Changes and Extra Work

The purpose of this section is show how modifications are made to ODOT construction contracts by change order. We will discuss reasons for change orders, pricing, preparation and processing and record keeping.

ODOT contracts are unit price contracts using estimated quantities of work. Simply by the nature of this type of contract, change orders will occur if for no other reason than to adjust estimated quantities to the quantities of work actually performed. Change orders amend the contract by adding or deleting work, making reimbursement for additional costs incurred, making material substitutions, changing specifications, etc.

The director of transportation is empowered by Section 5525.14 of the Ohio Revised Code to amend contracts for highway improvements by change order. This authority has the following statutory limitations:

· Any original bid item can be increased to the lesser of 5% of the total original contract amount or $100,000.00.

· A new item of work can be added to a contract to a value of the lesser of 5% of the original contract value or $100,000.00.

Additions beyond these limitations must be approved by the State Controlling Board. However, the director can exceed these limits if there are circumstances that warrant the declaration of an emergency. These circumstances could include a threat to public safety, idled equipment costs, delay costs, etc.

Guidelines for preparation of change orders are given in:

· C&MS Section 104.02, 109.03, 109.04

· ODOT Policy 27-010 (P), and Standard Procedure 510-010(SP)

Reasons for Change

The necessity for a change orders to an ODOT construction contract may arise for many reasons. The most common causes for change orders are discussed below.

Changes in Quantities of Work

The quantities of work actually performed differ from the quantities originally estimated and established in the contract for the following reasons:

· Final measurements/calculations

· Quantity changes to meet field conditions

· Plan errors

Differing Site Conditions

Existing field conditions differ from the plan to the extent that performance of additional or non bid work is required for the following reasons:

· Differing subsurface conditions

· Presence of any conditions not shown in the plan

Changes in the Scope of Work

Changes to the project that are so far reaching that they can be considered outside the original intent of the work can be caused by:

· Significant changes in the quantities of work

· Significant alteration of the work due to:

§ Sequence of construction

§ Method of construction

§ Materials

Changes for the convenience of the owner

Changes in the work ordered by the owner to meet the needs of the owner. The following changes are typically not required for the proper construction of the project:

· Addition of new work or deletion of work

· Acceleration

· Change in Materials

· Suspension of Work

Actions by others

Restriction, regulation or delay imposed on the contractor beyond the terms of the contract by an entity who is not a party to the contract can be caused by:

· Utility Companies

· Railroads

· Regulatory agencies

· Local governments

Generating and Processing a Change Order

The actual process for generating and processing a change order will vary from district to district depending on the level to which authority or responsibility has been delegated within the district. The process usually begins with the recognition of a need for a change order at the project level. This need is usually communicated to the District Construction Office which will either grant or obtain concurrence or authorization. A decision is then made as to the type of change order that is needed, a District Change Order or an Extra Work Change Order, and the change order is entered into CMS via the "CO" screen by the Project Engineer or the District Construction Office. CMS then generates both an electronic and a paper change order. The paper change order is signed by the District Construction Engineer and/or the District Deputy Director and submitted to the contractor for signature. Once the contractor signs and returns the change order the required approvals are then entered into CMS via the "CO" screen and the change order is electronically approved and is ready for payment.

Change Order Types

ODOT construction contracts are modified using two types of change orders, a District Change Order and an Extra Work Change Order. Guidelines for use, authorization limits and requirements and approval authority for each type are given in ODOT policy 27-010(P), and standard procedure 510-010(SP).

Common Change Order Elements

Practically every change order will contain the following elements:

Face

· Project Identification: Project Number, County, Route, Section, Federal Number, Federal Acceptance Type.

· Change Order Identification: Change Order Number, Type of change order.

· Work Item information: Reference Number, Participation Code, Item Code, Item Description, Units of Measure.

· Cost Information: Unit Price/Lump Sum Amount, Reference Total, Addition/Non performance, Change Order Total Addition /Non performance.

Body

· Reference Number Identification: Reference Number, Extra Work Number Participation Code.

· Reason Code: Mandatory field in CMS "EXPL" screen for each reference. CMS contains a list of 22 reason codes to choose from.

· Explanation of Necessity.

Signatures

· For request and approval by the Department.

· For agreement by the contractor.

Attachments (when applicable)

· Emergency Declaration: District's request and Declaration issued by Office of Highway Management.

· Support Documentation: Additional information describing need for the change order.

· Cost Documentation: Cost analyses, Comparative pricing information, etc.

Change Order Pricing

Once the need to perform extra work on a project has been identified a basis of payment for this work must be established. Pricing for extra work is usually established using one of the following methods.

Agreed Unit Price

This method of pricing is used when the extra work can be broken down into measurable units. The number of units necessary to perform the work is estimated and a unit price is determined and agreed upon as described below. Final payment is based upon the final measurement of the number of units of work actually performed:

· Unit prices already established in contract.

· Comparative pricing. Contract unit prices for similar work on other projects (CMS database).

· Use force account type analysis (Appendix V).

Force Account (Section 109.05 of the CM&S)

A force account method is used when the work cannot be broken into measurable units or when a unit price cannot be agreed upon. This method reimburses the contractor the actual costs of labor, equipment and materials incurred in the performance of the work including allowable overhead and markup. This method requires a significant amount of record keeping and is described in Section 109.05 of the CM&S.

This method usually requires the preparation of two change orders both of which use the same format. The first change order is known as an "Estimated Cost Force Account" and is established so that money can be encumbered and payments can be made to the contractor as the work is performed. The second change order is known as an "Actual Cost Force Account" and represents the final accounting of the cost of the performance of the work and is used to reconcile the "Estimated Cost Force Account" change order.

Agreed Lump Sum

This method of pricing is a negotiated amount and can be used when the extra work can be identified as something that is usually paid as a "lump sum". The "Agreed Lump Sum" can also be used as an alternate to the force account method:

· Prepare lump sum using force accounts style analysis

· Maintain force account record of the work for a period of time and use to develop lump sum

· 3rd party billing

· Lump Sum Adjustment

Additional Contract Time for Extra Work

The performance of extra work or additional quantities of work may warrant an extension of contract time. Extensions of contract time may involve additional direct project overhead costs.

Record Keeping

Record keeping is an integral part of contract administration and is especially important when considering change orders. Adequate records must be maintained to document the need for changes and to establish pricing for extra work.

Quantity Measurements

Measurements of the quantities of work in the units prescribed by the plan actually performed by the contractor must be recorded by the project personnel. Change orders must be prepared to make adjustments for any differences between contract quantities and the quantifies actually performed.

Issues of efficiency or other similar factors may arise that may impact unit costs when the quantities actually performed differ significantly from those shown in the plan. For these occasions the quantity records must be thorough enough to determine actual production rates and other such items.

Force Account Work and Extra Work Using Force Account Style Analysis

The records required for force account pricing of extra work must accurately depict all labor, equipment and materials used by the contractor to perform the work. The items that are necessary to record are as shown below:

· Description of Work

· Contractor's work force

§ Employee Name

§ Classification

§ Hours worked regular and overtime

· Contractor equipment

§ Type

§ Model

§ Age

§ Capacity

§ Hours Worked

§ Hours Idle

· Materials

§ Description

§ Quantity

§ Invoices

Project Closeout

The purpose of this section is to explain the process by which ODOT construction contracts are closed out. We will discuss final inspections, the completion of contract requirements, the determination of the final contract value and the issuance of the final payment and release.

Following the completion of the physical work of a project a process to "closeout" the contract begins. This process ultimately leads to the final payment and release of the contractor from further responsibility for the project. This process includes gaining acceptance of the project from all participating agencies, determining the final value of the contract, the completion of all remaining contract requirements and the issuance of a final change order. It is the Department's goal that this process be completed within six months of the completion of the physical work for at least 90 percent of our projects.

Final Inspection

When work on a project has been completed to the satisfaction of the Project Engineer/ Project Supervisor, a final inspection is conducted. The final inspection is typically conducted by a team that is headed by the District Deputy Director's Appointee for Final Inspection. This Team shall include representatives of all local participating agencies and FHWA, when applicable, ODOT maintenance personnel, the Engineer and the contractor. The Team will determine the need for any corrective or additional work and prepare a "punch list" for the project. In the case of any disagreements among the Team, the District Deputy Director's Appointee is empowered with final authority. The "punch list" is provided to the contractor in writing along with a specified time frame or a specified date for completion of the prescribed work. Final inspection must follow the ODOT policy 27-007(P), and standard procedure 510-007(SP) and generally must include the following items:

· Resolution of Punch List: It is the responsibility of the Engineer to perform any follow up necessary to assure that the contractor completes the punch list work in a timely manner.

· Obtain acceptance of project by all local agencies: Upon completion of all physical work, including punch list work, the District Construction Office must obtain a letter of acceptance of the project from all local participating agencies.

· Issuance of Report on Final Inspection: Following the completion of punch list work, if any, the District Deputy Director's Appointee for Final Inspection issues the Report on Final Inspection, form C-85. This report represents an informal acceptance of the project.

Completion of Contract Requirements

Once the physical work is completed for a project there area number of administrative contract requirements that must be completed before final payment can be issued. These requirements may differ from contract to contract and typically include the processing of various documents or the Contractor supplying certain information:

· Material & Labor Report PR 47 (Federal Projects Only)

· Payroll requirements completed

· Affidavit of Compliance Final Wage Affidavit (State Projects Only)

· Profilometer Report

· Concrete Core Report

The dates on which each of these contract requirements has been satisfied are entered and recorded in CMS on the "FINAL" screen.

FINAL Screen

Determination of Final Contract Value

A key element of the project closeout process is the determination of the final dollar value of the construction project. This is accomplished by determining the final number of units to be paid for each item of the contract and by processing all necessary change orders including a final change order.

In order to ensure timely closeout, it is strongly recommended that some of the activities that will be discussed be performed as work is completed on the project.

Prepare and Audit Final Contract Quantities

The Engineer is responsible for determining and preparing support documentation for the final quantity (final number of units) to be paid for every item of work contained in the construction contract. Ideally this is accomplished progressively as the items are completed during the course of construction of the project. Once the physical work has been completed for the project, the Engineer submits all project records to the District Office for an audit. This audit is performed by the District Level Reviewer for the purpose of verifying the final quantities and assuring that adequate documentation exists to support payment of those quantities. It is currently the Department's policy to audit a minimum of 25% of all projects awarded each calendar year. The District can audit additional projects at its discretion. Again, it is preferred for larger projects that the audit be performed progressively as items of work are completed and documented. Upon completion of the audit, or periodically during the audit for larger projects, a list of "approves' final quantifies is prepared and is forwarded to the contractor for concurrence. Once agreement with final quantifies has been obtained a change order is prepared to make any necessary adjustments between the final and original contract quantities. Any necessary pay estimates resulting from these change orders are initiated by the District Construction Office.

Material Certification

As discussed in earlier sections, all materials incorporated into construction projects must be approved for use. Once the work is completed for the project an audit must be performed to ensure that sufficient quantities of material have been approved for each reported final quantity. As the final quantity audit is being performed and final quantities are approved, the quantities are reported to the District Engineer of Tests for the material audit. The District Engineer of Tests and staff review the project testing and acceptance records to ensure that sufficient materials are approved for the final quantity for every contract item. Material deficiencies are reported to the Engineer who is responsible for resolution of the deficiency. Once all material deficiencies are resolved, the District Engineer of Test generates the Letter of Certification of Materials for the project. This letter is signed by the District Engineer of Tests and the District Highway Management Administrator and included in the final estimate package.

The project closeout process is modified as follows for projects constructed under the material acceptance process described in Policy 515-001(P).

Under this policy the Engineer prepares a material certification for the project and submits it along with the final contract quantities to the District for an audit. The final quantity documentation is audited by the District Level Review Team as described earlier. The District Engineer of Tests now only audits the Engineer’s material certification using project audit guidelines similar to those used by the District Level Review Team. Deficiencies identified by the District Engineer of Test's audit are reported to the Engineer who is responsible for their timely resolution.

The Highway Management Administrator approves the material certification and it is included in the final estimate package.

Issuance of Final Change Order

A final change order is required for every construction project. Change orders for all quantity adjustments, extra work, additional costs, price adjustment or contract amendments must be processed prior to the issuance of the final change order. Approval of the final change order signifies that all necessary changes have been made to adjust the contract from the original bid condition to the final "as built" condition.

Final Payment and Release

Following the approval of the final change order, the final estimate is prepared and processed and the contractor is released from any further responsibility for the project in accordance with C&MS Section 109.12.

Preparation of Final Estimate Package

A final estimate package is prepared for the project and includes the following items:

· Final estimate (reconciles payment to final quantities)

· Letter of Certification of Materials

· Certification of Payroll Affidavit (100% State projects only)

· Letter of Acceptance from Participating Agency

· Affidavit as to Non Specified Materials (when applicable)

· Receiving ticket for Salvaged Materials (when applicable)

The final report is certified by the District Construction Engineer and the District Deputy Director. The final estimate is approved by the District Deputy Director.

Issue Final Payment And Release Contractor From Further Responsibility

Once submitted the final estimate package is audited and approved for payment. Following this approval the District Construction Office generates a letter to the contractor advising of the final value of the contract and of their release. This letter also serves as the Department's formal acceptance of the project.

Preconstruction Conferences

In accordance with the Department’s “Standard Procedure for Preconstruction Conferences and Informal Partnering” the District will hold a preconstruction conference on all projects, after the award of the contract and prior to actual start of work.

The preconstruction conference provides the opportunity to establish communication, discuss intentions and concerns, and layout the road map and rules for the conduct of the project. These conferences are also designed to provide all parties with an opportunity to discuss and resolve any potential problems. The timing of preconstruction conferences provides the greatest flexibility for the resolution of problems with the least disruption to the project.

A preliminary study of the project must be made in advance of the meeting in order that the pertinent problems involved are known. An agenda must be utilized addressing all the items set forth in the Standard Procedure.

Refer to the “Standard Procedure for Preconstruction Conferences and Informal Partnering” for detailed information on preconstruction conferences.

CLAIMS

Types of Claims

Certain types of disputes by their nature are those which are most likely to result in a claim for additional compensation or time. The most common claims deal with the interpretation of specifications, standard drawings, plans, proposal, change orders and other Contract Documents. Revisions to the Contract Documents including differing site conditions (104.02.B), suspension of work (104.02.C), significant changes in character of the work (104.02.D), eliminated items (104.02.E), and extra work (104.02.F) are also frequently claimed issues. Other common claim issues include defective specifications, inefficiencies, defective work, and constructive acceleration.

Who Can Make A Claim?

The only entity that can assert a claim against the Department is the Contractor. If the project is being performed by a joint venture then only the joint venture can assert a claim against the Department. A single party to the venture cannot assert a claim. Likewise, a subcontractor cannot assert a claim directly against the Department but can make a claim against the Contractor who, in turn, can assert a claim against the Department for damages incurred by the subcontractor.

Claim Elements

Every claim has two distinct elements:

· Entitlement is the theory under which the Contractor asserts the claim. Examples of this would be: differing site condition, conflict between plans and specifications, delays, etc.

· Damages are the monetary and/or time impacts incurred by the Contractor as a direct result of the claim event.

Proof of Claim

Proof of entitlement and proof that additional costs were incurred rests solely with the Contractor. The Contractor has the burden of proving BOTH entitlement and damages. If the Contractor cannot prove entitlement, the claim must be denied. Likewise, if the Contractor proves entitlement but cannot prove that it incurred any cost and/or time impacts, the claim must be denied.

Analyzing A Claim

The following step by step process should be used to analyze a claim:

· Did the Contractor provide the owner with timely notice in accordance with the contract requirements (104.02.G)?

· Entitlement:

§ What is the Contractor's theory of entitlement?

§ What do the Contract Documents say?

§ Determine the actual sequence of events giving rise to the claim.

§ Identify each specific claim issue.

§ What are the positions of both sides on each issue?

§ If the Contractor is claiming a delay:

· Did the circumstance delay work on the critical path (108.06.A)?

· Is it an excusable or non-excusable delay (108.06.B through 108.06.E)?

· Is it a compensable or non-compensable delay (108.06.B through 108.06.E)?

· Were any delays concurrent (108.06.F)?

At this point, if the analysis does not support an entitlement, it is not necessary to analyze damages.

· Damages:

§ Has the Contractor proven its monetary damages?

§ Has the Contractor proven its time damages?

§ Did the Contractor mitigate the monetary and time damages?

Duty To Mitigate

The Contractor is required to put the Department on notice of circumstance that may require a revision to the Contract Documents or may result in a dispute. This notice requirement allows the Department the opportunity to mitigate the damages flowing from the claim situation and to begin to keep detailed records of the Contractor's activities, manpower, equipment, and materials which are related to the claim.

The Contractor and Engineer must make reasonable efforts to mitigate damages resulting from any claim event, whether caused by the Department, Contractor, third party, or intervening event. Mitigation efforts include re-sequencing work activities, acceleration, and continuation of work through an otherwise planned shutdown period, etc. It is important to discuss potential mitigation efforts with the Contractor and to agree upon monetary and time responsibilities and also to document such efforts and agreements prior to implementation.

When considering mitigation efforts you must have an estimate of the potential damages that may be incurred as a direct result of a claim event. The Contractor cannot recover damages that could have been avoided by taking reasonable steps. The Contractor is entitled to recover the costs of mitigation. Therefore, the potential damages must be greater than the costs of mitigation in order for mitigation to be a practical option.

CLAIM MANAGEMENT

Approach to Claims

The Department as a general policy takes a proactive approach which seeks to avoid disputes. In the event claims do arise, an orderly procedure is in place on each project to assist with managing the claims.

Each project utilizes a dispute resolution process which is designated by a note in the Proposal. The Dispute Resolution and Administrative Claims Process (PN 109) is the default process and is included on all projects except those that use the Dispute Review Board Process (PN 108). The Dispute Review Board Process is used on a select number of projects that are typically over $20,000,000 and/or of a highly technical nature. It is important to identify which process is designated on the project so that it may be properly utilized to resolve disputes.

The first 2 steps of both dispute resolution processes are the same. The third steps of both processes differ significantly.

Dispute Resolution and Administrative Claims Process

The Dispute Resolution and Administrative Claims Process is a step by step outline of the sequence of events which occur subsequent to the Contractor Notification described in C&MS 104.02.G. of discovering a circumstance that may require a revision to the Contract Documents or may result in a dispute.

Proposal Note 109 - Dispute Resolution and Administrative Claims Process sets forth the details for each of the 3 steps of the process.

Dispute Review Board Process

The Dispute Review Board Process provides that a Dispute Review Board (DRB) be established prior to the beginning of construction. A DRB is a 3 member board experienced in construction and contract administration that exists for the life of a project. The DRB conducts quarterly meetings to keep up-to-date on the progress of the project and conducts special hearings as disputes are appealed to the DRB.

The Dispute Review Board Process is a step by step outline of the sequence of events which occur subsequent to the Contractor Notification described in C&MS 104.02.G. of discovering a circumstance that may require a revision to the Contract Documents or may result in a dispute.

Proposal Note 108 - Dispute Review Board Process sets forth the details for each of the 3 steps of the process.

The success of these dispute resolution processes depends on thorough, accurate, and timely documentation. Also, maintaining a professional relationship and constant communication with the Contractor and your supervisor, whether the Engineer, Area Engineer, or District Construction Engineer is vital to the resolution of disputes.