PURPOSE
Most projects have change orders which are settled using the methods outlined in the previous chapter. In some cases, however, the cumulative impact of many changes, unforeseen schedule impacts, or the end of a project accumulation of changes may result in a contractor feeling entitled to an adjustment of the contract amount or construction duration. The Request for Equitable Adjustment (REA) is the procedure that is used to put forward and analyze these types of needs. The root causes of REAs will vary but most stem from either change order work for which the contractor did not feel properly compensated, for cost impacts due to City caused delays in getting the required information to the Contractor, or for work that the contractor feels is beyond the scope (cost or schedule) of the contract. The purpose of this procedure is to discuss ways and means to prevent REAs from happening in the first place and to administer and resolve them, if they do occur. In all cases, issues should be resolved at the lowest level possible.
REFERENCES
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RESPONSIBILITIES
Project Manager (PM): The PM is responsible for taking all reasonable measures to protect the interests of the City. Many actions of the PM in the pre- construction stages of a project, especially efforts to avoid project delays, can minimize future construction phase REAs.
Construction Manager (CM): The CM is also responsible for taking all reasonable measures to protect the interests of the City and should be able to anticipate and attempt to find early solutions to project construction problems. The CM is ultimately responsible for the timely resolution of all REAs and any disputes with the Contractor. Specific responsibilities follow in the procedure section.
Project Engineer (PE): The PE is also responsible for taking all reasonable measures to protect the interests of the City. As the designer, the PE has control of many preconstruction activities, such as producing quality plans & specifications that can minimize construction phase REAs.
PROCEDURE
All Contract changes are handled through change orders (See Chapter 20 – Construction Change Orders); however, at any time during the construction of the project, the Contractor may wish to submit a REA. The first step, prior to filing a formal claim, is submittal of a REA. The REA process allows the City and the Contractor an opportunity to reach agreement prior to a claim.
The PM and CM should always attempt to avoid Contractor REAs. The approach to REA prevention includes the following:
Establish a partnering relationship with the Client. Clients are an integral part of the project definition and design process. Workshops are used throughout the concept, pre-design and detailed design phases to achieve early “buy-in” to scope, budget, and schedule and to better assure that the final design is usable, operable, and maintainable. Partnering encourages Client ownership of the project and use of a formal Client Department Memorandum of Understanding (MOU). See Procedure 3.6 – Establishing a Memorandum of Understanding (MOU). Owner/Client initiated changes can cause major delays and disruptions to a project.
Produce quality plans and specifications. Design quality is job 1. Plans and specifications must not only be of high quality, they must also be clear, understandable, biddable, and constructible. The Contractor should know exactly what is being bid. Areas of interpretation, such as Code interpretations, should be kept to a minimum because the Contractor’s interpretation may differ from the Engineer’s and/or the Inspector’s and, therefore, could lead to disputes. Avoid ambiguity and be specific. Design clarity is job 2. (See Chapter 9 – QA/QC during Design.) Avoid ambiguous clauses such as “to the satisfaction of the Engineer.” A Contractor cannot be expected to build something that a designer cannot define.
The Engineer should be the Designer and the Contractor should be the Builder. There is a tendency for some Designers to place certain design responsibility on the Contractor, thus making the Designer’s job easier. While there are times when this is appropriate, it can also be used to simply transfer an unresolved problem from the Design Team, first to the Contractor, and eventually to the Construction Management Team. This is never a good idea. Experience has shown that it is generally better for the Owner to have the Designer assume full responsibility for design aspects and the Contractor assume full responsibility for building the project as designed.
The process by which the Contractor can pursue unresolved issues or address grievances must be known, understood and followed by all parties. It is in the City’s best long-term interest to maintain a working relationship with reasonable Contractors. If Contractors are not treated fairly, eventually only unreasonable contractors will bid on City projects. The Issues Resolution Ladder must be completed for all BOE projects.
When issues arise, and they always will on any construction project, negotiations must begin immediately and continue until the issue is resolved. Unresolved issues will fester and eventually affect the City/Contractor relationship. REAs are the inevitable result of unresolved issues.
Recognize that a “risk-sharing” philosophy will probably produce the lowest overall project cost for the owner and maximum profit to the Contractor. Change orders must be finalized in a timely manner and the Contractor paid what is owed for work performed. In other words, pay what is owed and continue negotiating on areas of dispute. Nothing can turn a Contractor from a partner to an adversary faster than making the Contractor do work for which it is not paid promptly. The Contractor is then financing the City’s change order work. Cash flow is one of the biggest problems faced by Contractors and their Subcontractors. Pay promptly for work done.
Make use of partnering and other communication facilitation techniques – the more information that is shared between the City and the Contractor, the better. Partnering creates shared goals and a spirit of teamwork that helps prevent construction claims. (See Procedure 15.2 – Partnering). Remember that partnering is a business plan for the project. It is never a substitute for the contract documents.
Construction management personnel require some background in legal issues involved in construction management. Construction management personnel need to be aware of concepts like constructive notice, defective specifications, equitable adjustment, early completion schedules, etc. Construction management staff should seek out in-house training or short claims avoidance seminars.
The procedures for processing Contractor REAs are noted below.
The Contractor submits the REA to the CM. The CM reviews the REA, acknowledges receipt in writing and notifies the PM and PE. If the CM cannot resolve the REA, then the CM provides a recommendation to the PM and Program Manager. The PM, Program Manager, and/or upper Bureau Management review the REA and CM’s recommendation and provide feedback to the CM. The CM should also forward the REA to the PE for review and consideration on future project’s designs.
If the REA has merit, entitlement negotiations with the Contractor are initiated for this process. The CM leads these negotiations. The REA is settled by issuing a change order.
If the REA has no merit and is denied, the CM submits in writing an explanation of the denial to the Contractor.
If the Contractor accepts the Engineer’s decision, the REA is settled. If the Contractor does not accept the Engineer’s decision, the Contractor can appeal the denial per the Contract Specifications. (See Procedure 10.3 – General Conditions). Note: Taking the dispute to the Board of Public Works should be a last resort. If the CM cannot resolve the dispute, it should be elevated to the sponsor and executive levels per the Issues Resolution Ladder. The CM needs to make sure the Contractor understands the Issues Resolution Ladder and exhausts these options before appealing to the Board.
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