“Wait, I don’t like change,” you say? No worries, you’re certainly not alone. But change on a Construction project is, unfortunately, a necessary evil. No matter how attentive designers are to the site-specific conditions of the project, there will be conditions on-site that cannot be known until they are encountered. Whether it is something in the soil characteristics, undocumented utilities, or an unexpected result from an action…“change happens”.
In 2018 VDOT clarified the requirements on how change orders (sometimes referred to as work orders) were to be processed. IIM-CD-2018.05.01 was established on November 19, 2018, by the State Construction Engineer. The focus of this Instructional and Informational Memorandum (IIM) was establishing entitlement for a change to the contract. So, what is entitlement and why is it so important? Glad you asked…Merriam-Webster would define entitlement as “the state of being entitled”. And we’re done here! But seriously entitlement in terms of Construction establishes a party’s right to a certain event or object. A Construction Contractor through the execution of a binding agreement with a Local Public Agency (LPA) is entitled to a set of contract documents that clearly identify the deliverable to be produced by the Contractor in return for compensation from the LPA. When that information is lacking, entitlement would require the LPA to supply the information to the Contractor. At times this is as simple as responding to a Request For Information (RFI), at other times it requires a formal change to the contract, i.e. a “Change Order”.
A change order can be used to adjust item quantities, allotted time, and/or terms on the contract. If the Contractor is required to take actions that are additional to the requirements of the contract, a change order may be required. There are numerous methods of resolving alterations to the work to be performed that do not require a formal change order. There may be alternative solution methods that benefit both parties and achieve the same results. Whatever the method all avenues of resolution should be reviewed prior to incorporating a formal change to the contract. If the issue can be resolved between the LPA and Prime Contractor through partnering efforts, the benefits to the project will be tangible.
Once it has been determined that a change order will be required, the process begins by establishing entitlement. There are three instances that are accepted by VDOT as valid reasons that a Contractor would be entitled to a change order:
- There have been significant changes to the character of work (either materially or quantitatively) due to no fault of the Contractor.
- Value Engineering Proposals
- Differing site conditions (Type I or II)
If the required change fits into one of these three categories, then the LPA and Contractor should meet to agree to the scope of the work to be included in the change order. Subsequently, a Conceptual change order request (VDOT Construction form C-10a) must be generated and submitted to VDOT’s Construction representative assigned to the project. This form is intended to notify VDOT, and FHWA as applicable, of an upcoming change to the executed contract. The form should explain why the change is necessary (entitlement), a description of the work to be performed to include the specific location of the work, whether the work can be completed within the existing budget, and confirmation that the work will be performed within the permitted project footprint (required). Whether the scope of work is clearly defined or not, as well as an Independent Government Estimate (IGE) are also required components of the submittal.
The IGE is the LPA’s best estimate of what quantities will be required and the cost incurred to complete the alteration to the contract. The IGE is required to be completed (and dated) prior to receiving any pricing information from the Contractor. Several methods of estimating the cost of the work to be performed exist and are recognized by the industry. The simplest way to complete this task involves utilizing VDOT’s 2-year bid history information or the information contained in the Contractor’s schedule of items. If VDOT’s bid history information is used, special attention should be given to ensure that the quantities of the individual line items and the geographical location of the items are consistent with those of the proposed work. If the items being estimated are not present on the bid history reports or no applicable information exists in the Contractor’s schedule of items, the LPA may use other industry-accepted methods for cost estimating such as RS Means, Construction Blue Book, etc. Once the IGE has been generated it should be included in the LPAs conceptual change order request to VDOT.
Once the required signatures have been obtained from VDOT, the Contractor’s estimate may be received by the LPA. For the Contractor’s estimate to be acceptable, it cannot exceed 110% of the LPA’s IGE. However, if the LPA enters into negotiation with the Contractor and receives additional information that was not previously known that affects the IGE, it may be revised as long as it is clearly signed and dated. It is important to note that costs relative to a compensable delay in the work should not be included in the C-10a submission as this will require a Time-Impact Analysis (TIA) to be submitted for review. A compensable delay is a delay to the contract that is solely the responsibility of the Owner, in the case of LAP work, the LPA.
Should an extension of time be justified, the following requirements must be fulfilled before it can be considered:
- The request must be received by the Contractor and accompanied by supporting information such as a TIA
- The changed condition must be clearly identified in the documentation as a controlling item, i.e. included on the critical path of the project.
Extensions of time are limited to the number of days that the critical path of the project is delayed due to the compensable work included in the change order. For a delay to be considered as a compensable delay, no concurrent delay to the critical path can exist that is non-compensable for the time that the Contractor is claiming the delay. This means that if there is a concurrent, critical path activity on the project that is delayed and the delay is not solely the responsibility of the LPA, then neither of the activities can be considered compensable for the duration of the concurrence. Specification section 109.05(e) of VDOT’s Road and Bridge Specifications identifies examples of compensable and non-compensable delays.
All change orders must be submitted by the Prime Contractor on all contracts as the owner’s binding contract is with the Prime Contractor only. Should a Sub-Contractor experience issues that they believe require a change order it must be submitted by the Prime Contractor to the LPA. Once the change order has been received, the LPA should give special attention to individual unit prices submitted by the Contractor. While the overall impact on the project budget is of utmost importance, elevated unit prices, specifically for items that tend to overrun, benefit the Contractor and can negatively impact the project budget by requiring subsequent revisions. Once unit prices and quantities of work are agreed to, the complete change order package should be submitted to the CPM for review. The following items shall be included on the final change order:
- A description of the work to be performed
- Entitlement, or the reason that the work is required to complete the project
- Total price difference for the alteration to the work
- Detailed listing of all items, quantities, units, and unit prices
- All time extensions that have been agreed to that alter any completion date or incentive-eligible dates
- A statement indicating that the Contractor and Owner agree that the change order settles and resolves all claims, demands, or damages of any kind relating to, or arising out of the work set forth in this Change Order.
Direction to begin work that is included in the respective change order is not to be given to the Contractor until a change order has been executed. While the change order process may seem arduous, it is necessary to officially alter the work agreed to in the executed contract and is not as daunting a task as it may seem. As experts in the field of Construction documentation, NXL has extensive experience with executing change orders that meet the federal and state requirements.
If your agency is looking to better understand the requirements of project delivery in the LAP program, we would consider it a privilege to conduct a lunch & learn session on topics of your choosing. If you are interested in advancing your program through a no obligation training session, please contact Emily Ripka at 804.466.0455 (mobile) or firstname.lastname@example.org.
Written by Paul Moose, PE, Locality Program Manager