20 March 2008
Given the vagaries of the construction process, it is almost inevitable change will occur during the course of a project, whether arising from physical or commercial issues. Without proper handling, changes can often mean projects go over time and over budget.
When we think of ‘change', it is usually in the context of a formal instruction from the architect, contract administrator project manager, engineer etc.
However, change can arise in other ways, often where one party ends up assuming additional responsibilities or obligations, either unintentionally or perhaps without even realising it has happened. For example, in design and build contracts, the Employer's Requirements are often ‘worked up' between contractor and employer and become something of an amalgam of their design proposals. This blurs the line of responsibility for any design decisions and may mean that the party that bears responsibility for the design – usually the contractor – is unable to price for that risk.
Similarly, change can arise through the contractor incorporating the employer's comments during any design approval process. Under many standard forms, failure to comply with strict time limits for the contractor to identify such changes means the comment is not treated as a change, even if it does in fact give rise to varied work.
Another example is where the employer is responsible for the design but when issues arise during the project, the contractor volunteers a design solution. Unless treated in the right way, the contractor may unintentionally take on responsibility for that solution.
For employers, a change in work scope, particularly an unintentional one, can result in an unwelcome, unbudgeted potential claim by the contractor for additional time and money. On the other hand, contractors may struggle to get more time and money for the work if there is no clear instruction from the employer recording it. This is particularly the case if the development is lender-driven and the decision to pay does not rest with the employer.
The contractor may also find it has unwittingly assumed a fitness for purpose obligation in relation to any design work, rather than the more usual and less onerous reasonable skill and care.
An employer will want to ensure that changes can be put into effect as economically and with as little impact on progress as possible. On the other hand, a contractor will want to ensure that change can be adequately managed and that it is able to recover any additional costs and time incurred as a result.
At the pre-contract stage it is important the employer allows the design team time to complete, check and co-ordinate the design. The employer should also ensure procedures in place for the contractor to pre-price change. This should remove uncertainty by fixing the price and time consequences before the works are instructed.
For unexpected changes, the employer should ensure that the contract contains detailed notification obligations. It may also wish to include contractual limitations or design approval procedures in the design team's terms of appointment.
The contractor perspective should ensure systems are in place to properly price changes as they are developed. These can then be taken into account in the final negotiation of the contract.
It is also important to ensure the provisions of any design approval process are workable in practice and allow the contractor time to identify change and raise this with the employer without slowing progress on the project.
The contract should also make clear in what circumstances the contractor, carrying out the design, will be subject to a fitness for purpose requirement. Where the employer is responsible for the design, provision needs to be made in the contract to specify what responsibility the contractor will have for any design suggestions.
At the projects beginning it is important to ensure the knowledge accumulated by those negotiating is passed on to those actually going to work by it. The operational team should also be familiar with the contract form and understand, communicate and follow notification and procedural obligations.
A project plan should be in place, to enable all parties to comply with any time limits provided in the contract. Importantly, obligations down the supply chain need to be ‘back-to-back' with the main contract obligations, by use of tailor-made sub-contract amendments.
During the course of the project, another key to managing change successfully for both the employer and the contractor is to ensure that the right records are kept. The critical documents are:
• A regularly updated programme, showing in detail the as-built 'reality'
• Realistic progress meeting minutes
• Contemporaneous records of the individual effect (in terms of time and money) of each change.
The effective management of change in the construction process can often make the difference between the commercial success or failure of a project. The important point is to include best practice mechanisms and procedures in the contract and to put management systems in place to ensure they are followed and work in practice.
This is particularly important for projects that become subject to frequent, late and material changes. Although the challenge of following time-consuming procedures is difficult on this type of scheme, doing so is of greatest importance to maintain the commercial balance of the original contract for all parties.