PURPOSE
The purpose of this Procedure is to provide a guideline for finalizing change orders. While a Preliminary Change Order (PCO), Emergency Change Order (ECO) or Time and Materials Change Order (T&M CO) are used by the Bureau to define the proposed scope of work and to elicit from the Contractor a cost quotation and Time Impact Analysis, they do not fix the cost or time impact of the change, nor do they amend the construction contract. Following negotiation of its cost and time impact, a change order may be “finalized” in one of six ways.
Change Order (CO): When the cost and time impacts of a change order are jointly agreed upon, the Construction Manager (CM) should issue a CO, which documents the agreed upon scope, cost and schedule adjustments to the construction contract. The fully executed CO constitutes a legal and binding amendment to the construction contract. This is the Bureau’s standard and preferred method of finalizing a change order.
Final Time and Materials Change Order (FT&M CO): A FT&M CO is used to document the final scope, cost, and schedule impacts of change order work performed on a time and materials basis.
Unilateral Change Order (UCO): If the cost and time impact of a change order cannot be successfully negotiated and one of the following conditions applies, the CM may issue a UCO which documents the scope, cost, and schedule adjustments that the City deems reasonable:
A PCO was issued and the proposed work is necessary;
An ECO was issued and the Contractor has either begun or completed the work; or
A T&M CO was issued and the Contractor has either begun or completed the work.
UCOs may be issued for either Lump Sum or T&M work. When signed by the CM and either the Senior Engineer, Division, or Group Manager, the UCO constitutes an amendment to the construction contract; however, the Contractor has a legal right to dispute the cost and time adjustments set forth in the UCO. For this reason, it is good practice to have the BCA Inspector track the resources used by the Contractor in executing the extra work for a check on the reasonableness of the UCO estimated costs and time impact.
Supplemental Agreement Change Order (SACO): When the total net value of added and deleted change order work is projected to exceed 25% of the original contract amount, a SACO is required. Because it is a supplemental agreement to the original construction contract, the SACO must be signed by the Board of Public Works, the City Attorney’s Office, and the Contractor.
Final Closeout Change Order (FCCO): A FCCO is the last change order issued for the project and is typically used to establish the final contract amount and contract completion date, and settle any remaining issues or disputes. The provisions in the “fine print” of the FCCO include an indemnity clause and a general release exclusion waiver by the Contractor.
Canceled Change Order: The City may elect not to proceed with a proposed change if the cost and time impact of a PCO cannot be successfully negotiated and the proposed change is elective. In this case, the CM must notify the Contractor in writing to cancel the PCO. The CM needs to also notify the PM and BCA Inspector of the canceled change order.
REFERENCES
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RESPONSIBILITIES
Project Manager (PM): The PM is responsible for monitoring the scope of change orders, their impact on the Project’s budget and schedule, and the nature of any disputes regarding time and/or schedule adjustments for negotiated change orders.
Construction Manager (CM): It is the CM’s responsibility to ensure that change orders are finalized in a timely, efficient, and proper manner. The CM is responsible for preparing and issuing COs and UCOs with all necessary supporting documents; obtaining the required approval signatures; and, when necessary, canceling change orders.
PROCEDURE
After completing negotiations for a change order, the CM must finalize the change order either by issuing a final CO, UCO, SACO, FCCO or by canceling the change order. A description of each option and its proper use follows.
Change Order (CO)
After reaching a joint agreement with the Contractor on the cost and time impacts of a change order, the CM must issue a final CO in order to legally amend the construction contract. (For samples see Attachments 20.4-1 Change Order Cover Letter and 20.4-2 Change Order Instructions.) The CO should be prepared as soon as possible after the change order is negotiated; since typically, the Contractor may not begin or bill the City for the completed change order work until the contract has been legally amended.
The CO body is typically identical to that issued for the previous change order document (i.e., the PCO, ECO or T&M CO) except that the space allocated for changes in contract cost and contract time is completed with the negotiated cost and time adjustments. The CO should be accompanied by required supporting documentation, such as related drawing and specification revisions, invoices, schedule analyses and other documents necessary to fully describe the change and its cost and/or time impacts. In addition, the CM should include the Contractor’s cost proposal, the CM’s independent estimate, the Record of Negotiation, and applicable correspondence in the change order file.
Changes in work involving both Extras and Credits, and Unit Cost Bid Items and Lump Sum Bid Items, can be combined into a single change order provided that Part 3 of the change order body includes:
A detailed breakdown of the extra costs and credits. Each cost breakdown should reference the corresponding bid item number,
Bid Item Quantity Adjustments are separated from Extra Work/Agreed Price, and
A net balance for each of the following: Bid Item Quantity Adjustment; Extra Work/Agreed Price; Change to Contract Amount. (For samples, see Attachment 20.4-2 Change Order/Payment Training.)
The CM and PM must sign the CO, obtain the signature of the Contractor, before their Senior Engineer, Division Engineer, or Group Manager sign the CO. The CM then retains a copy of the executed change order, issues the original to the Contractor, and distributes copies to the PM, Inspector, and Owner Representative. (Additional copies may be distributed to other parties as required by the Program). The change order is now a legal and binding amendment to the construction contract.
Note: For projects utilizing BOE’s Construction Management software (e2020), the CM attaches and/or links the supporting documentation to the built-in CO form and distributes the CO using e2020. (For detailed instructions or the use of e2020, refer to the “HELP” module in the following link: www.LABOEProjects.com).
Note: If cumulative changes exceed 25% of the original contract amount, a Supplemental Agreement Change Order (SACO) is required in lieu of the CO.
Final Time and Materials Change Order (FT&M CO)
Upon completion of the change order work, all approved T&M charges are consolidated for payment. The Contractor submits an invoice for the total cost (including the signed Time and Materials Daily Report forms) and any schedule impact resulting from the change. The Estimator supporting the Construction Management Team then performs a comparison of the Contractor’s invoice and the signed Time and Materials Daily Report forms with those previously provided by the BCA Inspector. If any differences are discovered, the CM refers the Contractor to the BCA Inspector to resolve the discrepancy.
Upon reconciliation and approval of the Contractor’s invoice, the CM may proceed with finalizing the change order. If the discrepancies cannot be resolved, any disputed costs and/or time extensions must be documented by the CM and maintained in the project file. The CM must then issue a Unilateral Change Order.
The body of the FT&M CO is basically identical to that of a Change Order document except for pre-scripted text contained in the Description of Change section which is included to confirm that the T&M tickets used to document the Contractor’s daily labor, material, and equipment usage, have been signed by the BCA Inspector and verified by the Engineer. The CO should be accompanied by required supporting documentation, such as signed T&M sheets, related drawing and specification revisions, invoices, schedule analyses and other documents necessary to fully describe the change and its cost and/or time impacts. In addition, the CM should include the Contractor’s and CM’s estimates, negotiation record, and applicable correspondence in the change order file.
The CM and PM must sign the FT&M CO, obtain the signature of the Contractor, before their Sr. Engineer, Division Engineer, or Group Manager sign the FT&M CO. The CM then retains a copy of the executed change order, issues the original to the Contractor, and distributes copies to the PM, Inspector, and Owner Representative. (Additional copies may be distributed to other parties as required by the Program.) The change order is now a legal and binding amendment to the construction contract.
Unilateral Change Order (UCO)
If change order negotiations have failed and the required work is either necessary for successful completion of the project goals, or has already been initiated by the Contractor, the CM should issue a UCO. (For additional information see Attachment 20.4-4 UCO Cover Letter and 20.4-5 UCO Instructions.) However, UCOs may lead to disputes at project closeout and should only be used as a last resort to continue the progress of work. Although issuing a UCO directs the Contractor to proceed or continue with the specified change in exchange for the cost and time adjustments stipulated by the City, the Contractor has a legal right to dispute the time and cost adjustments set forth in the UCO.
The UCO may be issued as either a lump-sum change order or a T&M change order. Its body is typically identical to that issued for the previous change order document (i.e., the PCO, ECO or T&M CO), except that the space allocated for changes in contract cost and contract time is completed with the cost and time adjustments that the CM, after unsuccessful attempts to negotiate the change order, deems to be fair and reasonable. The UCO should be accompanied by the required supporting documentation similar to that required for a CO.
The CM and PM must sign the UCO and obtain the approval and signature of their Senior Engineer, Division Manager, or Group Manager; retain a copy of the executed UCO; and issue copies to the Contractor, PM, Inspector and Owner Representative (Additional copies may be distributed to other parties as required by the Program.) The signed UCO is now a legal amendment to the construction contract; however, its cost and schedule impact may be disputed by the Contractor.
Note: If the total net changes exceed 25% of the original contract amount, a Supplemental Agreement Change Order (SACO) is also required prior to issuing the UCO.
Supplemental Agreement Change Order (SACO)
When the total net value of added and deleted change order work is projected to exceed 25% of the original contract amount, a SACO is required. Because it is a supplemental agreement to the original construction contract, a SACO may be used to deviate from the original terms of the contract, as well. (For additional information see Attachments 20.4-6 SACO Cover Letter Sample and 20.4-7 SACO Instructions.)
A SACO must be authorized by both the Board of Public Works and City Attorney’s Office. The PM must obtain the signatures of appropriate representatives of the Contractor and City Attorney’s Office prior to requesting authority from the Board. However, the Contractor must not be allowed to perform any work that exceeds the 25% contract cost limit without prior Board approval. Upon receiving the Contractor and City Attorney Representative’s signatures, the PM must prepare a Board Report recommending that the Board authorize the City Engineer to issue a SACO and then obtain the signature of the President of the Board or the signatures of two Board members.
It should be noted that once the 25% contract cost limit has been exceeded, all future change orders will require Board authority. For this reason, it is generally a good practice for the PM to request from the Board, additional authority beyond the value of the first change order to exceed the limit to avoid returning to the Board for each subsequent change order. The PM should estimate the amount of additional authority needed for future change orders and then request approval of this amount in the Board Report.
Final Closeout Change Order (FCCO)
A FCCO is the last change order issued for the project and is typically used to establish the final Contract amount and Contract completion date. The FCCO may also serve to document:
Compensation to the Contractor for extra work items not covered by other change orders
Credit to the City for deleted work items
Credit to the City for unused Fixed Cash Allowance monies
Adjustment of Contract quantities for unit price projects
Terms for settlement of outstanding issues
Resolution of outstanding claims
Resolution of Contractor requests for equitable adjustment
Final time extension (compensable or non-compensable)
Late Contract completion and acknowledgement by the Contractor of its responsibility for the delay and liability for liquidated damages
The body of the FCCO is typically identical to that of a Change Order document except that the paragraph above the signature block has been expanded to include an indemnity clause and general release exclusion waiver by the Contractor. The FCCO should be accompanied by required supporting documentation such as related drawing and specification revisions, invoices, schedule analyses and other documents necessary to fully describe the change and its cost and/or time impacts. (For further instructions see Attachment 20.4-8 Final Closeout Change Order Instructions.)
Canceled Change Order
If the cost and time impact of a PCO cannot be successfully negotiated, and the proposed change is an elective change, the PM or CM must decide whether or not to proceed with the change (see Procedure 20.2 – Initiating Change Orders). When the decision is not to proceed with the change, the CM must notify the Contractor in writing that the PCO is being cancelled; retain a copy of the letter in the project file; and copy the PM, and BCA Inspector to cancel the PCO (Attachment 20.4-3 Notification of Change Order Cancellation Sample).
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