit of the student’s claims entirely, but the force majority clause did not win the day there.
Speaker 3 (00:38:53):
So four components of a force major clause that I advise clients on is define the breach for which the party is seeking to be excused of performing. So for example, be as specific as you can define the force major event itself. So for example, do you wanna say pandemic, or do you wanna have a catchall broad provision that just says, so circumstances beyond your reasonable control? I would argue that you should be specific if you can’t. I mean, we always see the language act of God, labor shortages. I don’t think all of those, those are going to hold water. So again, look at what you, what the parties are exchanging for the consideration are those out in the language of the provision, third is require and find the connection between the breach and the force major event. So use phrases like due to, or as the result at excuse me, as a result of solely cause by that language may require burden on the party seeking relief.
Speaker 3 (00:40:00):
So solely caused by can be very hard to prove. And the fourth is explain what will happen if the performance is actually excused, that that language is almost often missing from a forced major class. So are you gonna terminate the agreement? Are you excused? You get a termin, the agreement as of the date of the event. What about preexisting costs, for example events due to COVID deposits paid, paid prior to the pandemic? You know, you’re seeing that with concert tickets and things like that. So again, walk through your specific transaction and tailor your first major provision to that. Don’t just insert simple or plate provision.
Speaker 2 (00:40:40):
Yeah. And highly relevant to our discussion on change orders is, does that result in a change order that is, is going to result, you know, and that may be in particular language to consider in negotiating your force, mature clauses as does that, that may be your, your, your impact in your result. So we can talk a lot more about force mature and, and price escalation, but due to time, I’m gonna move us on and talking about delay damages. And again, we could do a whole day on delay claims and delay damages. But generally delay damages in the context of a construction project are going to be those damage is that arise out of either completion that has not been achieved timely or suspension to the work performed. The damages are intended to compensate the contracting party that’s injured when a project takes longer than the construction contract specified.
Speaker 2 (00:41:36):
The traditional idea is that while the owner has been damaged, because they didn’t get the project completed by a, a time agreed upon by the parties, there may be damages to the other construction entities and parties involved and well, notably there’s no automatic, right? For a party to receive delay data images. Again, you’re gonna have to review your contract and to determine what damages you may or may not be entitled to. We’ve given you an example of a delay damage clause or a couple of examples on our, on the slide. And, you know, part of the interesting question is what do we do with these delay damages clauses, a read them, be sure, you know, what they say and know what you are potentially entitled to or not so that you can, again, with your change order process, be setting it up.
Speaker 2 (00:42:26):
I can tell you the number of times I’ve seen change orders where people just skip they say, here’s the change. Yeah, we’ve agreed to it and everybody’s moves on and they don’t talk about time impact. They went, oh, well, we all knew. We all agreed. We all understood that we were adding additional scope of work. It was gonna add time and we didn’t close that gap and ensure that the, the documentation was all there to affirm it. And that impacted the ability for recovery of a delay coming. Also along that line is thinking about delay damages. And what do we do with, with these provisions? What are liquidated damages provisions? We, aren’t gonna have time to talk about that, but it’s something to be aware of, even in your change order process and change order disputes. But I think the interesting thing is moving to the issues of how do we handle delay damages and issues in our contracts as part of our risk management and Meredith, I wanna turn that to talk to you about some of the provisions we’re seeing of no damages for delay in contracts and maybe giving a little, our, our, our audience, a little bit of discussion on how enforceable are these provisions and what do they
Speaker 3 (00:43:37):
Mean? Yeah. So no damages for delay clause are exactly what they say. They are. Basically an generally an owner will use a no damages delay provision in a contract to put down the risk of delay. So basically says you might get time, but you’re not gonna get any money. There’s a bunch of legal issues surrounding no damages delayed for provisions, not only in the language if it’s written clearly but some states, some jurisdictions enforce them, others. They do not. So take a look at that in Washington. I can tell you, I think it’s R C w 4.24 though, any provision that says you can’t damages for delay or void against public policy. So whether you’re on a public job or a private job, if an owner puts that in there, and all of a sudden you’ve got exorbitant delay damages, it’s not gonna be enforced. That’s a statutory rule. I think in Oregon, it’s void in public projects, but not private. So take a look at that from the outset again, if it’s in there and you think that that could be a big risk for you, see if you cannot, you know, negotiate that and resolve that. Like Brenda was saying with standby time, if you’re suspended, can you come up with a daily rate? That’s agreed upon things like that. The, but again, take a look because in every jurisdiction they are interpreted and enforced very differently than another.
Speaker 2 (00:44:58):
Yep. And on, on that line California is similar to Oregon public projects. There is our public contracts section 71 0 2 finds that those are, it is void, no damage to delay provision in pub private contracts. It might be, it may be enforceable. There’s some case law that can be very helpful in an arguing enforceability. But be careful again, to look closely at what, what your jurisdiction is, what your venue is. You may don’t, don’t assume. And, and I think also to be aware that your delay damages may be different than liquidated damages provisions, as I mentioned. So be thinking through, you know, what it is that you’re looking at, what damages as well as consequential damages. And you may have if, if, even if you don’t have a no damages for delay clause I have limitations or waivers of consequential damages.
Speaker 2 (00:45:56):
And so you may be able to obtain some remedy for the delay, but you may not get your consequential damages. A lot of my owner, clients and developers, it’s a, it’s a something for them to be very clearly aware of that, you know, if you’ve got a condo, your building and you can’t get it out for, you know, in the right timing for sales and occupancy some of those prior consequential damages may not be recoverable beca campaigning on your project, even if you might be entitled to delay damages. So, you know, I had a client where we had a case that they thought they had 6 million of the delay damage claim. Unfortunately the arbitrator found that, you know, all, but a very small portion of that was a consequential damage that had been, had a consequential waiver. So yeah, they had the entitlement sort of but they weren’t entitled to actually recover it.
Speaker 2 (00:46:52):
But the next topic and we’re running fast on time. So we’re gonna touch about building your claim and what do you need to include for a change order claim? Again, you’ve gotta establish the delay damages. You’ve gotta establish entitlement as well as your measurable damages. We are seeing, as I just mentioned, finders of fact, want detailed, consistent project documentation. They want it contemporaneous. And as I indicated before, having company-wide policies, having training for what documents are gonna be used, how you’re documenting things in the field you know, who, what representatives are, are tasked with make maintaining that record is critical. And also, you know, we’ve got a list here. I’m not gonna read the list, but we will share the slides, but it’s important to be aware that year records matter all of the matter, the schedule. This is the various updates your meeting minutes matter, your daily logs and journals.
Speaker 2 (00:47:57):
They do help in the dispute and the resolution of delay claims. And, and I think I saw in the chat a couple questions before we’ll get to some of them, but one of the questions was, you know, how formal does some of the notice need to be? And again, you gotta read your contract. If the contract allows for electronic communications for notice, that might include a text message. But you gotta make sure there’s properly saved. And in order to use it as evidence, you’ve gotta make sure that it’s going to be able to be retrieve. I’ve had a lot of cases where people said, well, we texted about it, or we emailed about it. Well, the text messages never got saved to a server and the phone fell on the toilet.
Speaker 2 (00:48:43):
It’s gotta be really hard to prove that you actually gave notice. So there’s, there’s some things to be said for have a nice procedure. That’s documented, I think 10 years ago, people were nervous about sending emails as far as notice. Now, I think that’s probably pretty standard across the board and you know, your general conditions and all of those details of where you’re spending money and then documenting. If you believe you have a, a delay or a change that’s impacting your project I think it goes for delay claims. It goes for change orders, as well as documenting the cost of where those things are and tracking it, if you can will really help prove your claim. Meredith, I dunno if you have anything to add on, on that topic before we turn
Speaker 3 (00:49:29):
You know, it just think having your as plan and your schedules, and then obviously as bill, if you update them weekly, monthly, sometimes project goes far enough south, or it has a big enough dollar value that you might wanna get a delay expert involved early, even if it’s just on the back end. If you have the correspondence and you track it and, and the schedules and the RFIs and all that, you don’t necessarily need that from the outset. An expert can build that later, but if you’re not quite sure, at least the expert in, if they get involved early can say, these are the documents you need, you need to make sure to have them, if you’re sophisticated enough and, you know, you have the documents, you, and you’ve got them, you know, organized, categorized, not a problem to maybe get an expert involved later, but just think about that based on the dollar value of claim, how big the project is and, and, and how much, how many moving parts you have.
Speaker 3 (00:50:26):
So that’s something to think about as well. And then one of the questions I saw was, and I think it was probably for Brenda and I is how involved are you in the change order process? And I think both Brenda and I would agree that we can be as involved early or later as you need. So drafting preliminary notices, even if it’s we’re ghost writing them and you don’t necessarily want them a, you know, Gordon, Reese Orman letterhead is something we can do. We can also just tell you what the change order provisions dictate that you need to do. And then obviously turning them into formal change orders and claims is definitely something we do. So I saw that question pop up.
Speaker 2 (00:51:04):
Yeah, that’s great. And I think, you know, thinking about you, it, this is sort of, we’ve got a list here of some claim records as well, but I wanna go to this slide of talking next about resolution of your change order claims, because I think that goes really right to that question Meredith in everything that you’re doing, because we’re talking about change orders, but you know, the, the into entirety of your project, everyone wants it to be successful. We all wanna negotiate and bargain for a reasonable agreement to build a project, whatever it may be. And to walk out to say, this is what we, we intended to accomplish, and we did it. And you know, if you’re walking in with that idea, having procedures and things set up, I think it’s often times we in the construction industry, we wait for the problem before we try to be proactive.
Speaker 2 (00:51:57):
It’s harder to justify the cost of engaging counsel up front. I find that the clients who do engage counsel early on do they have fewer claims hard to know anecdotally? I would say I hear that from a lot of clients who but maybe their processes are in good order, but if you have a plan, you can work the plan, that’s going to help avoid some of those claims. If you have a process in place, you hopefully will have resolution of your change order plan. You know, again, like we said, you don’t have to wait until the end. And we recommend don’t wait until the end to have your documentation in order the, the listing that we had of all the various records to be putting together, to have an order, have a plan. And, and then if you have a claim, you know, being able to also order them in a fashion that you’re not gonna have your, your legal counsel here’s, here’s, you know, 500 thousand pages, please go ahead and find all of our notices for you.
Speaker 2 (00:53:02):
And that becomes extremely expensive. So if you can, one tip that I did with the client and we worked through with them early on was they came up with a naming convention for their emails. And when they had a notice about something, there was a naming convention that we developed that the entire team agreed to and they used, and everybody did it with where the email had specific language with keywords of notice with the project name and heaven forbid like, you know, somebody bees, a notice that is in an email thread about something else. So that was sort of the training that we did with them in the idea of excuse me, in the idea of getting to resolution and of, you know, let alone witness, but that made our jobs to protect our client later in the litigation process, that much better, where we were able to, they were able to help very much put our records together and I don’t, you know, care what people say, but the, the trier of facts sees that organization. You get so much credibility that is you, you can’t develop. It’s like, wow, these folks had their act together. And that’s gonna carry a long way. Meredith I dunno if you have
Speaker 3 (00:54:13):
Any other thoughts on, yeah, this is an ESI, electronic discovery is a whole nother thing, and I do a ton of ESI. I’m good at it. So I always have to do it for some reason in our firm that can get very expensive. So, like Brenda said, think about naming conventions. Think about folders. Think about custodians because when you get into, if you get a third party subpoena, or you’re a party of record in a case, and all of a sudden they want your whole project file, that project file could be huge. So think about things that you want in an email, how you want them organized think out things that you don’t want to be put in an email. If they’re gonna harvest narrative, field bars and tile custodian file, they might get junk email, and it might say things I don’t want everybody to see.
Speaker 3 (00:54:56):
So again, that goes back to a corporate policy and making sure people from the top down and in the field, understand these things and what some of these ramifications can have. And if you don’t know, and a journey can generally help you with that, but ESI can become expensive and it can open up things that you think, oh, no, one’s ever gonna see this email. Well, yeah, they might see it. So think about that. One of the questions I saw that I thought was interesting was for subcontractors, how do you really protect subs? Because we’re so much lower on the food chain. I didn’t use that term. That was in the question. And the great thing about subs is you generally have one party that you’re contracting with above you. Usually, you obviously have some suppliers, but your scope is usually limited.
Speaker 3 (00:55:38):
So try to use that to your advantage when it comes to your contracting documents and do read, you know, pay payment provisions. Those can be, is it pay when paid? Is it pay if paid, how are those enforced? And sometimes if you counsel with an attorney for, you know, five to 10 hours at the outset, even if it’s a taker to leave a contract and you’re bound by the terms of that prime contract, that general contract, at least, you know, what you’re up against, and you can kind of create some, some points of reference to make sure that your claims are preserved and you can see the big picture of that, even if you’re just a set. That’s helpful.
Speaker 2 (00:56:18):
I think that’s great. I’m looking, we have a couple of minutes sorry to see if there’s a couple questions also to answer. I think someone had asked where do we normally see clauses and contracts that the owner is of power to each unilateral changes depends on your contract. If you’re in an AIA 2 0 1, it’s gonna be in an article seven but you really need to scour your contract. And again, being aware of whether or not your contract does have a specific provision for owner directive change is something to take a look at. You know, there was one other question I thought was very interesting about notice and Meredith I’d love your thoughts if you have any on it too, but whether or not really are there notice provisions enforced was essentially the, the by, by, by arbitrators and, and, and HTS.
Speaker 2 (00:57:04):
And I think it, it’s just very dependent if you’re in arbitration, many of these cases are gonna have a binding arbitration provision. It’s going to depend on who your tri fact is. I have had a case where we had a single arbitrator and the notice that like, eh, they were kind of close enough, but y’all knew. So let you miss the notice like repeatedly and didn’t, and, and it really, as much as they didn’t have good notice, we thought we had a good argument arbitrator, didn’t see it the same way. Other cases I’ve had arbitrators who are stickler. So it’s, again, making sure you know, what your dispute resolution procedure is and if your picking an arbitrator, but if you have the opportunity to be involved in that portion of it, it’s really important to really vet them extremely
Speaker 3 (00:57:52):
Well. Yeah, I’ve, I’ve found if an arbitrator or a judge or a panel wants to enforce the notice provisions and they wanna say they will. So if, you know, for example, that can I had in New York, we had teed up some summary judge motions with the judge in the Southern district, New York, and their notice is strictly enforced in it. We really used it to resolve the, the matter informally and very favorably to us. So it, it, all it like Brenda says, it really depends on your trier fact, but if they’re following the letter of law and they’re strictly enforced, they should, but doesn’t mean they always will. But again, that’s something that any lawyer, including Brenna and I can’t guarantee how a ruling will be made. So it’s better to just dot your eye and, you know, cross your Ts and be prepared that they will enforce it.
Speaker 3 (00:58:40):
And one of the questions is I think it, the question was why is actual notice not a defense? It is a defense in some jurisdictions. It is not another. So for example, in Washington, there’s a case Mike M. Johnson, it’s a famous case that says actual notice is not enough. So even if you can say, Hey, I called the owner and I told him about this issue on the phone. And even if he admits it, if the contract said, notice had to be in writing and it had to be sent certified mail, and he didn’t do that, you could lose that argument and related to that claim and whatever the dollar value is with that associated with that claim.
Speaker 2 (00:59:14):
So we got a bunch of other questions. Thank you for your questions, what we will try to do, hopefully with level sets, assistance gather those questions and we can reach out to people with some answers if we can. But thank you everyone so much for joining us, we are out of time. I’ve put up on the screen, the CLE credit and in conclusion, I will just say thank you for joining us prepare, prepare, document, document, get your files in order. And we wish you all the best with your change orders and successful completion of your projects.
Speaker 1 (00:59:52):
Yes. Thank you everybody.
Speaker 2 (00:59:54):
And if you have questions, you’ve got our, our emails up there. Feel free to reach out.
Speaker 1 (00:59:58):
Yes. further questions we didn’t get to because of time. I will pull a list of those and see if I can share it with Brenda and Meredith. And thank you so much, Brenda and Meredith for your time today in preparing this amazing course for all the contractors and attorneys reach out to me. If you have question the attorneys for your CLE credit and thank you so much for joining us today, thank.