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Managing Changes on Construction Contracts

Managing Changes on Construction Contracts. Bob Pappe, P.E., PLS ODOT Contract Administration Engineer 503-986-3012 ODOT Contract Administration Engineer since Spring 1999 First AGC meeting as CAE: Problem : it takes too long to get paid for CCO work!

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Managing Changes on Construction Contracts

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  1. Managing Changeson Construction Contracts Bob Pappe, P.E., PLS ODOT Contract Administration Engineer 503-986-3012 ODOT Contract Administration Engineer since Spring 1999 First AGC meeting as CAE: • Problem: it takes too long to get paid for CCO work! • Talked about what our specs say about paying for changes (00195.20) • Has been a consistent topic with our PM’s and with AGC ever since. Recent Project Manager training about ‘Changes’.

  2. 00140.30 Agency Required Changes in the Work Can the Agency require a change?YES “Changes to the Plans, quantities, or details of construction are inherent in the nature of construction and may benecessary or desirable during the course of the Project construction. Without impairing the Contract, the Agency reserves the right to require changes it deems necessary or desirable within the scope of the Project. Changes may modify, without limitation:

  3. 00140.30 Agency Required Changes in the Work Changes may modify, without limitation: • Specifications and design • Grade and alignment • Cross sections and thickness of Courses of Materials • Method or manner of performance of Work • Increases and decreases in quantities • Additional Work • Elimination of any Contract item of Work • Project Limits • Acceleration or delay in performance of Work Adjust Payment per 00195.20 Adjust Contract Time per 00180.80

  4. 00195.20 Changes to Plans or Character of Work 195.20(a) Insignificant Changed Work – If the changes made under 00140.30 do not significantly change the character or unit cost of the Work to be performed…will pay at the unit item price. Insignificant Changed work Examples: • Added bid item quantities –more of the same, same time • Changes in grades – other pay items cover quantity differences • Changes in typical sections – other pay items cover quantity differences Other changes?

  5. 00195.20 Changes to Plans and Character of Work (b) Significant Changed Work – If the changes made under 00140.30 significantly alter the character, unit cost, or lump sum cost of the Work, the Agency will adjust the Contract. Adjustments will exclude loss of any anticipated profit. The parties shall agree upon the basis of payment and the amount of adjustment prior to the contractor commencing the Changed Work. If the basis and amount cannot be agreed upon, the Engineer will make an equitable adjustment, which may increase or decrease the Contract amount and contract time. Any such adjustments will not be more than the amount justified by the Engineer on the basis of the established procedure set out in Section 00197 for determining rates.

  6. Contract Change Orders for Changed Work Amends the Contract- Adds work, subtracts work, changes work, changes terms of the work,… Ideal Process: • Review the scope of the change with Contractor– be on the same page about what the change is. • Discuss how to accomplish the change with the Contractor – how, when, what equipment, subcontractors, etc… - get on the same page about how to estimate the cost. • Request Contractor quote for the change. • Develop owner’s estimate at appropriate detail- often just program level estimate. • Review Contractor’s quote, compare with owner’s estimate. Discuss and understand differences. • Reach agreement on cost and time. • Process bi-lateral CCO. Begin the CCO work.

  7. Contract Change Orders for Changed Work Unilateral CCO Process: • Review scope of change with Contractor– be on the same page about what the change is. • Discuss how to accomplish the change with the Contractor – how, when, what equipment, subcontractors- get on the same page about how to estimate the cost. • Request Contractor quote. • Develop owner’s estimate at appropriate detail- often just program level estimate • Review Contractor’s quote, compare with owner’s estimate. Discuss and understand differences. • If unable to reach agreement: • Provide written direction to begin changed work. Offer Contractor opportunity to sign CCO. Process as unilateral CCO. • 00140.65 Disputed Work – Contractor may dispute any part of CCO, written or oral order by procedures of 00199.

  8. Contract Change Orders for Changed Work Unilateral CCO: • Use for changed work, when PM and Contractor are unable to reach agreement on cost and/or time. • Unilateral CCO allows payment that the PM has determined to be an equitable adjustment for the changed work. • Agree on best way to track the disputed work costs. • Contractor required to keep daily records of disputed work per 00199.20(c ). Contractor and PM meet regularly to review, compare cost records. • When disputed work is complete and PM knows the true cost: • PM will revise unilateral CCO to reflect the actual cost/time of the changed work. • PM will offer Contractor opportunity to sign the revised CCO.

  9. Contract Change Orders for Changed Work Unilateral CCO Process: Process is intended to solve the problem of it taking too long to pay for change order work. Unilateral CCO provides a budget to pay what the PM has determined to be the value of the change. This process is intended to allow the PM to later adjust payment made with the unilateral CCO to match what the PM determines the actual cost of the change to be once the changed work is complete. Not intended to shut off discussion and further negotiation.

  10. Section 00196 – Payment for Extra Work MUST be one of these two: 00196.10 Negotiated Price (Signed CCO) PM provides written scope of work for this Extra Work. Contractor provides estimate of cost and additional time, if any. PM and Contractor agree to and both sign the CCO. Extra Work now becomes Contract Work. Contractor is now responsible for means, methods, progress, damage from public traffic, etc. 00196.20 Force Account If the Engineer and Contractor cannot agree on a price for the Extra Work, the Engineer may issue a Force Account Work order requiring the Extra Work be paid as Force Account Work. Force Account Work records and payment will be governed by Section 00197.

  11. Read the fine print!

  12. ORICODisclaimers • Briefing is for information sharing only • Status of ODOT and DOJ actions: • Investigation of past misconduct closed • All claims fully resolved by entry of a stipulated judgment • Individuals never admitted liability • Other agencies and law enforcement bodies are free to: • Request to review investigation materials • Assess, act, or choose not to take further action • ODOT and DOJ: • May share information and their professional opinions • State agrees not to advocate • Take no position and make no recommendations as to whether other agencies or law enforcement should or should not take action

  13. ORICO Oregon Racketeer Influenced and Corrupt Organization Act “Racketeering activity” Means to commit, to attempt to commit, to conspire to commit, or to solicit, coerce or intimidate another person to commit any conduct that constitutes a crime. “Pattern of racketeering activity” Means engaging in at least two incidents of racketeering activity that have the same or similar intents, results, accomplices, victims or methods of commission or otherwise are interrelated by distinguishing characteristics, including a nexus to the same enterprise, and are not isolated incidents.

  14. The State is Fully Committed Strongly committed to maintaining the integrity of the State’s contracting system • Attorney General personally approves all civil ORICO investigations and prosecutions. • His expectations include: • ORICO reserved for flagrant misconduct • ORICO cases will be prosecuted with vigor • Investigations will be thorough and ongoing; we will follow the facts where they lead • ODOT fully committed to support investigations and prosecutions. • Integrity of Public Contracting, • Level playing field for Contractors and Industry

  15. Comply with all laws. 00170.00 Make good any defective work. 00170.85 Remain liable for all latent defects – even past expiration of warranty if latent defect results from fraud or gross mistake that amounts to fraud. 00170.85 Keep full and complete records of costs incurred for submitted claims. 00150.40; 00170; 00199.20 Furnish all work, with materials, equipment, labor necessary to complete project By the terms of the Contract…Contractor’s Duties

  16. Keep Honest Business Records. Do not make false entries, or alter, or destroy true entries, or fail to make true entries in business records, with the intent to defraud. Falsifying Business Records. ORS 165.080 Take, and attempt to take, only the money you earned. Do not: Take, or attempt to take taxpayer’s money by deception. ORS 164.085 Create or confirm a false impression Fail to correct a false impression you created Prevent another from acquiring information pertinent to the disposition of the property involved Promise performance you do not intend to perform Tell the truth When swearing to or certifying expenses claimed. False Swearing, ORS 162.075. Unsworn Falsification, ORS 162.085 Do not commit wire fraud or mail fraud By using faxes, phones, or US mails to facilitate the commission of a fraud. 18 USC 1343 Do not use intentional deception To obtain checks or other written instruments affecting a pecuniary interest. Obtaining Execution of Documents by Deception, ORS 165.102 Do not intentionally obstruct government By impairing or hindering it by means of economic interference or other obstacle.ORS 162.235 Imposed by criminal law…Contractor’s Duties

  17. Red Flags Value of the claim in relation to the original bid; Claim poorly documented. Claim as submitted does not tell the story, its just volumes of misc paper, “its all in there -you find it” approach; Few or no actual supporting records and an unwillingness to provide (timecards, invoices, daily logs,…); Claimed costs for the same disputed work is in multiple claim issues; Multiple instances of apparent inflated hours, inflated rates; Claimed Overtime for salaried Superintendents who are not paid OT; Multiple cases of double billing, contract work included with disputed work Major portions of claim pertains to only prime and/or its “related” subcontractor or supplier, not other subs associated with work; Invoices appear fabricated; Claimed cost aren’t real costs, only real if ODOT pays them. Claimed “actual costs incurred” should show up in Contractor’s accounting system records.

  18. Where The State Goes From Here? • Monitor compliance with Stipulated Judgment • Make recommendations to ODOT/DOJ based on “lessons learned” • Educate other stakeholders, including contractors

  19. Inflated Hours Inappropriate Double Billing Inflated Rates False Invoices The ORICO Allegations

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