It’s a pretty good chance that your construction project is going to encounter changes, and that you are familiar with the change order (CO) process, but on the odd occasion a change directive (CD) may be required. Do you know the difference? Test your knowledge – which of the following statements below are true?
A Change Directive…
- Is issued by the owner
- Does not need the contractor‘s agreement to proceed
- Price can be determined by the consultant in event of a disagreement
- All of the above
The familiar procedure for a change in work, for example, “Add a new window,” is:
- Consultant drafts a proposed change order.
- Contractor provides a quote.
- Owner/ consultant/ contractor all agree to the change and price.
- Change is made and the value of the approved change order is claimed on the next progress claim.
However, there may be times when the owner needs a change made but can’t wait for the contractor to provide a price, or the value of a change cannot be determined until after the work is performed. It is at these times that a change directive (CD) can be issued by the owner through the consultant.
The key difference between a CO and CD is that the CO is issued by the consultant and requires agreement by all three parties (consultant, owner, and contractor) but the CD is issued by the owner and only requires his agreement.
Let’s start with some interesting trivia from the AIA – Official Guide to AIA Contract Documents. The change directive (CD) was first introduced in 1987 (it doesn’t seem that long ago). Before this time, a field order would be issued by the consultant which was not signed by the owner. It was felt that without the owners’ approval there was inadequate assurance for the contractor that it would be accepted once time came for payment leading to the creation of the change directive (CD).
Today the Canadian Construction Documents Committee (CCDC) defines change directive as (AIA has a similar definition):
A change directive is a written instruction prepared by the consultant and signed by the owner directing the contractor to proceed with a change in the work within the general scope of the contract documents prior to the owner and the contractor agreeing upon adjustments in the contract price and the contract time
A change directive at first glance seems straightforward, but a word of warning, they can lead to an unavoidable mine field of controversy if you’re not prepared or careful.
For example, this can be difficult if the owner is requesting the contractor make a change to the work without first knowing the effects on the price or time to the contractor and project. This can come back to haunt the owner with unforeseen costs, delay claims, etc. or it can seem like the owner is blindly giving the contractor a blank cheque for the contractor to complete the change.
On the other hand, some contractors believe that owners sometimes unfairly issue CDs. They believe that the owner uses a CD only because the normal change order process is exhausted and a price agreement cannot be arrived at, even when there is ample time for pricing and completion of the work.
A CD could force the contractor to do the work whether he wants to or not, with the risk of the contractor ending up stuck in mediation or arbitration to obtain payment. However, a CD does guarantee some cash flow to the contractor.
“Pending determination of the final amount of a Change Directive, the undisputed value of the Work
performed as the result of a Change Directive is eligible to be included in progress payments.” Ref CCDC Stipulated Sum Contract.
For the consultant, a CD can be burdensome requiring unforeseen extra contract admin hours to resolve and obtain agreement between the contractor and owner (keeping in mind that COs can do the same). In addition, many contracts hold the consultant responsible for the final determination of CD cost. This can sometimes result in unexpected additional contract administration time, requiring the consultant to review, compare, and verify an exhaustive list of eligible expenditures permitted by the contract for a single CD. In the event that the contractor finds it impossible to accept the consultant’s determination, as mentioned the contractor’s next recourse is mediation and arbitration, which can further add to the consultant’s time commitment.
Another important consideration to keep in mind when dealing with CDs, from the definition above is the phrase, “within the general scope of the Contract Documents.” For example, if the project was tendered as an office interior renovation, a CD should not be issued for parking lot reconstruction and remediation of contaminated soils below if not originally included in the construction documents. If this happens, then you may hear the term cardinal change doctrine or abandonment if the project ends up in litigation where the court can determine that the work being requested in the CD was fundamentally different than what the original contract required, and therefore ruling it lawful for the contractor to abandon the contract and potentially award damages.
In conclusion, this blog post was not written to provide you with legal advice (or to scare you), but only to provide an opinion and to increase your awareness of the possible controversy that can arise when issuing a change directive. Be sure to do your homework ahead of time, read the contract and be prepared. Let us know what you think. We would be happy to hear from you with any comments, points you feel should be added, or your own take and experiences with change directives.
Answer to the Pop Quiz: 4) all of the above.