5.2 Change Orders, Construction Change Directives & Claims Management

Change Orders, Construction Change Directives & Claims Management

Construction contracts are dynamic agreements. Unforeseen subsurface conditions, architectural design revisions, material lead-time changes, and owner-directed scope enhancements routinely modify the original baseline. Under Florida contract law and standard industry general conditions (AIA A201-2017), managing scope changes requires strict adherence to formal administrative procedures. A contractor who performs changed work based solely on informal verbal instructions risks forfeiting compensation, breaching contract terms, and assuming unbudgeted project liabilities.

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The Three Contract Modification Instruments

AIA Document A201 (Article 7) establishes three distinct legal instruments for modifying construction contracts:

1. The Change Order (AIA Document G701)

A Change Order is a written instrument prepared by the architect and signed by the owner, contractor, and architect stating their agreement upon:

• The exact scope of change in the work;
• The exact dollar adjustment, if any, to the contract sum; and
• The exact extent of the adjustment, if any, to the contract time.

2. The Construction Change Directive (CCD)

When the owner and contractor cannot agree on the price or time impact of a proposed modification, project progress cannot be allowed to stall. The architect and owner may issue a Construction Change Directive (AIA Document G714).

Upon receipt of a CCD, the contractor is contractually obligated to immediately proceed with the work. Compensation for the directed change is determined using one of four methods outlined in A201 Section 7.3.3:

1. A mutual lump-sum proposal properly itemized and supported by data;
2. Unit prices stated in the contract documents or subsequently agreed upon;
3. Cost to be determined in a manner agreed upon by the parties, including an agreed fixed or percentage fee; or
4. If no agreement is reached, the architect determines the actual cost of labor, materials, equipment, and insurance, plus a reasonable allowance for contractor overhead and profit.

3. Minor Changes in the Work

Under Section 7.4, the architect has the sole authority to order minor changes in the work that do not involve an adjustment to the contract sum or an extension of contract time, provided they are consistent with the intent of the contract documents.

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Claims Notification and Procedures (AIA A201 Article 15)

A Claim is a demand or assertion by one of the parties seeking, as a matter of right, adjustment or interpretation of contract terms, payment of money, extension of time, or other relief with respect to the terms of the contract.

The 21-Day Notice Rule

Differing Site Conditions

Subsurface and concealed site conditions are among the most frequent sources of contractor claims. Under AIA A201 Section 3.7.4, differing site conditions are categorized into two classes:

1. Type I Differing Site Conditions: Subsurface or latent physical conditions at the site that differ materially from those indicated in the contract documents (e.g., geotechnical soil borings indicate dry sand, but excavation reveals high groundwater and underground boulders at four feet).
2. Type II Differing Site Conditions: Unknown physical conditions of an unusual nature that differ materially from those ordinarily found to exist and generally recognized as inherent in construction activities of the character provided for in the contract (e.g., uncovering buried toxic industrial waste or unmapped historical artifacts during standard commercial excavation).

Notice of differing site conditions must be provided to the owner and architect before conditions are disturbed and within 14 days of initial discovery.

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Delay Claims: Excusable, Inexcusable, and Compensable

When a project schedule is impacted, delays must be legally categorized to determine entitlement to time extensions and financial damages:

• Inexcusable Delay: Caused solely by the contractor, subcontractors, or suppliers (e.g., late material orders, inadequate craft staffing, poor coordination). The contractor receives zero time extension and zero financial compensation, and may be assessed contractual liquidated damages.
• Excusable Non-Compensable Delay: Caused by unforeseeable events beyond the control of both parties (e.g., severe weather exceeding historical averages, acts of God, industry-wide labor strikes, national emergencies). The contractor receives an extension of contract time, but no financial delay compensation for extended general conditions.
• Excusable Compensable Delay: Caused by the owner or owner's agents (e.g., owner-ordered suspensions, late owner-furnished equipment, delayed design clarifications, unapproved differing site conditions). The contractor is entitled to both an extension of contract time and financial damages covering extended project general conditions and overhead.

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The Dispute Resolution Ladder

AIA contracts establish a structured dispute resolution hierarchy designed to resolve disagreements before formal litigation:

1. Initial Decision Maker (IDM): Claims must be submitted first to the IDM (typically the project architect) for an initial written decision within 30 days of receipt.
2. Mediation: If the IDM decision is rejected, mediation under the Construction Industry Mediation Procedures of the American Arbitration Association (AAA) is a mandatory condition precedent to binding dispute resolution.
3. Binding Dispute Resolution: If mediation fails, the parties proceed to the binding mechanism selected in the prime contract agreement: either Binding Arbitration administered by the AAA or Litigation in Florida circuit court.