Construction Claims – No Contract, No Claims?

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Andrew Atkins, Peter Marino and Patrick Wilson | Smith Anderson

The North Carolina Supreme Court recently issued a decision in Crescent University City Venture, LLC v. Trussway Manufacturing, Inc.[1] The case decided the question of whether a commercial developer-owner can bring a negligence claim directly against a supplier of defective building material where no direct contract existed between the owner and supplier. The Supreme Court held that the owner could not maintain such a claim and reaffirmed that the “economic loss rule” applied. The economic loss rule provides that, when a duty to perform arises from a contract, no negligence claims can be brought for failing to perform that duty. Instead, only contract claims can be brought.

In the construction context, there are frequently multiple layers of contracts, from the owner’s agreement with the general contractor to multiple tiers of subcontractor and supplier agreements. Under North Carolina law, and as recently clarified in the Crescent case, in the event a subcontractor fails to perform or if a supplier provides a defective product, absent a specific warranty provided by the party at issue, the owner must pursue a contract claim against the party with which it has a contract (i.e., the general contractor). No matter the nature or amount of damage, the owner is precluded from bringing negligence-based claims directly against the offending subcontractor or supplier. This can be problematic in the event that a general contractor goes out of business, especially in the case where an owner did not require a performance bond(s) on the project covering such circumstances. The economic loss rule applies to and poses similar risks and limitations on a general contractor’s claims against lower tier subcontractors and suppliers with whom the general contractor has not contracted directly.

There is a wrinkle. North Carolina courts recognize a limited number of exceptions to the economic loss rule. One such limited exception involves residential home construction. The North Carolina Supreme Court has long held that subsequent residential home buyers can maintain negligence claims directly against home builders, despite the fact that the obligation to build the home arose from a contract to which the subsequent purchaser was not a party. The North Carolina courts have justified this exception by applying equitable principles, noting that residential home buyers expend considerable personal resources to buy a home, subsequent buyers have no input or oversight over the original construction of the home and otherwise would have no recourse against the builder in the event that a latent construction defect is discovered.[2] 

One unresolved issue in North Carolina is whether subsequent owners of commercial properties can benefit from the same exception that has been recognized in the residential context. While the Court in its recent Crescent decision stated it was not inclined to extend the exception to the commercial development and construction context, the issue was not squarely before the Court. Indeed, the commercial owner in the Crescent case was the original owner and had a contract with the general contractor. Because this specific portion of the case is dicta, or non-essential to the Court’s ruling, lower courts are not bound to follow it. With this in mind, there may still be an opening in a North Carolina case to argue that the “subsequent owner” exception to the economic loss rule should be extended to disputes involving commercial construction projects.

The Supreme Court’s recent decision in Crescent is a reminder to project owners, general contractors and all project participants to diligently ensure their “downstream” contracts, insurance, warranties and bonding requirements adequately protect them in the event of the default or dissolution of other project participants. As always, a thorough vetting of key contractors, subcontractors and suppliers goes a long way to effectively manage risk.

[1] Crescent Univ. City Venture, LLC v. Trussway Mfg., Inc., No. 407A19, 2020 WL 7415061, at *1 (N.C. Dec. 18, 2020).

[2] A six-year repose period applies to bar claims brought more than six years after substantial completion of the home.

Seven Legal Considerations for Constructing Healthcare Facilities

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Virginia Trunkes | Healthcare Facilities Today

The current health crisis has healthcare institutions altering their approach to facility design and construction. Equity investors and contractors are also ready to familiarize themselves with healthcare construction. While opportunities abound, certain legal considerations are of paramount importance for a successful healthcare construction project. Here are seven considerations when embarking on this new venture. 

  1. 1. What is the End Game?

Early engagement on construction project requirements is crucial, and not just for discussing how to develop and construct the facility. First, focus on the “what,” and consider in the earliest stages what is the desired end state, and what are the key trigger points. Be realistic about the limiting factors that can result in added cost and time, for example, distant utility-connection points, minimal parking availability, etc. 

  1. 2. Special Early Project Considerations Specifically for Health Care Facilities

Procurement of funding, zoning and environmental constraints, and labor and material costs are all important early considerations, but so too is assessing whether a state’s “pre-approval” is necessary to construct a new healthcare facility. More than half of the United States operates a Certificate of Need (CON) program. CON laws regulate the establishment or expansion of healthcare facilities and services in a given area by approving their major capital expenditures. (The goal is to control health care costs by restricting duplicative services and assessing a community need, to prevent “empty beds” from increasing prices on the patients who do use the services.) 

If a desirable site is in a state subject to the CON process, and the public health department is considering new applications for the type of facility envisioned, then become familiar with the requirements of the CON process. Some states have a two-step process, adding to the timeline of the construction schedule. Understanding how to navigate this process and develop community support is invaluable. 

3. Impact of Regulatory Expectations 

The Centers for Medicare & Medicaid Services (CMS) has concurrent jurisdiction in overseeing facilities that serve patients who are enrolled in Medicare and Medicaid, and also has its own health and safety standards for certification. If achieving accreditation status through the Joint Commission (one of several health-care-facility accrediting organizations approved by CMS), the health care facility must meet standards and undergo a survey process that may exceed the federal requirements for certifications. 

CMS requires compliance with the National Fire Protection Association (NFPA) 101 standards, the “Life Safety Code” (LSC), and NFPA 99 standards, the “Health Care Facilities Code” (HCFC). The LSC provides minimum requirements for the design, operation, and maintenance of buildings and structures, both new and existing, for safety to life from fire. The HCFC provides minimum requirements for healthcare facilities for the installation, inspection, testing, maintenance, performance, and safe practices for facilities, material, equipment, and supplies. These standards then become incorporated into state-specific requirements. The state law must be examined closely, as some states’ public health departments have additional specific requirements. (When state regulations are silent on particular design criteria, the Joint Commission recognizes the Facility Guidelines Institute (FGI) Guidelines for Design and Construction for new construction and renovation projects.)

It is important to communicate upfront as far as what is to be constructed, with communication being continuous between the design and construction teams. Overlooking specific requirements during construction — for example, minimum width of a hallway — could result in denial of accreditation. Having to rebuild a facility by demolishing walls, relocating fixtures and internal conduits, reconfiguring the layout and rebuilding walls is not a hallmark of a successful project. 

The type of facility being constructed will inform which sections of the LSC, NFPA 101 and FGI Guidelines are relevant. The requirements of these Guidelines and in turn government laws, can change. In the past few years, using portions of updated editions of the NFPA, CMS transitioned from an “occupancy-based” approach to a “risk-based” approach. With the risk-based approach, items such as building type, the extent to which a building is fire-rated and outfitted with sprinklers, and a building’s certificate of occupancy status may be equally if not more important than the facility’s floor layout. Keeping apprised of evolving design requirements is essential.

4. Fiduciary Responsibilities

As in any other important financial transaction, the value of the fiduciary responsibility to the health organization cannot be underestimated. Although trust and collegiality gained by working with the same broker, design professionals and construction team on multiple projects may be a blessing, it can also be a curse. A project with a fundamental fatal flaw or concealed design or construction error usually meets a terrible fate. Employees must understand that the client is the health organization (and its funding source), and it is imperative for all participants to adhere to strict standards. The team must also continuously communicate, and  acknowledge and correct deficiencies as they are discovered.

5. Legal Contract Provisions

If any government or lending approvals are necessary before committing to the to-be-constructed space, leases or contracts of sale should include flexible contingency language. Additionally, the healthcare organization’s design and engineering, construction manager/trade contractor and other related labor or vendor agreements should also set expectations for project requirements regarding, among other things: 

  • The scope of work (e.g., in a multi-occupancy building, is building-shell work separate?) 
  • Feasibility issues concerning design, equipment and scheduling (e.g., a multi-tenant premises will have access issues); and 
  • Compliance considerations (e.g., the contracting party’s obligation to be familiar with the local Department of Buildings (DOB) requirements). Just like with the fiduciary status of trusted consultants, contract protections cannot be taken for granted.

6. Internal Corporate Compliance 

Just as healthcare entities need clear, protective terms in contracts with external parties, organizations need to have clear internal corporate compliance standards. Inserting the strictest contract terms is ineffectual if the parties do not enforce them, and for the healthcare organization, that is its employees’ role. It is up to the healthcare organization’s employees to ensure that the contracting parties are complying with their obligations. This is especially true where documents are regularly submitted to government agencies. Memorializing these concepts is recommended, as is the expectation that communications about problem occurrences and their planned resolutions also be memorialized with written correspondence.

7.  Reaching the End Game

If there are local DOB issues in particular, engage local consultants and/or specialists. In some major cities, contractors work with expediters or “Code Consultants,” which is a profession in and of itself. It is a valuable investment to retain people familiar with complex code sections as well as what to expect when seeking DOB approvals.

In sum, plan, consult and memorialize. It is important to have in place an integrated system of design professionals, outside consultants (including lobbyists) and counsel, with free-flowing communication among them, during not only the CON application stage but also the post-CON approval/construction stage, and at substantial completion. If any unanticipated site condition or other hiccup occurs, better to tackle it as early as possible than let it linger through the accrediting agency’s inspection. Like with any other major project, the more that is considered at the outset, the better the likelihood of ultimate success.

Owner’s Slander of Title Claim Against Contractor Recording Four Separate Mechanics Liens Fails Under the Anti-SLAPP Statute

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Garret Murai | California Construction Law Blog

Most mechanics lien actions follow a pretty standard process:

  1. A mechanics lien claimant, either a contractor subcontractor, material supplier, or laborer, performs work but is not paid;
  2. Mechanics lien claimant records a mechanics lien on the property in which work was performed; and
  3. Within 90 days thereafter files suit to foreclose on the mechanics lien.

Sometimes, either before or after a mechanics lien claimant files suit, the owner will record a mechanics lien release bond, in which case mechanics lien claimant files suit against the release bond.

But what if a  mechanics lien claimant records a mechanics lien, the owner records a mechanics lien release bond, and the mechanics lien claimant records three different but identical mechanics liens thereafter? Is this even legal?

One owner clearly didn’t think so and filed suit against a mechanics lien claimant for quiet title, slander of title, and declaratory and injunctive relief, which, while slightly different claims, were all premised on the ground that the lien claimant had impermissibly recorded its three mechanics liens after the owner had recorded its mechanics lien release bond.

The RGC Gaslamp, LLC Case

In RGC Gaslamp, LLC v. Ehmcke Sheet Metal Co., Inc., Case Nos. D075615 and D076594 (October 23, 2020) subcontractor Ehmcke Sheet Metal Company performed sheet metal fabrication and installation work at a luxury hotel located in downtown San Diego, California. In September 2017, Ehmcke recorded a mechanics lien in the amount of $257,978 for unpaid work. In response, the owner of the hotel, RGC Gaslamp, LLC, recorded a mechanics lien release bond releasing the mechanics lien.

That’s when things started to go a bit crazy.

  • In December 2017, Ehmcke recorded a second mechanics lien identical to the first;
  • Later, in April 2018, Ehmcke released the first and second mechanics lien and recorded a third mechanics for the same work. Once again, RGC records a mechanics lien release bond releasing the third mechanics lien.
  • Then, in July 2018, Ehmcke released the third mechanics lien and recorded a fourth mechanics lien identical to the first, second and third mechanics liens.

In response, RGC filed suit against Ehmcke for quiet title, slander of title, and declaratory and injunctive relief, claiming that by recording four separate mechanics liens, all for the same work and all in the same amount, and by doing so requiring RGC to record two mechanics lien release bonds, rendered the “statutory protections afforded to owners under Civil Code section 8424 illusory.

While the action was pending, Ehmcke released its fourth mechanics lien. In opposition to the complaint, RGC filed an anti-SLAPP motion. “SLAPP,” which stands for Strategic Lawsuits Against Public Participation, is a motion designed to provide for early dismissal of lawsuits filed against people for the exercise of First Amendment rights.

In its anti-SLAPP motion, Ehmcke included a declaration by its Vice President, Billy Taylor, who stated that before hiring counsel it was not properly advised of the legal and statutory scheme regulating mechanic’s lien law in California, that after retaining counsel Ehmcke promptly released its fourth mechanics lien because it was untimely, and that Ehmcke did not intend to record any additional mechanics liens on the project. In addition, Ehmcke contended in its anti-SLAPP motion that, while it erroneously recorded its four mechanics lien, its activity in doing so was protected petitioning activity.

In its opposition, RGC contended that Ehmcke’s action of filing four duplicative mechanics liens was neither protected petitioning activity under the anti-SLAPP statute codified at Civil Code section 425.16, because the mechanics lien statute made no provision for repeat liens after an owner records a mechanics lien release bond, nor covered by the litigation privilege codified at Civil Code section 47, since none of the four mechanics liens were recorded during the course of litigation.

During the hearing, the trial court granted Ehmcke’s anti-SLAPP motion, while expressing discomfort that an owner like RGC would have no judicial remedy when faced with duplicative liens, and awarded Ehmcke’s $30,000 in attorney’s fees under the anti-SLAPP statute and $1,062 in costs as the prevailing party.

RGC appealed.

The Appeal

On appeal, the 4th District Court of Appeal explained that, under the anti-SLAPP statute codified at Civil Code 425.16, an anti-SLAPP motion involves shifting burdens of proof:

In the first step, the moving defendant bears the burden to establish that the challenged claim arises from the defendant’s protected activity. If the defendant carries its threshold burden, the burden then shifts to the plaintiff to demonstrate that its claims have minimal merit. “The court, without resolving evidentiary conflicts, must determine whether the plaintiff’s showing, if accepted by the trier of fact, would be sufficient to sustain a favorable judgment.” If a plaintiff does not make that showing, a court will strike the claim. A defendant that prevails on an anti-SLAPP motion to strike is generally entitled to recover attorney’s fees and costs.

As to the first prong, explained the 4th District, “courts consider whether a defendant has made a prima facie showing that activity underlying a plaintiffs causes of action is statutorily protected, ‘not whether it has shown that its acts are ultimately lawful.’” Thus, while Ehmcke’s fourth mechanics lien may have been released because it was untimely recorded, whether Ehmcke’s fourth mechanics lien was invalid or not was irrelevant. Further, explained the Court, while the mechanics lien statute does not address whether a mechanics lien claimant can record duplicative mechanics liens after a mechanics lien release bond is recorded is similarly irrelevant under the first prong of the anti-SLAPP statute since the lawfulness of such activity is not at issue.

Rather, held the Court of Appeal, “[t]he filing of a mechanics lien is a necessary prerequisite to bringing a foreclosure action” and “[a]s such, it is a protected prelitigation statement preparatory to filing a judicial proceeding.”

As to the second prong, explained the 4th District, because Ehmcke had released its fourth mechanics lien, RGC’s quiet title and declaratory and injunctive relief claims were rendered moot, leaving only RGC’s claim for slander of title.  As to RGC’s remaining claim for slander of title, under the second prong of the anti-SLAPP statute, explained the Court, RGC had the burden of showing that its claim had “minimal merit” including that “any asserted defenses . . . were inapplicable as a matter of law” or “make a prima facie showing that, if accepted, would negate such defenses.”

Here, Ehmcke claimed that RGC’s slander of title of claim was without merit because its fourth mechanics lien, even if invalid and later released, was a privileged activity under the litigation privilege. The Court of appeal agreed explaining:

Codified at section 47, subdivision (b), the litigation privilege applies to communications made as part of a “judicial proceeding.” Its principal purpose is to afford litigants and witnesses “utmost freedom of access to the courts without fear of being harassed subsequently by derivative tort actions. The privilege is absolute, providing a defense to all torts except malicious protection and applying “to all publications, irrespective of their maliciousness.” In general, the privilege applies “to any communication (1) made in judicial or quasi judicial proceedings; (2) by litigants or other participants authorized by law; (3) to achieve the objects of the litigation; and (4) that [has] some connection or logical relation to the action.” “The privilege “is not limited to statements made during a trial or other proceedings, but may extend to steps taken prior thereto, or afterwards.”

Citing to the case, Frank Pisano & Associates v. Taggart (1972) 29 Cal.App.3d 1 (holding that the recording of a mechanics lien is protected under the  litigation privilege against a claim for disparagement of title), the Court of Appeal held that RGC had not shown the litigation privilege was inapplicable as a matter of law to its slander of title claim.

 Conclusion

So there you have it. You can challenge (defensively) the merits of a mechanics lien, but you can’t claim (offensively) that the act of recording the mechanics liens was a slander of title, even a mechanics lien recorded four times over again, and even when recorded after the recording of two mechanics lien release bonds.

This can be a frustrating outcome for owners, who may feel that a contractor is “playing games” by recording multiple mechanics liens, sometimes after a mechanics lien release bond is recorded (as was the case in the RGC Gaslamp case), or in wildly differing amounts, knowing that it costs an owner time and money to secure a mechanics lien release bond each time a new mechanics lien is recorded, or recording mechanics liens in excessive amounts, knowing that the premium paid by an owner for a mechanics lien release bond is based on the value of the mechanics lien. Unfortunately, while an owner has a defensive game that it can play, they really don’t have an offensive one.

The Dangers of an Unlicensed Contractor from Every Angle

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William L. Porter | Porter Law Group

The Dangers of an Unlicensed Contractor from Every Angle

The State of California requires that contractors in the building trades be licensed.  Individuals and business entities obtain their contractors licenses by demonstrating to the California Contractors State License Board that they have the requisite knowledge, skill, and experience to be licensed.  The CSLB issues licenses to those meeting requirements.  As a construction attorney of longstanding tenure, I have witnessed the impact of unlicensed building contractors from every point of view.  If you are considering hiring an unlicensed contractor, acting as an unlicensed contractor or even working for an unlicensed contractor as an employee, please consider the following perils:

To the Owner Considering Hiring an Unlicensed Contractor:

On the positive side for owners considering hiring an unlicensed contractor, the general rule in California is that an owner can escape the obligation to pay an unlicensed contractor for work performed and materials supplied because unlicensed contractors are prohibited from bringing legal actions against owners for payment.  The law even goes so far as to allow the Owner to bring a legal action against the unlicensed Contractor for reimbursement of anything the owner paid to the unlicensed contractor.  This is done through a “disgorgement” action (see, Business and Professions Code 7031. See also, the following article: Disgorgement Article). Despite this, there are a great many negative potential consequences to be considered by any owner who might consider hiring an unlicensed contractor.  Among them are the following:

  1. If you are considering not paying your unlicensed contractor because Business and Professions Code 7031 allows it, please consider that unlicensed contractors, who have clearly demonstrated a disinclination to follow legal obligations in the first place, may resort to “less than socially acceptable” means of exacting retribution against those who do not pay them or who demand the return of money paid through a disgorgement action  I am sorry to say this.  Let us leave it at that.  
  2. Also important for the owner to consider is that the unlicensed contractor and its employees become the actual legal “employees” of the owner (see Labor Code 2750.5).  This means that any employee who is injured during work on the project may sue the owner for his or her injuries (see, Labor Code 3706). Moreover, if laborers are paid less than what the law requires or were not given breaks, lunchbreaks, or if there were other Labor Code violations, the owner becomes liable for payments owed, plus penalties. 
  3. Further to consider is that in the usual course of events, the owner who has hired an unlicensed contractor has no workers compensation coverage for injury claims of the unlicensed contractor’s employees.  In such a case, not only is the owner liable for those injuries, but the owner may also be presumed negligent and the defenses of contributory negligence and assumption of risk may be unavailable. The Owner may be liable not only for the injuries themselves, but also for the attorney fees to pay the attorney who brings the action against the owner.  (see, Labor Code 3708–3709).
  4. The owner should also consider that use of an unlicensed contractor may void insurance coverage.  Many homeowner insurance policies require the use of only licensed contractors for repairs.  If repairs are improperly performed by an unlicensed contractor, resulting in later damages attributable to defective repairs, many insurance policies will deny coverage to repair the subsequent damage because the original repairs were performed by an unlicensed contractor in violation of the policy terms. Some policies are cancelled by their own terms when the owner allows an unlicensed contractor to perform the work.
  5. Finally, if an owner hires an unlicensed contractor to perform repairs, when the owner acts to sell the home the owner may be required by law to disclose this fact (see, Civil Code 1102–1102.19).  This disclosure may reduce the selling price of the home.  The failure to report the fact that repairs were performed by an unlicensed party may subject the owner for a later legal action for such failure (see, Civil Code 1102.13), including for fraud and misrepresentation.                                     
To the Person Considering Acting as an Unlicensed Contractor:

As long as the entire project costs under $500, a contractor’s license is not required (see, Business and Professions Code 7048).  However, if an individual seeks to act as a contractor without a license for any project at a price of $500 or more, they are playing with fire and will eventually get burned, likely in one of the following ways:

  1. Acting as a contractor without a license is a crime (Business and Professions Code 7028).  Those convicted risk up to six months in jail, a fine of up to $5,000 and administrative fines of up to $15,000.
  2. If you are unpaid for your work, you have no right to bring a lawsuit to get paid (Business and Professions Code 7031).
  3. If you have already been paid for the work, the party who paid you can sue you to get back everything they paid you. This is done through a “disgorgement” lawsuit against you (Business and Professions Code 7031).
  4. If you are convicted of acting as a contractor without a license, your aspirations to ever obtain a contractor’s license may well be lost forever (Business and Professions Code 7123).
To any Person Considering Working for an Unlicensed Contractor:

If you are a prospective employee of an unlicensed contractor, you face dangers as well.  Consider the following:

  1. Since your ostensible “employer” is unlicensed, they are entirely illegitimate and acting illegally.  In the eyes of the law, you may be considered a co-conspirator with your employer in this criminal enterprise.  Thus, you too risk conviction of a crime and a sentence of up to six months in jail, a fine of up to $5,000 and administrative fines of up to $15,000  (Business and Professions Code 7028).
  2. It is entirely unlikely that your ostensible employer will obtain workers compensation insurance to provide treatment, hospitalization, and compensation if you are injured while working.  More likely than not, you will be required to fend for yourself in the treatment of your injuries and providing income for your household while injured.
  3. It is also entirely unlikely that your ostensible employer will be making deductions from your paycheck for state and federal taxes, social security, and other standard deductions.  Thus, you may thus be left with a tax bill and may be subject to prosecution for income tax evasion.
  4. If you are employed “off the books” or “under the table” you will not be able to substantiate your income for purposes of showing employment history necessary to obtain credit, rent an apartment, fill out a mortgage application, a student loan application or an insurance application.  Instead, you will be treated as chronically unemployed, a scofflaw, or both.
  5. You will not be able to build up any employment history necessary to participate in Social Security.
  6. You will not participate in employer sponsored 401-K and other similar employer tax deferred savings programs to supplement Social Security income, if any.

Conclusion: Whether you are considering hiring an unlicensed contractor, acting as one yourself or working for an unlicensed contractor, you can expect serious negative consequences.  These consequences may not visit you immediately, but eventually and catastrophically, they will land on your doorstep.  Steer clear of any association with unlicensed contractors and you will never have to worry about these catastrophic consequences.

The Anatomy Of A Change Order Clause In A Construction Contract

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Amy Wolfshohl | Porter Hedges

Change orders can quickly become a source of contention on construction projects and are often the subject of major disputes.  As a result, it is important for stakeholders to carefully draft and negotiate the change order and related provisions pre-contract. 

The key portions in a change order clause beyond the obvious (i.e. changes have to be in writing) include the following:

  • Condition Precedent to Payment. In order to protect the enforceability of the change order provision, the change order procedure is best described as a condition precedent to payment.
  • Addressing Cost and Time. A frequent mistake is the failure to address the time component of a change in the context of a change order clause. Namely, the contract change order clause should address how and when the schedule will be modified.   
  • Calculation of a Change Order Amount. Large construction contracts may include a pre-negotiated amount for certain anticipated changes. Additionally, it may be preferable for both parties to include pre-negotiated time and material rates for scopes that have less certainty. 
  • Unilateral Changes. If an owner wants to have the ability to issue a change order for the work to proceed without coming to terms on the pricing of the change order, then a unilateral right to issue change orders should be included. These changes orders are often referred to as a change directive. Naturally, a method or procedure for determining the pricing on the backend should be included as well.
  • Waiver of Claims. Most parties in an upstream position want to have a single negotiation over the effect of a change—including the cumulative effect of changes. If the change order provision does not address cumulative effect or indicate that claims addressed in a change order are released, consider whether the change order is the final, integrated agreement on the subject of the change.
  • Deletion of Work. When drafting a change order provision on behalf of an owner, it is helpful to have the ability to delete work without invoking the termination for convenience clause. This provides two potential avenues for full or partial termination or supplementation.  Contractors should carefully negotiate such a provision.
  • Notice Periods. Most well drafted change order provisions include a notice provision requiring notice within a certain period after the change arises. Contractors seek to expand or eliminate this period and owners seek to shorten it. The notice period should be for changes expressly issued by the owner as well as contractor changes that the owner may dispute. The notice provision should also be carefully drafted so the parties understand when the clock begins to run.
  • Form of Change Order. Including a form of change order helps the project team to follow the change order clause.  For example, including a line item in the form for the effect on the project schedule allows the team to track schedule impacts. The change order form should also indicate the total amount of the change order as well as the adjusted contract price after the change.
  • Compensable Events. Change order or related clauses often also address whether certain events are compensable. For example, is a force majeure event relating to weather compensable? What about delays caused by the owner or contractor?  The failure to address these types of events may result in unintended consequences.

Considering these elements on the front end of drafting and negotiating the change order provision can help to avoid disputes in construction projects.