Changes

Managing Changes in Contracts
Debopam Roy
Changes
CONTRACT CHANGE PROCEDURE
• Changes are virtually inevitable in construction contracts
• Questions to be considered while drafting procedure for

changes:
– Will owner have right to make changes to work?
– Will contractor be compelled to carry out changes made by
owner?
– Will contractor be entitled to payment for additional costs
incurred?
CONTRACT CHANGES CLAUSE
• It is not an exculpatory clause excusing the owner from liability for

changes
• A changes clause provides for a structured way for the owner to
direct changes and for the contractor to perform them and be
properly compensated
• The clause states:
– The contracting officer may, at any time, without any notice to
the sureties, by written order make changes in the work within
the general scope of contract
– Any written or oral order from the contracting officer, that
causes a change shall be treated as a change order, provided, the
contractor gives the contracting officer written notice
– If any change under this clause causes an increase or

decrease in contractor’s cost or time required of, the
contracting officer shall make an equitable adjustment and
modify the contract in writing
– The contractor must assert its right to an adjustment under
this clause within 30 days after receipt of written change
order
– No proposal by the contractor for an equitable adjustment
shall be allowed if asserted after final payment under this
contract
• Change order means a directive from the contracting officer or
designated representative to make change in the work within the
scope of the work including:
– Changing the details of the original work
– Adding new work
– Deleting original work
– Changing the method or manner of performance of the original
work
– Shortening the time period allowed for the completion of the
work (acceleration)
– Slowing the rate at which the work is performed
– Changing commitments of owner with respect to materials,
facilities, equipment, services, etc
• Two changes that cannot be made are:

– Cannot change any of the general conditions
– Cannot make changes that are beyond the scope of contract
• General scope refers to size, type of construction, intended

purpose of the work to be contracted for, as contemplated by
the government and the contractor when the contract was
signed
SPECIFICS IN CHANGES CLAUSE
• Distinction between contract change terms

– Change order is a directive from owner
– Formal change to contract is the legal modification to the
contract which describes change, states total increase in
price, etc
– The change is normally carried out only after a change
order/ notice has been issued
• Who is empowered to make changes?

– The owner, after contract has been awarded names a contracting
officer
– The contracting officer in turn designates others as authorized
representatives to issue change orders
– Contractors who perform changes ordered by persons without
authority run the risk of not being paid for the change
• Who is empowered to make formal changes to the contract?

– Executing formal change is different from ordering the
change to be made
– Both to be formalized in writing, with clear description of
the change
– A person possessing authority increasing the contract price
and time allowed, will posses authority to affect changes
• “No pay without signed changed order” language
– It is in “hand prior” to the performance of the change
– Two–part change orders are provided in some contracts
• Constructive change
– A change that is not acknowledged by the owner as such
when it occurs but which, nonetheless, is a change
– Owner takes a stand that, what the contractor was ordered to
do, was not a change, but required by the original contract
– In such cases contractor is required to proceed according to
owner’s instructions but is free to assert his claim to a change
– If contractor is correct:
• courts will deem that a constructive change has occurred
• contractor be awarded incurred costs plus a reasonable
profit
– Two elements to be proved to establish a constructive change

• Change element must be proved
• The order element must be proved. This is established by
owner’s words, both written and oral
• Notice requirements
– Contractor must give prompt written notice of the
constructive change to the owner
– Crucial to preserve the contractor’s rights
– Without such notice, owner can argue that, the contractor
didn’t regard the order as a change
CARDINAL CHANGES
• A change which, because of its size or nature, is beyond the

general scope of the contract
• It is beyond the reasonable contemplation of both owner and
contractor at the time contract is awarded
• Additive cardinal changes are not allowed in federal contracts,
but in private contracts they are, subject to approval of both
parties
• To determine whether a change is cardinal or not is subject to
number of changes made, nature of changes and very specific
to the case at hand
• In some cases, courts have ruled that an extraordinary number
of changes (each of which was not excessive in itself)
amounted to a cardinal change
CARDINAL CHANGES
• As a general rule, contractors should refuse to perform

cardinal changes
– Unless owner threatens to place contractor under default
– Contractor should notify the owner in writing that a
cardinal change is warranted and then only proceed
• An architect/engineer or construction manager who compels a
contractor to perform a cardinal change on either public or
private work has committed a tortious act and may be sued in
tort
PRICE AND TIME ADJUSTMENTS FOR
CONTRACT CHANGES
• Forward pricing
– Both contractor and owner agree on time and price adjustment prior
to starting performance of change
– Under fixed price contract, contractor assumes full financial risk as
for the original contract
– Adjustment must include an allowance to cover for risk assumed
• Retrospective pricing
– When the price and time extension are not determined until after the
changed or additional work has been completed
– Basis for adjustment will be job record maintained by both parties
– In case of a dispute, it is to be resolved under provisions in the
contract
CONTRACT CHANGES
• Force account
– A particular form of retrospective pricing, which spells out
specific procedure for arriving at price adjustment in case
of a dispute
– Daily records are kept for labor, material, etc. Records are
agreed upon daily and signed by both
– Records are used for computing direct costs. Fixed
percentages are allotted for overheads
CONTRACT CHANGES
• Application of force account provisions to extended performance
situations
– The contract time and price adjustments are more equitably
determined
• Use of force account records in determining breach of contract
damages
– Best possible evidence of contractor’s direct cost
• Impact cost
– These are time related cost that flow from the change and the
effect that the change may have on the efficiency of
performance of the original unchanged work
– Time related costs consist of extended job overhead and
extended home office overhead costs
– Lost-of-efficiency costs are incurred to complete part or all of
the original unchanged work due to disruptive effect of changes
made to the changed work
CONTRACT CHANGES
• Change order payment disputes
– Three root causes identified for disputes:
• The owner claims that work was not authorized in
advance by a signed change order
• The person alleged to have directed the work, denies it,
or owner claims that the person didn’t have authority
• The contractor claims that directions received from
owner constitute a constructive change
CONTRACT CHANGES
• Judicial attitude
– Current judicial attitude is to avoid unjust enrichment of
owner or contractor
– Courts are heavily influenced by contemporaneous words,
acts, and conduct of parties, i.e., how the parties behaved
when changes in contract were actually performed
– Also influenced by past patterns of behavior i.e., the way in
which the parties handled similar changes earlier in the
contract
CONTRACT CHANGES
• Order for payment of disputed changes
– Regardless of wording in changes clause, the court will
order for payment if:
• The owner approves the work being done
• The owner authorizes or allows the work to proceed
• The owner knows that the contractor expects to be paid
for the work
CONTRACT CHANGES
• Proper contractor reaction to oral or written directives
– Promptly request a written change order
– If a change order is not received, proceed only after
notifying the owner that the directive constitutes a change
in contract and that he expects payment
– If owner maintains that directive does not constitute a
change, contractor goes ahead with work. Must notify that
it is performed under protest and all rights are reserved
– File a claim for the costs and time involved in performing
the change and proceed under the disputes resolution
provisions of the contract
• If a contractors position is proper, adopting the above steps
will greatly enhance his chances of recovering costs
DIFFERING SITE CONDITIONS CLAUSE
• Type I Differing Site Conditions

– Refers to physical conditions encountered in work that differs
materially from a condition indicated in contract documents
– Two facts must establish a type I differing conditions
• The contract document must have indicated a physical
condition in a certain way
• When condition encountered during actual performance-
found to be materially different
– Example: Finding wet, sticky clay at a location in an excavation
where soil boring logs indicated that material would be damp
sand
– In absence of this clause, it constitutes misrepresentation on
owner’s part if differing site conditions are found
• Type II Differing Site Conditions

– Refers to a physical condition encountered during work that
differs materially from conditions normally expected in the type
of construction work
– Here difference is not between encountered conditions &
indicated conditions but between encountered conditions & the
conditions considered normal or usual for the construction work
– To establish Type II differing site conditions contractor must
prove that condition encountered is truly unusual and thus not
anticipated when contract was signed
– Example: Finding a material in an excavation that, even though
identified correctly on the soil boring logs, behaves in a manner
materially different from the material’s usual behavior
• Duty of contractor to give notice

– Contractor must notify promptly whenever differing site
conditions are encountered and “before such conditions are
disturbed”
– The purpose is to provide an opportunity for the
government to view and investigate the condition to verify
that the condition is, in fact, a differing site condition
– No claim for relief after final payment on the contract
– A secondary purpose is to provide the government the
opportunity to direct the actions to be taken by contractor in
dealing with differing site condition
• Duty of government to promptly investigate

– Once notified, the government has a positive duty to
investigate the condition and make determination that it is,
or not a differing site condition
– Failure to investigate promptly and make a determination in
good faith is a breach of contract
– If government determines the condition not a differing site
condition, contractor may accept the decision or with any
other contracting officer’s decision, dispute the
determination under provisions of dispute resolution clause
• Equitable adjustment provided

– If contracting officer finds that condition is a differing site
condition that increases or decreases the cost or time for
performance of work, an equitable adjustment will be made
to contract price and time
– This promise is unequivocal and cant be overridden by
other contract provisions
• Differing site conditions and Government liability
– Differing site conditions clause is not an exculpatory clause
– In type I conditions, clause does partially exculpate, or
remove, the stigma of fault or blame associated with a
breach of contract by government, but it does not operate to
relieve the government from liability
– It explicitly establishes government’s liability for costs and

contract time to overcome the condition
– Provides an orderly process by which contractor may claim
and recover costs through an equitable adjustment to the
contract
– This clause provides contractual remedy
– Without contractual remedy contractor’s only avenue is to
sue the government for breach of contract, alleging
misrepresentation (in Type I condition) or non disclosure of
superior knowledge (in type II condition)
OTHER DIFFERING SITE CONDITIONS
CLAUSES
• The right to relieve based on differing site conditions is not an
implied right of contract
• No right of relief unless contract contains this clause
• In some contracts analogous clause is titled “Changed
conditions” or “Concealed conditions” - important to read
them carefully
• Does the clause cover both Type I and Type II conditions?
– Wording of clause is important in determining whether both
type I and type II differing site conditions are included
– Type I is generally included; some differing site conditions
don’t include Type II
CLAUSES
• Does the contract contain conflicting exculpatory clauses?
– Example
• If contract contains soil boring logs and a differing site
conditions clause, the contractor is clearly protected if
adverse soil conditions different from those indicated in
the boring logs are encountered
• If the contract also contains a clause stating that the
owner will not be responsible for the accuracy of soil
boring logs, an obvious conflict has been created
– Current judicial and administrative trend is to favor
differing site conditions clause over exculpatory clauses-on
basis of “precedence of contract documents clause”
CLAUSES
• What are the notice requirements?
– When differing site conditions are encountered contractor must
notify promptly to “before such conditions have been disturbed”
– If “lack of notice did not prejudice rights of government” in
anyway then recovery under clause not barred
– Prejudice-caused by both denying opportunity to make
investigation & by precluding the opportunity to direct and
control course of action to be taken to deal with the condition
– In federal contract clause-failure to furnish is not necessarily
fatal
– In other contracts-prompt furnishing of notice is a “condition
precedent” to recovery
– Courts inclined to give full force to literal interpretation of
clauses rather than “no prejudice to the rights of owner standard”
CLAUSES
• What are the owner’s responsibilities under the clause?
– Government’s contractual duty to investigate and determine
whether the conditions encountered are differing site
conditions
– Contractor has legitimate right to know whether owner
agrees with conditions encountered and whether cost &
time adjustment will be forthcoming
– If time extension is not forthcoming then, the rate of
performance has to be accelerated, a costly undertaking
– Federal clauses imposes the duty of making prompt
investigation and determination on government
– In other contracts if no contractual duty is imposed on
owner then contractor is in a very disadvantageous position
REASONS FOR DENYING DIFFERING SITE
CONDITIONS CLAIMS
• Lack of notice
– Most differing site conditions clauses require contractor to
furnish prompt notice, sometimes (as in federal clause)
before conditions are disturbed
– Lack of notice can bar an otherwise valid claim if prejudice
to the owner’s interests can be shown
• Difference not material
– To qualify as either Type I or Type II differing site
conditions, the difference must be material
– Marginal differences are not sufficient
CONDITIONS CLAIMS
• Failure to conduct an adequate pre-bid site inspection
– If pre-bid site inspection is conducted-site conditions
discovered-additional costs could be included in bid
– Most bid documents strongly suggest to conduct pre-bid
site inspection
– Contractor’s failure to make an adequate pre-bid site
inspection can be effective in barring the different site
conditions claim
– On other hand contractor will not be held responsible for
discovery of latent conditions or be held responsible for
failing to make “a skeptical analysis of the plans and
specifications”
CONDITIONS CLAIMS
– Latent condition is one that is hidden or not obvious
– Patent condition is obvious
– Generally bidding contractors are only expected to note

patent conditions in pre-bid inspections
– If condition is not patent - contractor’s failure to discover
them will not bar a later claim for a Type I condition
DEALING WITH DIFFERING SITE
CONDITIONS
• Prompt written notice
– The importance of prompt written notice to owner cannot
be overemphasized
– Notice should be given before conditions are disturbed
– Although constructive notice may have occurred, written
notice is far preferable
– Example for constructive notice: contractor encountering a
differing site condition during excavation when owner’s
inspector was present
– Written notice should also request owner for proper
investigation and to issue a determination that differing site
conditions have been encountered
CONDITIONS
• Request for owner’s instructions
– The contractor should request the owner’s instructions or
directive on how to deal with encountered conditions
unless there is only one possible course of action
– Contractor should advice that contract performance will be
delayed if instructions or directive from owner is not
received within reasonable time
• Failure to receive determination or receipt of adverse
determination
– If owner fails to make determination or determines that
encountered condition is not differing site condition-
contractor must assume no cost or time adjustment will be
there
CONDITIONS
– Unless contractor is prepared to concede the matter, owner
should be advised in writing that contractor disagrees with
determination and is reserving all rights under contract
– A claim should be then filed under disputes resolution
provisions for later adjudication
– In the interim, contract work must be continued according
to owner’s instructions with no guarantee that an equitable
cost or time will ever be received
DETERMINATION OF THE EQUITABLE
ADJUSTMENT
• Adjustment in contract price and time-determined by
agreement between contractor and owner
• Equitable adjustment may also be determined by others as per
dispute resolution clause
• In either case ,contractor must prove the performance cost
increases and impact of overall contract performance time
extension
• Differing site condition clauses in many contracts provides
that price and time adjustment be determined by provisions of
changes clause
• Force account provisions should be employed only to
determine the direct cost portion of equitable adjustment to
which demonstrable indirect costs & reasonable profit added
DELAYS AND SUSPENSIONS OF WORK
• Can be both psychologically and financially destructive

• Delays may be due to:
– Force Majeure
– Breach of contract by one of the parties
– Differing Site conditions
• The old adage, “Time is money”, is definitely true in these
situations
• Time is of the essence

– Contracts contain a statement ‘Time is the essence’
– Taken absolutely literally, the words mean that the
contractor or subcontractor has an absolute duty to perform
the contract within the stated time and is liable for breach if
delay occurs
– Not only is the contractor bound by it to perform in time,
but owner is also required to review and approve drawings
and payments at contractual terms
• Delay vs. Suspensions of work

– A suspension results from a written directive of the owner
to stop performance of all or part of the work
– A delay differs from a suspension in two ways
• A delay may only be a slowing down of work without
entirely stopping it
• It is triggered by something other than a formal written
directive from the owner
– Both result in increases to direct and indirect time related
costs to both parties
– In addition the contractor experiences increases in direct
costs due to inefficiencies caused by interruption of
performance
• Compensable vs. Excusable delays

– An excusable delay is a non-compensable loss of time for
which the contractor will receive an extension of time but
no additional payment
– Not a fault of either party but the contactor must bear costs
associated with delay while owner absorbs time related
costs
– A compensable delay entitles the contractor to both time
extension and to compensation for the extra costs
– Unless ‘no-damage for delay’ clause is present, owner
caused delay is a compensable delay
– An excusable delay may become a compensable delay if it
flows from an earlier compensable delay
DELAYS AND SUSPENSIONS IN
CONTRACTS
• No damages for delay clauses
– Contractor waives his right to any cost adjustment for any
delay whatsoever, even if owner caused delay
– Only an extension of time allowed for proven delays
– Classic example of an ‘exculpatory clause’
• Judicial attitudes on No-Damages-for-Delay clauses
– Judiciary is loathe to enforce this clause, as contractor is in
a take it or leave it situation
– When owner acts or omissions have been particularly
egregious, courts often refuse to enforce the clause
CONTRACTS WITH NO PROVISIONS FOR
DELAYS
• Some contracts are silent on the issue of damages for delay
• No express language which either establishes or denies
contractor’s right to be paid for extra costs associated with
owner caused delays
• Only way to recover costs is through a lawsuit proving breach
of contract on part of the owner
– The particular breach that has to proved is the owner’s
implied warranty not to impede or interfere with
contractor’s performance
DELAY IN EARLY COMPLETION
SITUATION
• What happens when a contractor is delayed due to interference
of the owner, although all the contract work is still finished on
or before the contract completion date?
• Contract period = 24 months
• Case I: contractor worked at normal pace for 14 months, got
delayed due to owner by 4 months and then again worked for
10 months to complete the contract
– Time taken = 28 months
• Case II: contractor worked at accelerated rate for 14 months,
got delayed due to the owner for 4 months and then finished
the work in 4 more months at faster rate
– Time taken = 22 months
Complete
14 months normal work 4 months 10 months normal
Case 1 work
delay
4 months
late
24 months contract period
2 months
4 months early
14 months faster work 4 months faster
Case 2
delay work
Complete
DELAY IN EARLY COMPLETION
SITUATION
• Many owner will take the stand in the second case that, since the contractor
finished the contract early, there was no damage caused by the delay
• Owner’s consider that the contractor’s bid should be based on taking the
full allowable time for contract completion
• The weakness of owner’s view is that the contractor accepted all risk of
performance of the contract and, in the absence of an owner-caused delay,
would be liable for all extra-time related costs if the contract was not
finished on time as well as liquidated damages
• Therefore the contractor should be entitled to save costs by finishing the
work earlier than required by contract, if able to do so
• The owner causing a 4 month delay is liable for the resulting extra costs to
the contractor even though the contractor finishes the contract work early
CAUSES FOR DELAY AND SUSPENSIONS
OF WORK
• Defective specifications
– Result from the application of the Spearin Doctrine
– When specs and drawings contain errors, the delay often
result due to:
• Attempting to comply with the error
• Waiting for the errors to be corrected and revised specs to be issued
• Site availability problems
– Site availability at the time of issue of NTP
– Unless stated in contract, contractor is entitled to full use of
site at the time of NTP
– Owners failure to provide reasonable means of access to
the work or interruption of access previously provided
CAUSES FOR DELAY AND SUSPENSIONS
OF WORK
• Changing and Differing site conditions
– Changes directed by the owner
– Changes because of problems associated with DSC’s
– The requirement to perform added work can cause a delay
• Owner’s failure to act administratively

– By failing to act or acting in a ‘dilatory’ manner
– If owner doesn’t cooperate, contractor is delayed
– Problems arise when additional information, instructions or
a directive to proceed in connection with changes are not
given promptly
NOTICE REQUIREMENTS
• Purpose of the notice requirements

– The contractor must furnish a written notice to owner
within a stated period of time following any event which he
perceives will cause a delay
– Without such a notice, owner may not know that some act
or failure to act is delaying the contractor
– It is also necessary to establish a start date for the delay. In
case of a dispute this will prove valuable
– Means that, even though not specifically notified formally,
the owner knows that work is being delayed
NOTICE REQUIREMENTS
• Constructive notice
– If an act of god shuts down the work or the owner issues a
written directive to suspend all work, the owner has
constructive notice of delay
– Constructive notice means, that even though not
specifically notified formally, the owner knows that the
work is being delayed
– But still, the contractor should always give prompt written
notice of delay to the owner
LIQUIDATED DAMAGES
• Most large contracts contain this provision

• This provision explicitly states that for each calendar day the
work remains uncompleted after the final completion date
stated in the contract, the contractor shall pay a certain amount
to the owner
• Sometimes a series of amount are stated for separate parts of
contract work called Milestone completion dates - in addition
to final completion date
• These specified payments are intended as reimbursement for
owner’s monetary loss due to delay
• They are called liquidated damages because they are stated as
fixed rupee amounts per day
LIQUIDATED DAMAGES
• Conceptual basis of liquidated damages

– In many cases, the actual damages that owner will suffer in
event of late completion is difficult to determine
– The owner & Contractor agree on a fixed daily rupee
amount that is considered reasonable measure of the extent
of damage in the event of late completion
– In public sector and in much private work, determination of
rupee amount-unilaterally made by owner-bid
advertisement on a “take-it-or-leave-it” basis
LIQUIDATED DAMAGES
• Liquidated damages provisions are a contract remedy

– Unexcused failure of contractor to meet specified date is a
breach of contract
– If liquidated damages provision is not present and if
contractor failed to pay money, owners recourse would be
to withhold money or sue, prove the extent of damages and
obtain judgment compelling the contractor to pay
– Liquidated damages provision relieves the owner from
above burden
– Their effect is to substitute a contract remedy for a common
law breach remedy
LIQUIDATED DAMAGES
• Liquidated damages are not a penalty

– Both parties to contract must realize that liquidated
damages are a contractually specified remedy to make
owner whole in event of late completion
– Liquidated damages cannot be properly assessed as a
penalty to punish contractor for any displeasing act or,
when not properly due, as pressure to coerce the contractor
into action favorable to owner
– In case of disputed liquidated damages assessments, courts
will not support purely punitive or coercive actions on
owner’s part
LIQUIDATED DAMAGES
• Judicial attitude towards liquidated damages provisions

– Current Judicial attitude toward liquidated damages is to
enforce such provisions in event of unexcused delay
– For every unexcused day of late completion, owner is
generally due the liquidated amount stated in contract
– Courts usually overturn liquidated damages if daily amount
stated in contract is not reasonable
– Standard of reasonableness is based on whether daily
amount is reasonable estimate, in light of level of
knowledge possessed by owner & contractor when contract
was signed
LIQUIDATED DAMAGES
• Bonus/Penalty clauses
– Liquidated damages provisions can’t be applied in reverse
if contractor finishes early
– There need not be benefits from every day’s early
completion because owner may not have planned to occupy
in the event of early delivery or due to other reasons as well
– Occasionally bonus/penalty clause provides monetary
benefit for early completion
– Daily rate for early completion is usually less than the rate
for late completion
– Bonus/Penalty clauses - more commonly found in private
sector contracts
FORCE MAJEURE
• Force majeure means a condition beyond party’s control

• From contractor’s standpoint - owner caused delay is force
majeure (even though delay was within owner’s control)
• Inclement weather, flood - force majeure from both parties’
standpoint
• Common conditions of force majeure
– Acts of God, war, riots, labor strikes, inability to obtain
critical materials when all proper procurement actions have
been taken, and other similar situations
– Failure of prime contractor’s subcontractors or material
suppliers to meet time requirements due to conditions
beyond control. This is a heavy burden of proof
FORCE MAJEURE
• Contract relief for conditions of Force Majeure
– Contract relief for conditions of force majeure normally is
an extension of time to avoid unfair assessment of
liquidated damages
– Resulting delay is contractually excusable
– If an enforceable no-damages-for delay clause is absent in
contract and if the condition is caused by the owner, the
delay is also compensable, entitling the contractor to both
time extension & additional payment
• Time extensions
– Though time extensions are promised by contract, they are
far from automatic
– Contractor should follow prescribed contract procedures &
must prove entitlement to assure that contractually justified
time extensions will be forthcoming
FORCE MAJEURE
• Importance of notice of claim

– Contractor claiming time extension must file notice of
claim within a stated no. of calendar days from the event
giving rise to claim or waive the right to relief
– Although sometimes owner possesses constructive notice
of cause of the delay - important for contractor to file time
extension claims within contractually prescribed time
– If contractor has not requested time extension the owner is
not responsible
– When contractor has been delayed - immediate written
request for time extension must be made
– Initial notice should be followed by written claim for the
no. of days that contract has been delayed
– Claim filed at earliest possible time so that extent of delay
can be determined
FORCE MAJEURE
• Contractor responsibility to prove entitlement

– In any type of claim situation whether for time, additional
contract payment, or both, the contractor bears the legal
burden to prove entitlement under contractual terms to
whatever is being claimed
– Contractor must support a time extension claim showing
that delaying events have extended contract completion
– Usually done by supporting claim with Critical Path
Method (CPM) schedule analysis indicating extent of
overall delay of project
FORCE MAJEURE
• Owner’s responsibility and contractor time extension

requests
– CPM schedule analysis indicating delay and request for
discrete no. of days in accordance with CPM result -
submitted to owner in support of contractor’s claim
– If time extension claim is properly supported, owner has a
duty to grant the time extension
– Failure of owner to grant a properly supported request for
time extension or failure to grant in timely manner is
breach of contract
FORCE MAJEURE
• Granting of time extensions

– A time extension can only be granted by a formal change to
the contract executed by the owner
– Contract date not extended until and unless owner formally
notifies the contractor by a change to the contract
– Following the receipt of contractor’s claim of time
extension if a change to contract is not initiated - contractor
must assume that claim has been denied
– If owner fails to act or denies properly supported time
extension claim - contractor’s course of action is clear
• First a notice to be filed, in writing, protesting the denial
or lack of timely action
FORCE MAJEURE
• Secondly - contractor should take all possible &

reasonable action to meet unextended contract
completion date - because failure to prosecute the work
by the then existing completion date is a contractual
breach - results in termination of contract for default
– Contractor’s proper position (after protesting and writing)
is to meet unextended completion date & pursue remedy
under the doctrine of constructive acceleration
ALLOCATING RESPONSIBILITIES FOR
DELAYS
• The principles and procedure by which contractor liability for
liquidated (or actual) damages and owner liability for
monetary damages for owner-caused delay are determined in
practice
• When dispute over extensions arise and lead to court cases, the
first problem is that of allocating delays to each party
• The second problem is determining the consequences of delay
• The latter problem is usually solved by conducting a critical

path method (CPM) schedule delay impact analysis
PRELIMINARY POINTS AND DEFINITIONS
• Contracts commonly provide that performance be planned and

monitored by the use of CPM
• Contractor expected to update initial schedule periodically,
reflecting actual beginning and ending of various activities
• This provides a suitable method to determine impact of delays
• A CPM net work is a
– Graphic schedule depiction in which physical work items
are represented as ‘work activities’ linked by ‘dependency
ties’
– Dependency ties indicate the sequence in which activities
must be performed
– The immediately preceding activity must be completed
prior to start of any activity
• As-planned, As-built and Intermediate networks

– When the network is constructed after completion of a
project, based on job records, the network is called as-built
– If constructed prior to commencing work for planning or
scheduling, it is as-planned
– Ones constructed at intermediate stages during project
performance are intermediate networks
• They are as-built up to the date of preparation
• As planned from the preparation date onward
• Owner Responsibility Delays

– Delays exclusively caused by the owner are
• Compensable delays that entitle the contractor to
additional payments for costs incurred
• Time extensions if delay causes the overall project
performance duration to be extended
• Contractor Responsibility Delays
– Delays that are exclusively the fault of the contractor
• Do not entitle contractor to either extra payment or an
extension of time
• Contractor maybe liable to pay owner liquidated or
actual damages
• Contractor responsibility delays are subdivided into two:

– The first class consists of delays that can be recognized as
discrete events or happenings
• E.g. Contractual breaches such as failure to make
required submittals by contractually stipulated dates
– The second arises from contractors failure to perform the
actual work items of the contract at a rate sufficient to
complete contract on time
• This is not directly identified by a symbol on the
network
• The burden of performance lies on the contractor and he
can choose any means and methods to accomplish the
same
– Contractor failure entitles the owner to liquidated or actual

damages
– Unless the contract contains explicit language to the
contrary, the contractor is free to make up for lost time by
performing later work activities faster than the as-planned
– Failure to accomplish a work activity within the time limits
of the as-planned schedule does not, in itself, mean that the
contractor has failed to meet the burden of performance
– Only when the entire work as per contract is completed is it
possible to determine whether contractor has met burden of
performance
• Excusable delays
– Delays that are not fault of either the owner or contractor
– If they result in project duration being extended, contractor
is entitled to time extension only
• Acts of god, war, riot, etc
• After the individual delaying events have been identified as to

duration and responsibility, the delays may be incorporated
into the CPM network as discrete activities
• Forward Looking and Retrospective Impact Analysis

– Forward-looking delay impact analysis
• If anticipated delays are incorporated as discrete
activities in an as-planned schedule
– Retrospective Delay Impact Analysis
• If all project delays are incorporated into an as-built
network after all project work has been completed
– Intermediate Impact Analysis
• If impact of delays are analyzed when they occur and
appropriate time and cost adjustments are made to the
contract progressively as the project proceeds
• Consecutive and Concurrent events

– Consecutive Events: A series of events/work activities if
they follow one after the other along the same path of the
network
– Concurrent Events: When events occur on separate parallel

paths of the network. They may or may not occur within
the same time frame
• Principles governing delay impact analysis

– To start, first determine weather the delay caused are ORD,
CRD or ED
– Next incorporate the each into the CPM network as a
discrete activity where and when each occurred
– Concurrent delays must then be considered. Each delay
may or may not have a contributory effect on project
completion
– Four principles are necessary to allocate liability between
owner and contractor
• First principle
– Owner cannot properly assess liquidated damages for
periods of time when he was concurrently delaying the
project
• Second principle
– A contractor cannot be properly paid delay damages for
periods of time when the contractor was concurrently
delaying completion
• Third principle
– To determine the exclusive effect of any one class of delays
on overall project completion
– Collapse the schedule by removing that cause of delay and

reconstitute the schedule as collapsed schedule
• Fourth principle
– The original contractually stipulated completion time +
the extension of time to which the contractor is entitled +
the contractors liability for liquidated damages = the as-
built project completion time
CPM network based on MS Project for a building
CONSTRUCTIVE ACCELERATION
• A contractor cannot assume with impunity that the contract

completion date will necessarily be extended simply because a
properly supported claim for a time extension has been filed
with the owner
• If the owner fails to act on such a claim, then the contractor
should protest in writing and then attempt to complete the
contract by the original required date
• A contractor who has met additional costs due to this is
entitled to recover these costs under the doctrine of
constructive acceleration
VOLUNTARY AND DIRECTED
ACCELERATION
• Voluntary acceleration
– Completion of the contract or part of the contract work at a
more rapid rate than required by the contract
– Ordinarily, the contractor has the right to work at a faster
pace than the minimum needed to meet the contract
completion date
– It is an implied right of the contractor since he bears the
financial risk of performance
– When unexcused delays have put the contractor behind
schedule, voluntary acceleration is the only way to regain
schedule and avoid being declared in default or/and being
assessed for liquidated damaged
VOLUNTARY AND DIRECTED
ACCELERATION
• Directed acceleration
– Acceleration may be directed by the owner, if the contract
so provides
– The right of owner to direct acceleration is not an implied
right; it must be explicitly provided in contract
– The changes clause usually provides that the owner may
direct acceleration
– An owner who directs acceleration in order to complete the
project earlier than contractually required must pay the
extra costs incurred by the contractor in complying with
that directive
• It is a forced completion of the contract work in a shorter

period than should have been allowed by the issue of proper
contract time extensions
• The normal scenario triggering constructive acceleration is:
– Compensable or excusable delays are encountered by the
contractor
– The contractor applies for time extension with proper
supported claims
– The owner either denies the claims or simply fails to act
– The contractor must conclude that the contract time
remains unchanged and should complete the work by the
unextended date
• Failure to make this effort places the contractor in a position in

which the owner, could contend (however improperly) that the
contractor is behind schedule and is breaching the contract and
could declare the contractor in default
• It makes no difference if the owner grants a time extension
after the acceleration effort and extra costs have been
expended
• Thus, failure of the owner to issue time extensions in a timely
manner also triggers constructive acceleration
• Timely manner means within a reasonable period of time after
submittal of the contractor’s properly supported claims for a
time extensions
• Reasonable period of time means sufficient time for the owner
to evaluate the contractor’s claim and determine if it has merit
A CONSTRUCTIVE ACCELERATION
EXAMPLE 24 Months
Original Completion
Date
Original Contract 24 Months Contractually Stipulated Completion Period
30 Months
Time Extension
Extended Completion
Date
12 months normal work 6 months delay 12 months normal work

Case 1
6 months time
extension
Completion
6 months accelerated
12 months normal work 6 months delay work
Case 2
6 months early
6 months accelerated
12 months normal work work
Case 3 6 months early
Acceleration directive
EXAMPLE
• Case 1 – Delay with time extension
– The contractor is delayed after 12 months for 6 months and
is entitled to an extension of time
– The owner promptly issues extension
– Having been granted the time extension, the contractor
continues with normal pace and completes the contract in
30 months
– No acceleration has occurred
– If the 6 months delay was compensable also, the contractor
would be entitled to monetary damages
EXAMPLE
• Case 2 – Delay with no time extension
– The owner denies or refuses to act on the contractor’s claim
for a six month extension
– Therefore, the contractor works at an accelerated pace for
the next 6 months (at added expense) and completes the
contract in 24 months
– The contractor also finishes the project 6 months earlier
than the date to which the completion should have been
extended
– This is a classic case of constructive acceleration
EXAMPLE
• Case 3 – Accelerated performance without delay
– After 12 months, even though there is no delay, the owner
issues an acceleration directive to the contractor
– The contractor works at an accelerated pace for the next 6
months and finishes the project in 18 months as according
to the directive
– Contractor is entitled to be paid for the cost of acceleration
effort
– If the delay is also compensable, the contractor is also
entitled to recover the extra time related costs
EXAMPLE
– It is not necessary in the constructive acceleration situation
to finish the contract by the original completion date as
depicted by case 2
– Consider Figure 2
30 Months
24 Months
NTP Extended Completion
Original Completion Date Date
6 months time
extension
12 months normal work 6 months delay
9 months accelerated work
Actual Completion
3 months
early
Although the contract work is not finished until three months after the
original contract completion date, the contractor finishes 3 months earlier
than the date to which the contract should have been extended
This is also a valid constructive acceleration situation and the contractor is
entitled to acceleration costs
PROVING CONSTRUCTIVE
ACCELERATION
• Entitlement to time extension
– The contractor must prove that performance was delayed
by some event or condition for which the contract promises
that time extension will be granted
– A properly documented claim for time extension must have
been properly submitted to the owner after the event giving
rise to the claim
• Failure of owner to issue extension of time
– The owner must not have issued a time extension
– If time extension was issued, the owner must have failed to
issue it within reasonable period of time
PROVING CONSTRUCTIVE
ACCELERATION
• Proof of extra costs
– The contractor must prove that extra costs were incurred in attempting
to finish the project by the unextended completion date
• Completion before date to which contract should have been extended
– The actual completion date need not necessarily be as early as the
original completion date as long as it is earlier than the date to which
the contract should have been extended
• Effect of an owner’s directive to accelerate
– The contractor does not have to have been directed by the owner to
meet the original date in order to have a valid case
– If it can be proved, the case becomes stronger as the owner not only
refuses to time extension for a valid claim but also compounds the
breach by pressuring the contractor to complete the contract by the
original completion time
CONTRACTOR’S PROPER CONTRACTUAL
PROCEDURE
• First, promptly file a properly supported claim for an extension
of time for a definite number of days as soon as possible
• Second, if a change order granting the time extension is not
received within a reasonable period of time, the contractor
should protest in writing and advice the owner in writing that
the operations are being accelerated
• Third, the owner should be advised in writing the details of the
acceleration effort and the contractor’s expectation for the
additional payments. The contractor must then ensure that the
contract is completed within the date to which the contract
should have been extended
• Finally, the contractor must carefully document all acceleration
costs actually incurred to be able to prove conclusively
DOCUMENTATION
• Good documentation is a result of careful preplanning and a

concerted effort at all levels in the field organization
• “Put-It-In-Writing” Rule
– It is one of the cardinal rules of good contract
administration, if not the cardinal rule
– Events should be recorded at or shortly after they occur, not
at some later time
– One useful technique is to dictate into a handheld recorder
kept constantly nearby
– Writings prepared later than a week or more after the event
have little or no value as a job record. By this time, they are
more “recollections” than records
DOCUMENTATION
• What is documentation?
– Written work products that are mere recitations or summaries
written long after event occurred are often incorrectly
represented as documentation
– Contemporaneous written records of the fact themselves are
documentation, but the recitations and summaries are not
– Written opinions of persons who were not present at the event in
question also do not constitute documentation
– Documentation consists of the writings or records of person who
were present at events, written at the time or shortly after the
time of the event
– In may instances, it may be the only evidence in existence that
reveals what actually occurred
DOCUMENTATION
• Value of good documentation
– Good documentation is invaluable in resolving
misunderstandings before they escalate into disputes
– Good documentation of the true facts in the possession of a party
is very effective in clearing a misunderstanding
– If a dispute does arise that cannot be resolved short of litigation
or arbitration, the party who can produce carefully prepared
authentic job records supporting its position usually will prevail
– Party representatives who were told about an incident by their
subordinates, will not be able to testify and it will be considered
as hearsay
– Thus presentation of good documentation of events may be the
only way to prove what occurred
DOCUMENTATION
• Exception to the Hearsay Rule
– An exception important to the construction industry is that,
subject to certain rules, construction job records (which are
hearsay in written form) are usually permitted to be
introduced and accepted as evidence
– Properly authenticated job records will generally be
admitted
• Conditions for Introduction of Job Records
– It must be established that the persons who prepared or
originated the records were actually present at the events
covered and were in a position to have accurate knowledge
DOCUMENTATION
– The records must have been prepared in the normal course
of business; that is, it must be shown that the records are of
a type that would normally be prepared under the
circumstances existing at the time of preparation
– The records must have been prepared at the time of events,
or reasonably soon thereafter
– There must be no suggestion or intimation that the records
were prepared for the specific purpose of use in litigation.
Such a suggestion impugns the objectivity and believability
of the records
TYPICAL JOB RECORDS
• The 20 typical construction job record documents can be considered as

a series of six closely related groups
• Letters of Transmittal/Submittal
– Each is a cover document for some other documents of importance,
such as a contract or purchase order
– Each of these has two aims – to establish a record of precisely what
was transmitted or submitted and t establish a record of the date that
the transmittal or submittal was made
– Letters of submittal are different from that of transmittal in one
important way.
• Letters of transmittal do not imply or state that an approval is
required whereas letters of submittal accompany an item for
which acknowledgement of receipt is requested and required
DOCUMENTATION
• Letters of Notice
– This group consists of the typical contractor notices required by
the red flag causes
– All these contain the same two basic elements of the first group
– In addition, in each case, the contractor is taking a position.
Therefore, each document should contain an additional element,
stating the contractor’s position and the basis for believing that
the position is correct
• Letters Requesting or Disputing Instructions or Letters of
Protest
– The two elements of identification and establishment of a date of
record are required
– In addition, document that disputes instructions or
interpretations should explain that a dispute exists and the
reason that the instructions or interpretations have been disputed
DOCUMENTATION
• Confirmations and Meeting Minutes
– In addition to the two basic elements, they contain an
element that confirms an understanding of a conversation,
meetings or instructions received
• Routine Job Records
– The purpose is to record facts about what has occurred
– There are only two elements – recording facts and
establishing the date that the facts were recorded
DOCUMENTATION
• Contractual Notices, Orders, or Directives
– Although less frequent than other documents, their
importance is obvious
– They should be drafted with great care and must contain
some mechanism to establish the fact and date of delivery
• Personal Diaries
– These are maintained by many construction executives on a
routine basis
– Such diaries are highly regarded as probative evidence in
construction disputes, provided the entries are factual and
not unduly editorialized

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Managing Changes in Contracts

• Changes are virtually inevitable in construction contracts

• Questions to be considered while drafting procedure for

• It is not an exculpatory clause excusing the owner from liability for

– If any change under this clause causes an increase or

• Two changes that cannot be made are:

• General scope refers to size, type of construction, intended

• Distinction between contract change terms

• Who is empowered to make changes?

• Who is empowered to make formal changes to the contract?

– Two elements to be proved to establish a constructive change

• A change which, because of its size or nature, is beyond the

• As a general rule, contractors should refuse to perform

• Type I Differing Site Conditions

• Type II Differing Site Conditions

• Duty of contractor to give notice

• Duty of government to promptly investigate

• Equitable adjustment provided

– It explicitly establishes government’s liability for costs and

– Patent condition is obvious

– Generally bidding contractors are only expected to note

• Can be both psychologically and financially destructive

• Time is of the essence

• Delay vs. Suspensions of work

• Compensable vs. Excusable delays

• Owner’s failure to act administratively

• Purpose of the notice requirements

• Most large contracts contain this provision

• Conceptual basis of liquidated damages

• Liquidated damages provisions are a contract remedy

• Liquidated damages are not a penalty

• Judicial attitude towards liquidated damages provisions

• Force majeure means a condition beyond party’s control

• Importance of notice of claim

• Contractor responsibility to prove entitlement

• Owner’s responsibility and contractor time extension

• Granting of time extensions

• Secondly - contractor should take all possible &

• The second problem is determining the consequences of delay

• The latter problem is usually solved by conducting a critical

• Contracts commonly provide that performance be planned and

• As-planned, As-built and Intermediate networks

• Owner Responsibility Delays

• Contractor responsibility delays are subdivided into two:

– Contractor failure entitles the owner to liquidated or actual

• After the individual delaying events have been identified as to

• Forward Looking and Retrospective Impact Analysis

• Consecutive and Concurrent events

– Concurrent Events: When events occur on separate parallel

• Principles governing delay impact analysis

– Collapse the schedule by removing that cause of delay and

• A contractor cannot assume with impunity that the contract

• It is a forced completion of the contract work in a shorter

• Failure to make this effort places the contractor in a position in

12 months normal work 6 months delay 12 months normal work

12 months normal work 6 months delay

9 months accelerated work

• Good documentation is a result of careful preplanning and a

• The 20 typical construction job record documents can be considered as

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