Disputed change orders: keeping a record that holds up later

Most change orders are agreed. A few are not. The contractor says the work was extra. The owner says it was in the GMP, or was the contractor's coordination, or was never noticed in time. The work gets done anyway, because the building has to finish, and the disagreement is parked.

Parked disputes come back at closeout, or in a claim, or in front of a mediator. By then the superintendent has moved to another job and the RFI is one of six hundred. What remains is whatever each side wrote down at the time. This post is about what the owner should write down.

Mark it disputed, do not leave it open

The first mistake is letting a disputed change sit in the register as an ordinary open PCO. An open PCO looks like a change waiting for a price. A disputed change is one where the owner has taken a position. The register should have a distinct state for it, with a date, so the age of the dispute is visible and so it is never mistaken for an item that simply needs attention.

The second mistake is letting the work proceed with nothing in writing. Under most AIA A201 based agreements the contractor must continue the work during a dispute, and the owner should direct the work in writing, reserving both parties' rights. A short letter or a construction change directive does this. Check your contract for the exact mechanism.

The record, field by field

A disputed entry should carry everything an ordinary entry carries, plus a few things that matter only when there is a disagreement.

Both positions, stated plainly

The contractor's cause and amount, and the owner's cause and amount, side by side. If the owner's position is that the work was in the GMP, say which line in the schedule of values or which drawing sheet carried it. If the position is late notice, state the discovery date and the notice date. A position without a reference is an opinion.

The GMP documents as they were

Disputes about whether something was in scope are decided by the drawing set and specifications the GMP amendment names, not by the current set. Keep a frozen copy of those documents on the owner's side. Keep the qualifications and clarifications list with them, because a contractor's exclusion on that list is often the whole argument.

Contemporaneous documents

The RFI and its response. The meeting minute where the issue was raised. The daily log. The photograph. Each with its date and a note of where the original lives. A dispute is usually won by the side whose documents are dated closest to the event.

The owner's direction to proceed

A copy of the letter or directive, with the reservation of rights language. This is the document that lets the owner say the work was directed under protest rather than accepted.

A fictional dispute and two records

Picture a fictional $58 million performing arts center. The contractor submits a PCO for $340,000 to add acoustic isolation to the mechanical room walls, claiming the detail was not in the GMP set. The owner's representative believes it was shown, in a wall type schedule, and that the contractor's estimator missed it.

In the first version of events, the owner's representative says so in a meeting, the contractor disagrees, the work proceeds, and the PCO sits open for eleven months. At closeout the contractor's final accounting includes it. The owner's file has one meeting minute that says discussed.

In the second version, the owner's representative records the entry as disputed on the day of the meeting, attaches the GMP wall type schedule with the isolation detail circled, attaches the contractor's qualifications list showing no exclusion for acoustic work, and issues a directive to proceed under reservation of rights. At closeout the conversation takes twenty minutes. The second version required about an hour of work eleven months earlier.

Reporting disputes without escalating them

Disputed entries should appear in the monthly owner report as a count and a total, with the owner's position value and the contractor's position value shown separately. This is not escalation. It is the board or the lender seeing the range of outcomes. A report that hides disputes until closeout produces a larger surprise than one that carries them month by month.

Costwitness keeps disputed as a distinct state on the change order register, carries both positions on the entry, and shows the gap between them in the monthly report and in exposure by cause. The owner decides the position. The register makes sure it is written down, dated, and still there a year later.

In the product

Change order register, GMP baseline, Monthly owner report. Free tool: Change Order Exposure.

Keep reading

Earlier: How a single classification moves the shared savings pool. Later: Who changed the cause, and when: the audit table behind every change. All articles on change orders.