DEALING WITH THE UNEXPECTED: CHANGE ORDERS AND CLAIMS
The CM At-risk's Survival Guide
by
Jeffrey S. Conner 

On a recent bridge project, our Construction Manager client encountered an entire ship scuttled in 100 feet of water where one footing was designed to go.  On an Asian High Speed Rail project, our design-build contractor was ordered to start over entirely as the seismic code was rewritten due to an earthquake.  The developers of a major resort hotel in Northern California changed their design so often our client wrote 3,800 RFI's and 2,400 CO's in one month!
 
The next time you are faced with an Owner who aggressively admonishes you that "we don't have change orders on my projects," I would like to suggest that you pose the following memorized question in reply: 
 
"OK. Can you please type out a Notice to Proceed right now, sign and date it; confirm your financial status is at least as strong as at the time you put the project out to bid; assure me that the soil to a depth equaling the footing size is uniform and free of all unforeseen irregularities of any kind; stipulate that your architects and engineers communicated precisely and utilized the highest possible standard of care in meticulously preparing 100% complete and accurate bid documents, plans and specifications; warrant that you 1) disclosed all material information, 2) will consistently provide timely and free site access and 3) will refrain from accelerating or changing your mind on any item contained in the bid; promise that no local, county, state or federal agency will delay approvals or inappropriately interfere with any aspect of the project; and guarantee that God does not have any tricks up his or her sleeve during critical path work?!" 
 
If the Owner's answer to this question is an immediate and unequivocal "yes," you are an extremely fortunate person.  If the Owner's answer to this question is "no," (or inappropriate for children under the age of 12), the following summary steps may provide assistance in managing change orders and prevailing on claims. 
 
PRIOR TO CONSTRUCTION 
 
The most effective change order avoidance techniques are those applied to the construction documents prior to beginning the project:
 
·  Thoroughly review the bid documents, contracts, plans, and specifications. 
 
·  Insure that your contract, the general contract, and the subcontracts are consistent.
 
·  Include an effective Changes clause in the construction contract.
 
·  Utilize Alternative Dispute Resolution (ADR) and Dispute Resolution Boards (DRB) procedures on large projects.
 
·  Use realistic scheduling as a tool.
 
·  Include unit prices for items of work where quantity may vary.
 
·  Insist that the Owner follow streamlined administrative procedures.
 
 
PRIOR TO CLAIMS 
 
·  Consistently train field and office staff on the advances in construction management technology.
 
· Verify that internal procedures are in place to prevent what can later be categorized as the filing of an actual, or perceived, "False Claim" on your part.[1]
 
· Train field and office staff in the early identification of "traditional" change orders, constructive change orders, and/or claim situations.  Is it Owner directed? A specific event? Cost? Or schedule impact? 

·  Photograph and videotape construction progress, whether jobsite problems are occurring or not.
 
·  Maintain and/or submit complete daily reports.
 
· Think like an Owner.  [e.g. justify legitimate change orders through the increase in project value etc.]
 
 
FILING THE CLAIM
 
 
· Give timely written claim notices. There may be specific steps you must follow within 7-30 days.
 
· Use that State's public agency forms [e.g. CALTRANS "Notice of Potential Claim - form CEM-6201 in full cognizance of the California False Claims Act."] as required on public works projects.
 
· Forward notices from suppliers or subcontractors to the Owner.
 
 
AFTER A CLAIM HAS BEEN FILED 
 
· Familiarize yourself with the Claim.
 
· Review contract documents carefully.
 
· Keep up with statutes of limitation, Government code, DRB, and/or administrative timetables.
 
· Assemble all relevant data.
 
· Organize the collected documents chronologically by specific issue or event, and according to the party responsible for the problem.
 
· Hire those individuals who can provide specialized assistance.
 
· Identify and evaluate any additional damages, which may arise from the issues in the Claim.
 
· Reserve your rights when accepting partial payments which do not include extended overhead and other excess costs.
 
· Interview and/or verify future contact information for key personnel as the job wraps-up and they move on to other projects or companies.
 
 
CONCLUSION 
 
Simply put, an unresolved potential change order between an Owner and a Construction Manager at-risk (regarding the contract work and the time or money associated with it) will become a claim.
 
The old saying, "watch your pennies and the dollars will follow" might be modified in this context as "watch your change orders and the claims won't follow."
 
Many Public Agencies and sophisticated Owners have formal methodologies, including checklists and pre-scripted responses, for analyzing, responding to and denying claims.
 
If you want your business to continue properly and successfully, it is critical that you too focus on change orders and claims. 
 
The information contained in this article is provided as a service to the construction community, and does not constitute legal advice.  We believe we have provided quality information, but we make no claims, promises or guarantees about the accuracy, completeness, or adequacy of the information contained herein.  As legal advice must be tailored to the specific circumstances of each claim or case, and laws are constantly changing, nothing provided herein should be used as a substitute for the advice of competent counsel. 
 
Jeffrey Conner represents Construction Managers, Contractors, and Public Agencies with construction claims and disputes throughout the United States.  He is a managing consultant with Hill International in San Francisco, California and can be reached at (415) 249-0134 or via email at jeffreyconner@hillintl.com.

[1] Although successful CM companies always practice precise contract administration and follow unimpeachable cost management procedures, additional training may be required for Public Sector work