Energy Construction: Can Change Orders Be Used as Amendments? [Gaille Energy Blog Issue 57]
- Posted by scottgaille
- On December 6, 2017
- 0 Comments
A common area of confusion in construction agreements is whether a modification to the agreement and its exhibits should be papered via a change order or an amendment. Both change orders and amendments are signed by the owner of the project and the contractor undertaking the work. The principal difference is that change orders usually are used to modify certain exhibits related to work—whereas an amendment can modify any part of the construction agreement.
Below is a typical definition of a change order:
“Change Order” means a written document in substantially the form of [attachment reference] signed by both Parties that contains the terms agreed upon by the Parties with respect to a modification of the Contractor’s work.
Standing alone, what does “modification of the work” mean? The strictest interpretation is that change orders can only be used to modify the “Scope of Work” exhibit—the actual description of the work that contractor is responsible for undertaking. But can the change order also be used to modify exhibits that are related to the work, such as the specifications, policies (safety and environmental), and price (including time, material, and equipment rates)? For example, if the work being performed by a contractor is changed, the price may need to be revised. The broadest interpretation is that a change order also can amend the body of the agreement (terms and conditions)—since the entire agreement is about the contractor’s work.
The use of change orders to modify the body of the agreement is problematic. While lawyers are required to review amendments, they may not be asked to review change orders. The prospect of non-lawyers drafting amendments (via change orders) to complex construction agreements can create conflicts and ambiguity across the documents, thereby increasing the probability of litigation. Another problem is that there are usually far more change orders than there are amendments—reflecting various additions and subtractions to the contractor’s Scope of Work. Tracking amendments separately from change orders ensures that there are no “forgotten” amendments lurking in the voluminous change order files.
The best practice is to include a provision in the construction agreement that states unambiguously which exhibits can be modified by change orders. Consider the following example:
“Change Orders can never be used to modify: (a) the Terms and Conditions [i.e., the body of the construction agreement] or (b) any Exhibits other than the following Exhibits [list those exhibits related to the work, typically the Scope of Work, specifications, and pricing].”
The parties then know that any requirements of the project included in those listed exhibits are subject to modification via a change order—but nothing else.
Chapter 6 of my textbook, Construction Energy Development, offers a further description of the construction change process.
About the Gaille Energy Blog. The Gaille Energy Blog discusses issues in the field of energy law, with periodic posts at www.gaillelaw.com. Scott Gaille is a Lecturer in Law at the University of Chicago Law School, an Adjunct Professor in Management at Rice University’s Graduate School of Business, and the author of three books on energy law (Construction Energy Development, Shale Energy Development, and International Energy Development).
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