10.5 Change Orders, Construction Change Directives & Claims

Core Focus: Modifications to the contract scope, price, and schedule represent the most heavily tested legal concepts within the Construction Administration subdomain of the LARE Section 3 exam. Candidates must master the distinct functions, required signatures, and legal consequences of Change Orders (COs), Construction Change Directives (CCDs), and Proposal Requests (PRs), as well as the strict 21-day claim notice rules and multi-tiered dispute resolution pathways.

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1. The Contract Modification Framework

Once an Owner-Contractor agreement is signed, the contract documents can only be formally amended through specific contractual modification instruments established in AIA Document A201 Article 7 (Changes in the Work). Contract modifications ensure that changes in scope, compensation, and completion dates are legally documented and enforceable.

+--------------------------------------------------------------------------+
|                     CONTRACT MODIFICATION INSTRUMENTS                    |
+--------------------------------------------------------------------------+
|                                                                          |
|  1. ORDER FOR A MINOR CHANGE (ASI - AIA G710)                            |
|     • Signed by: Landscape Architect only                                |
|     • Effect: Minor technical change; $0 cost, 0 days schedule change    |
|                                                                          |
|  2. CONSTRUCTION CHANGE DIRECTIVE (CCD - AIA G714)                       |
|     • Signed by: Owner + Landscape Architect (GC signature NOT required) |
|     • Effect: Directs immediate work without prior price agreement       |
|                                                                          |
|  3. CHANGE ORDER (CO - AIA G701)                                         |
|     • Signed by: Owner + Landscape Architect + Contractor (All 3)        |
|     • Effect: Mutual agreement on scope, exact cost, and exact schedule  |
|                                                                          |
+--------------------------------------------------------------------------+

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2. Proposal Requests (PR) / Bulletins (AIA Document G709)

A Proposal Request (PR), also known in the industry as a Bulletin or Request for Change Proposal (RFCP), is a formal document issued by the Landscape Architect to the General Contractor requesting an itemized cost and schedule proposal for a contemplated change in the work.

Critical Characteristics of a PR

• Pricing Solicitation Only: A Proposal Request is NOT a Change Order, and it is NOT a directive to perform work.
• No Work Authorization: It does not authorize the contractor to commence the described work, nor does it authorize the contractor to halt existing work in progress.
• Contractor's Response (Change Proposal): The contractor responds by submitting a detailed cost breakdown, including:
  • Direct material costs (invoices, catalog quotes).
  • Direct labor costs (trade hours, certified payroll rates).
  • Equipment rental costs.
  • Subcontractor costs.
  • Permissible contractor markups for overhead and profit (governed by percentages stipulated in the Supplementary Conditions, typically 10% to 15% combined).
  • Schedule impact (number of calendar days of critical-path extension requested, supported by a revised CPM schedule network analysis).

If the Owner accepts the contractor's proposal, the Landscape Architect incorporates the terms into a formal Change Order.

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3. Construction Change Directives (CCD / AIA Document G714)

A Construction Change Directive (CCD) is a written order prepared by the Landscape Architect and signed by the Owner and Landscape Architect, directing a change in the work prior to agreement on adjustment, if any, in the Contract Sum or Contract Time (AIA A201 Section 7.3).

+--------------------------------------------------------------------------+
|                 CONSTRUCTION CHANGE DIRECTIVE (CCD) FLOW                 |
+--------------------------------------------------------------------------+
| Critical site condition, owner emergency, or pricing dispute arises      |
|         │                                                                |
|         ▼                                                                |
| Landscape Architect drafts AIA Document G714                             |
|         │                                                                |
|         ▼                                                                |
| SIGNATURES EXECUTED:                                                     |
|   ├─ Owner Signs                                                         |
|   ├─ Landscape Architect Signs                                           |
|   └─ CONTRACTOR SIGNATURE IS NOT REQUIRED                                |
|         │                                                                |
|         ▼                                                                |
| Issued to General Contractor                                             |
|         │                                                                |
|         ▼                                                                |
| MANDATORY ACTION: Contractor MUST PROMPTLY PROCEED with the directed work|
| (Refusal to perform constitutes a material breach of contract)           |
|         │                                                                |
|         ├────────────────────────────────────────┐                       |
|         ▼ (Contractor Agrees)                    ▼ (Contractor Disputes) |
| Contractor countersigns CCD                 Contractor proceeds with     |
| (Converts automatically into a Change Order) work under protest & submits|
|                                             itemized costs / Claim       |
+--------------------------------------------------------------------------+

When is a CCD Deployed?

A CCD is used in two primary circumstances:

1. Emergency / Schedule Urgency: When work must proceed immediately to prevent severe project delays, protect property, or maintain critical-path milestones, and there is no time to solicit and negotiate a formal Proposal Request.
2. Disagreement on Cost or Time: When the Owner and Contractor acknowledge that a change is necessary, but fundamentally disagree on the price or schedule adjustment proposed by the contractor.

Mandatory Contractor Performance

Under AIA Document A201 Section 7.3.5: "Upon receipt of a Construction Change Directive, the Contractor shall promptly proceed with the change in the Work involved."

[!IMPORTANT] The Contractor Cannot Refuse a CCD: Under standard AIA contracts, the contractor cannot stop work or refuse to perform the work directed in a valid CCD simply because the price has not been agreed upon. Refusing to perform CCD work constitutes a material breach of contract, subjecting the contractor to termination for cause.

Methods for Determining Cost Under a CCD (Section 7.3.3)

When a CCD does not contain an agreed lump sum, the cost adjustment is determined by the Landscape Architect using one of four contractual methods:

1. Mutual Acceptance of a Lump Sum: Properly itemized and supported by substantiating data.
2. Unit Prices: Applying unit prices previously established in the Contract Documents (e.g., $45 per cubic yard of rock excavation, $12 per linear foot of silt fence) or subsequently agreed upon.
3. Cost to be Determined in a Mutually Agreed Manner: Including a mutually acceptable fixed or percentage fee for overhead and profit.
4. Actual Cost Plus Fee (Force Account / Time and Materials): Under Section 7.3.4, if the contractor does not respond promptly or disputes the method, the Landscape Architect determines the adjustment based on actual documented expenditures for:
   • Labor costs (hourly wages, fringe benefits, workers' comp).
   • Material and equipment costs (including transportation and storage).
   • Rental costs of machinery and equipment.
   • Permit fees and bond premiums.
   • Specified contractor markup for overhead and profit.

During Force Account work, the contractor must maintain daily certified time sheets and material delivery receipts, which are verified and signed daily by the Landscape Architect's field representative.

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4. Change Orders (CO / AIA Document G701)

A Change Order is a written instrument prepared by the Landscape Architect and signed by the Owner, Contractor, and Landscape Architect, stating their mutual agreement upon all of the following (AIA A201 Section 7.2.1):

1. The change in the Work;
2. The amount of the adjustment, if any, in the Contract Sum; and
3. The extent of the adjustment, if any, in the Contract Time.

+--------------------------------------------------------------------------+
|                       THE CHANGE ORDER TRIPARTITE ACCORD                 |
+--------------------------------------------------------------------------+
|                                                                          |
|                     ┌──────────────────────────────┐                     |
|                     │   AIA DOCUMENT G701 (CO)     │                     |
|                     │   Requires 3 Signatures:     │                     |
|                     │                              │                     |
|                     │   1. Project Owner           │                     |
|                     │   2. General Contractor      │                     |
|                     │   3. Landscape Architect     │                     |
|                     └──────────────┬───────────────┘                     |
|                                    │                                     |
|                                    ▼                                     |
|                       MUTUAL AGREEMENT REACHED:                          |
|     ┌──────────────────────────────┬──────────────────────────────┐      |
|     ▼                              ▼                              ▼      |
|  SCOPE OF WORK              CONTRACT SUM                   CONTRACT TIME |
|  Exact technical            Exact dollar amount            Exact number  |
|  description of             added or deducted              of calendar   |
|  added/deleted work         (including markups)            days added    |
|                                                                          |
+--------------------------------------------------------------------------+

Accord and Satisfaction: Legal Finality

Once a Change Order is signed by all three parties, it constitutes a binding accord and satisfaction. It legally settles all direct, indirect, and consequential costs and schedule impacts associated with that change. A contractor cannot execute a Change Order for $20,000 and two weeks later file a claim for $5,000 of "cumulative delay impact" or "lost labor productivity" resulting from that same change.

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5. Claims and Dispute Procedures (AIA A201 Article 15)

A Claim is a demand or assertion by one of the parties seeking, as a matter of right, payment of money, an extension of time, an adjustment or interpretation of contract terms, or other relief arising out of the contract (Section 15.1.1).

The Strict 21-Day Notice Rule (Section 15.1.3.1)

"Claims by either the Owner or Contractor must be initiated by written notice to the other party and to the Initial Decision Maker with a copy sent to the Architect... within 21 days after occurrence of the event giving rise to such Claim or within 21 days after the claimant first recognizes the condition giving rise to the Claim, whichever is later."

[!CAUTION] The Strict Statute of Limitations: Failure by the Contractor to provide written notice of a claim within this rigid 21-calendar-day window results in a complete legal waiver of the claim. Even if the contractor incurs massive legitimate expenses, if notice was not delivered within 21 days, the owner has no legal obligation to pay.

Types of Contractor Claims

1. Claims for Additional Cost (Section 15.1.5): If the contractor wishes to make a claim for an increase in Contract Sum, written notice must be given before proceeding to execute the portion of work that is the subject of the claim.
2. Claims for Additional Time & Weather Delays (Section 15.1.6): If the contractor claims additional time due to adverse weather conditions, the claim must be documented by certified meteorological data proving:
   • That weather conditions were abnormal for the period (exceeding 10- or 20-year NOAA historical averages for rainfall, snow, or sub-freezing temperatures);
   • That the weather could not have been reasonably anticipated during bidding; and
   • That the adverse conditions directly impacted work on the project's critical path.
3. Differing Site Conditions (AIA A201 Section 3.7.4): If the contractor encounters subsurface or latent physical conditions that differ materially from those indicated in the Contract Documents (Type 1 differing condition) or unknown physical conditions of an unusual nature differing materially from those ordinarily found to exist (Type 2 differing condition), the contractor must provide written notice promptly before conditions are disturbed and in no event later than 14 days after first observance.

Continuing Contract Performance (Section 15.1.4)

Pending final resolution of a Claim, the Contractor MUST proceed diligently with performance of the Contract, and the Owner must continue to make payments for undisputed work in accordance with the Contract Documents. A contractor cannot walk off the job site while a claim is being evaluated.

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6. Multi-Tiered Dispute Resolution Hierarchy

Standard AIA contracts establish a mandatory, progressive three-step dispute resolution ladder. Bypassing steps is legally prohibited.

+--------------------------------------------------------------------------+
|                   MULTI-TIERED DISPUTE RESOLUTION LADDER                 |
+--------------------------------------------------------------------------+
|                                                                          |
|  STEP 1: INITIAL DECISION MAKER (IDM) REVIEW                             |
|  • Typically the Landscape Architect                                     |
|  • Takes action within 30 days (evaluates, approves, rejects)            |
|  • Impartial standard; mandatory condition precedent to Step 2           |
|                                │                                         |
|                                ▼                                         |
|  STEP 2: NON-BINDING MEDIATION (AIA A201 SECTION 15.3)                   |
|  • Administered by American Arbitration Association (AAA)                |
|  • Facilitated negotiation with an independent mediator                  |
|  • MANDATORY CONDITION PRECEDENT to binding dispute resolution           |
|                                │                                         |
|                                ▼                                         |
|  STEP 3: BINDING DISPUTE RESOLUTION (SECTION 15.4)                       |
|  • Designated in Agreement during contract drafting:                     |
|    - BINDING ARBITRATION (AAA Construction Industry Rules), OR           |
|    - LITIGATION (Court of competent jurisdiction)                        |
|                                                                          |
+--------------------------------------------------------------------------+

Step 1: Initial Decision Maker (IDM)

The IDM (typically the Landscape Architect) renders an initial written decision within 30 days. The decision is binding on the parties as an operational directive, but subject to mediation and binding dispute resolution.

Step 2: Mediation (AIA A201 Section 15.3)

Mediation is a confidential, non-binding dispute resolution process where an experienced neutral mediator assists the parties in negotiating a settlement.

• Mandatory Condition Precedent: Under Section 15.3.1, mediation is an absolute condition precedent to binding dispute resolution. Neither party can file a demand for arbitration or initiate a lawsuit in court without first submitting the claim to mediation.

Step 3: Binding Dispute Resolution (AIA A201 Section 15.4)

If mediation fails to resolve the dispute within 60 days, the parties proceed to the binding method selected in the Owner-Contractor Agreement:

• Arbitration: Administered under the Construction Industry Arbitration Rules of the American Arbitration Association (AAA). Decisions are rendered by an arbitrator or panel of industry experts. The award is final, legally binding, and enforceable in any court with jurisdiction, with virtually no right of appeal.
• Litigation: Formal trial in state or federal civil court before a judge or jury. Litigation is public, subject to extensive discovery, costly, and subject to appeals.

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7. Contract Modification Instruments Comparison Table

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8. Real-World Case Scenario: The Bedrock Discovery & The Urgent CCD

Scenario: During mass excavation for a large stormwater retention pond on an institutional project, the grading contractor encounters massive unrippable granite bedrock at a depth of 4 feet, whereas boring logs indicated weathered shale down to 12 feet. The civil engineer determines that blasting and hydraulic hammer excavation of 1,200 cubic yards of rock is necessary to achieve the required stormwater volume. The contractor submits a Change Proposal for $145,000 and a 30-day schedule extension. The Owner's cost estimator believes the fair market cost is $85,000 and that the work can be completed in 12 days. Halting excavation while negotiations stall will delay downstream paving operations and trigger $2,000/day liquidated damages.

Contractual Analysis & Resolution:

1. Deployment of a CCD: The Landscape Architect and Owner immediately execute a Construction Change Directive (AIA Document G714). The contractor's signature is not required.
2. Mandatory Performance: Upon receipt of the CCD, the contractor is contractually mandated to immediately mobilize hydraulic rock splitters and commence excavation. The contractor cannot shut down or refuse to perform.
3. Determining Cost: The CCD stipulates that compensation will be tracked on a Force Account basis (AIA A201 Section 7.3.4). The Landscape Architect assigns a full-time field representative to verify daily operator hours, equipment runtime, and truck haul tickets.
4. Final Conversion to Change Order: Upon completion of rock removal, actual audited costs total $98,000 with an 14-day schedule delay. The Landscape Architect prepares a final Change Order (AIA Document G701) for $98,000 and 14 days, signed by Owner, Contractor, and Landscape Architect, successfully avoiding litigation and project delay.

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9. Exam Traps & Pitfalls

1. The CCD Signatures Trap: A perennial LARE exam question asks who must sign a Construction Change Directive to make it contractually effective. The answer is only the Owner and the Landscape Architect. The General Contractor's signature is not required.
2. The 21-Day Notice Rule Trap: Exam scenarios frequently describe a contractor who incurs legitimate additional expenses due to a site condition but waits 30 or 45 days to notify the owner. The correct legal outcome is that the claim is barred and waived due to failure to meet the mandatory 21-day written notice requirement.
3. The Mediation Condition Precedent Trap: When a dispute cannot be resolved by the IDM, questions will ask if the contractor can immediately file a lawsuit or demand arbitration. The answer is NO; mediation is a mandatory condition precedent under AIA A201 Section 15.3.
4. The Work Stoppage During Dispute Trap: Candidates often mistakenly assume a contractor can halt work when the owner disputes a claim. Under AIA A201 Section 15.1.4, the contractor must continue working diligently during any claim or dispute proceeding.
5. The Proposal Request Authority Trap: A Proposal Request (AIA G709) does NOT authorize the contractor to begin work. If a contractor starts work based merely on a PR without an executed Change Order or CCD, the contractor performs at their own financial risk.