As philosopher Heraclitus of Ephesus said more than 2,500 years ago, “change is constant.”
It’s true today in construction.
The most common conflict that finds its way to court can be traced back to the single word “change.”
That was confirmed in the fifth annual CRUX Insight report from global risk mitigation and dispute resolution consultancy HKA. They examined multi-year projects around the world over a five-year period to July 2022, including the analysis of over 520 projects in North America with an average CAPEX value of $669 million.
“Change in its various forms seems inevitable on large construction projects and requires constant management,” the report says.
Amid the complexity of today’s construction projects, even design conflicts, another popular dispute seen in court, are related to change.
“Changes are a key driver and cause of claims on a construction project,” Edward Lynde, partner at Fasken Martineau DuMoulin LLP told the Daily Commercial News. “Changes during a construction project are quite common and can take a variety of forms, including changes in scope, extras, substitutions, changes in physical conditions, and errors or omissions in design, including drawings and specifications.”
Lynde describes “changes” as any alteration, addition or deletion to the work or services. However, he adds they can also include changes in law or changes to the contract itself.
Contracts, and the specific language they contain, are the primary instrument for project partners to allocate, absorb, or avoid risk, and identify which party will bear that specific risk, including risk of change.
Clarity is vital, Lynde says, particularly when it deals with the specificity and detail of project scope.
“While a well drafted contract will not always ensure that a project is performed successfully, a poorly drafted contract is almost certainly going to lead to claims. Too often the parties fail to take the time to draft clear and concise contracts, including clearly articulating with specificity and detail what will be included or excluded within the scope of work.”
That can lead to contractors finding themselves, even by inference, obliged to conduct additional work, either without compensation or in a position to claim additional compensation.
A properly constructed change order provision will detail key terms, such as the pricing structure, scope of work and adjustments to scheduling. It’s also important that change orders are executed prior to any changes being performed.
Changes to the physical condition of the site can also be contentious, Lynde says, particularly when related to subsurface conditions.
Although the contractor will rely on site information provided by the owner during the tendering period, the issue of which party bears responsibility for any necessary changes discovered later, will be determined by what is set out in the contract.
Lynde cites the illustrative case of Priestly Demolition v. Walsh Construction Company Canada.
As a takeaway consideration, Lynde emphaszes the importance of drafting clear scope of work provisions into the contract, reviewing them before finalization, and then following them closely.
“Too often parties fail to read and re-read the contract throughout the various stages of the project,” he says. “Similarly, too often the parties fail to follow the contract and understand their contractual obligations. Obviously, compliance with contractual obligations will be difficult if an entity is unaware of what those obligations actually are as set out in the contract.”
And if one party seeks a claim regarding changes, the notice provisions outlined in the contact must also be followed.
That requires contract administration of verifiable and contemporaneous record-keeping during the course of the project if disputes are to be resolved in a non-adversarial manner, he says.
“Too often, many claims boil down to oral statements or some meeting on site, of which there are inadequate or incomplete records.
“Disputes are costly in all respects – human capital, resources, and financially,” Lynde concludes. “Parties should act in good faith, clearly communicate with each other, and attempt to work collaboratively to overcome issues to the benefit of all involved in the project.”
John Bleasby is a Coldwater, Ont.-based freelance writer. Send comments and Legal Notes column ideas to editor@dailycommercialnews.com.
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