INTRODUCTION......................................................................................................................... 1

I.......... Comparison of AIA A201 – 2007 and AIA A201 – 1997................................................ 2

A........ Change Order......................................................................................................... 2

B........ Construction Change Directive.............................................................................. 3

C........ Minor Changes....................................................................................................... 5

D........ Request for Information......................................................................................... 5

II........ Limitations on Changes...................................................................................................... 9

A........ Notice Requirements for Additional Compensation or Time................................. 9

B........ Waiver.................................................................................................................. 11

C........ Differing Site Conditions Clauses........................................................................ 13

D........ No Damage for Delay Clauses............................................................................. 17

III....... Dugan & Meyers Construction Co., Inc. v. Ohio Dept. of Administrative Services: An Imperfect Storm of RFIs, Cumulative Impact and Contractual Limitations.................................... 20

A........ Introduction.......................................................................................................... 20

B........ Cumulative Impact Basics.................................................................................... 21

1......... What are the Sources of Cumulative Impact Claims?.............................. 21

2......... Construction Inefficiency Based Cumulative Impact.............................. 22

3......... Negotiation Based Cumulative Impacts................................................... 24

4......... The Cost of Cumulative Impacts.............................................................. 25

C........ Legal Analysis of Cumulative Impact Claims...................................................... 26

D........ The Dugan & Meyers Case................................................................................... 30

1......... The Facts: “Hello Delay, Goodbye Columbus”...................................... 30

2......... The Referee’s Report................................................................................ 33

a......... The Conflict.................................................................................. 33

b......... Factual Findings and Liability Issues........................................... 34

c......... The Cumulative Impact Claim and Defenses............................... 36

d......... Damages....................................................................................... 39

3......... Problems With the Referee’s Report........................................................ 40

4......... The Court of Appeals Decision................................................................ 44

5......... The Ohio Supreme Court Opinion............................................................ 47

E......... Cumulative Impact and A201.............................................................................. 49

F......... Cardinal Change................................................................................................... 51

IV....... Practice Pointers............................................................................................................... 54

A........ Contract Drafting Considerations for Controlling the RFI Process..................... 54

B........ Lessons from Ohio: The Future of Spearin and Cumulative Impact.................. 59

CONCLUSION........................................................................................................................... 64

DEALING WITH THE CUMULATIVE EFFECTS OF
REQUESTS FOR INFORMATION,
CHANGE ORDER REQUESTS AND CHANGE DIRECTIVES

By:

Buckner Hinkle, Jr.[1]

Michael I. Less[2]

INTRODUCTION

The third tempter in T. S. Eliot’s Murder In The Cathedral fancies himself as “an unexpected visitor.” Not so replies Archbishop Thomas Beckett, for “no purpose brings surprise.”[3] So it is with construction changes. They are not unexpected. This observation is so familiar that one pauses before repeating it for fear of being trite. Yet this paper is about changes and their cumulative impacts, so we begin with the notion that change should come as no surprise regardless of how carefully a project is conceived. Nearly all construction contract documents, whether standard forms or “home grown,” provide that the work can be altered, compensation adjusted and completion extended while other contract obligations remain intact.

But for all the expectations, changes can be quarrelsome things. This paper highlights recent and controversial Ohio appellate court decisions[4] where disputed changes intersected with one of the cornerstones of construction jurisprudence, United States v. Spearin.[5] The Ohio decisions were driven by a “cumulative impact” claim, a concept for delay based compensable changes so relatively new that it remains underdeveloped in case law.[6] The Ohio courts were not impressed with the concept.

We begin by reviewing how contracts are structured to deal with change. These clauses are well known so our review will be quite basic. Emphasis is given to the “Request For Information” (“RFIs”) because RFIs are associated with changes, sometimes in a controversial way. That was indeed the situation in Ohio. Commentaries cited in this paper assert that RFIs are overused, even abused, though the commentators diverge on the causes. Suggestions for improving the RFI process are included.

I. Comparison of AIA A201 – 2007 and AIA A201 – 1997.[7]

Change Orders, Construction Change Directives (“CCD’s”), and RFIs are basic tools used to clarify and change contract documents during construction. These tools are common to construction contract documents published by the American Institute of Architects (“AIA”). Both current and proposed versions of AIA A201 General Conditions of the Contract for Construction employ these tools to modify the contract between the Owner and Contractor. The 2007 edition of A201 contains some differences from prior version in the treatment of Change Orders, CCDs and RFIs. After a brief summary of the 1997 version, changes embodied in the 2007 edition are discussed below.

A. Change Order

Change Orders represent changes to the Work, the Contract Sum, or the Contract Time. The Owner, Architect, and Contractor agree to the change before completion of the Work affected by the Change Order.[8] The Architect bears the responsibility for preparing Change Orders.[9] Change Orders (as well as CCDs and minor changes in the work) “shall be performed under applicable provisions of the Contract Documents” and the Contractor must proceed “promptly” with Change Orders once executed.[10] If a Change Order requires an adjustment to the Contract Sum, Section 7.2.2 provides that the methods used to adjust the Contract Sum are the same for both Change Orders and CCDs.

A201 – 2007 does not substantially alter the Change Order provisions. Section 4.2.8 still authorizes the Architect to prepare the Change Orders and CCDs, and now places responsibility on the Architect to “investigate and make determinations regarding concealed and unknown conditions as provided in section 3.7.4.”[11] The 1997 version stated that the required methods used to adjust the Contract Sum under a Change Order could be used in the context of Construction Change Directives.[12] This provision is deleted in the 2007 edition but the same methods are preserved.[13]

B. Construction Change Directive

The CCD is a change in the Work agreed to by the Owner and Architect, but not necessarily by the Contractor. CCDs first appeared in AIA contract forms in Section 7.3 of AIA A201 – 1987.[14] Previous versions of A201 referred to Change Orders and minor changes in the work.[15]

The CCD provisions were retained in A201 – 1997. CCDs are “used in the absence of total agreement on the terms of a Change Order.”[16] They must fall within the “general scope of the Contract.”[17] Section 7.3.3 provides alternative methods for calculating adjustments if changes to the Work contained in a CCD require adjustment of the Contract Sum.[18] Upon receipt of a CCD, the Contractor must both “promptly proceed with the change in the Work involved and advise the Architect of the Contractor’s agreement or disagreement with the method” of adjusting the Contract Sum or Contract Time.[19] If the Contractor agrees with the CCD and signs it, the CCD becomes effective immediately and is recorded as a Change Order.[20]

Should the Contractor fail to promptly respond to or disagree with the CCD, the Architect determines the adjustment to the Contract Sum based on reasonable expenditures and savings as well as a reasonable allowance for overhead and profit.[21] Furthermore, Section 7.3.8 provides that the Architect will make interim decisions regarding monthly certification of payment for costs associated with the change in the Work. That determination adjusts “the Contract Sum on the same basis as a Change Order,” but does not affect the rights of either party to later submit a claim under Article 4.[22] If the Owner, Architect, and Contractor agree completely on the terms of a CCD, their agreement is documented as a Change Order.[23]

A201 – 2007 makes no changes to the CCD definition and only several minor changes to procedures and party responsibilities. The Architect may adjust the Contract Sum if the Contractor does not promptly respond to the Construction Change Directive or disagrees with the chosen method of adjustment; then the Architect can include an amount for overhead and profit.[24] The 2007 edition places the interim decisions regarding monthly certification of payments within the Architect’s discretion by stating that the Architect will “certify for payment the amount that the Architect determines, in the Architect’s professional judgment, to be reasonably justified.”[25] Finally, when the Owner and Contractor reach agreement on the CCD terms, the Architect prepares the appropriate Change Order, which “may be issued for all or part of a Construction Change Directive.”[26]

C. Minor Changes

In addition to Change Orders and CCDs, the Architect has authority to issue changes by ordering minor changes in the Work. Both the 1997 and 2007 versions of A201 deal with minor changes in the Work.[27] The only differences in the new version are a requirement that the Architect sign the order for a minor change and the removal of a redundant clause stating that the “Contractor shall carry out such written orders promptly.” [28]

D. Request for Information

The RFI process under A201 – 1997 operates within the Contractor’s general duty to review the Contract Documents.[29] The Contractor must “carefully study and compare the various Drawings and other Contract Documents” relating to each portion of the Work “before starting [that] portion of the Work.”[30] Ostensibly, this is done “not for the purpose of discovering errors, omissions, or inconsistencies in the Contract Documents,” but rather to “facilitate construction by the Contractor.”[31] Practically speaking, the process involves comparing drawings, specifications, and surveys provided by the Owner with field measurements and site observations taken by the Contractor to insure consistency and feasibility. The RFI process is the documentation stage for questions raised by the Contractor while reviewing the Contract Documents. Unlike Change Orders and CCDs, RFIs do not authorize changes in the work.[32]

AIA devotes relatively little text to RFIs. The term is barely used in A201 - 1997.[33] Therefore, appreciation of other clauses is helpful to understand the possible significance of RFIs. Under A201 – 1997, the Contractor must promptly report to the Architect “any errors, inconsistencies, or omissions discovered” as a “request for information.”[34] Also, if the Contractor fails to either review the Contract Documents or promptly report any deficiencies, it may be liable for “such costs and damages . . . as would have been avoided if the Contractor had performed such obligations.”[35] Although A201 – 1997 places the initial burden on the Contractor to review the Contract Documents and creates some potential for liability, it ultimately provides the Contractor with two significant protections against errors, inconsistencies, or omissions.

First, A201 – 1997 explicitly states that “the Contractor’s review is made in the Contractor’s capacity as a contractor and not as a licensed design professional unless otherwise specifically provided in the Contract Documents.”[36] Accordingly, the Contractor does not bear professional design responsibility for the Contract Documents, and “the Contractor is not required to ascertain that the Contract Documents are in accordance with applicable laws, statutes, ordinances, building codes . . . .”[37] Second, to the extent that the Contract Documents contain errors, inconsistencies, or omissions, the “Contractor shall not be liable to the Owner or Architect” for resulting damages unless the Contractor recognized a deficiency and “knowingly failed to report it to the Architect.”[38]

A201 - 2007 includes some minor revisions concerning the RFI process. As before, the Contractor must notify the Architect of any errors, omissions, or inconsistencies discovered, but under the 2007 version the same duty extends to deficiencies made known to the Contractor.[39] Also, the Contractor’s liability for deficiencies in the Contract Documents depends on whether the Contractor “performs [its] obligations” under the RFI process, as opposed to the prior language that turned on a knowing failure to report deficiencies to the Architect.[40] Finally, the 2007 edition added “lawful orders of public authorities” to the list of concerns for the Architect, not the Contractor.[41]

The 2007 version also reflects some structural changes from A201 – 1997. Regarding RFIs, prior subparagraph 1.5.2 concerning site observation is now subsection 3.2.1. This clause states that by executing the contract, the Contractor represents that it “has visited the site, become generally familiar with the local conditions . . . and correlated personal observations with requirements of the Contract Documents.”[42]

Additionally, to bring some uniformity to the RFI process, AIA publishes a standard RFI form, G716 – 2004 Request for Information. In March 2006 AIA distributed a “Best Practices” paper, “The RFI’s Role in the Construction Process.” Both documents are appended to this paper. In its “Best Practices” release, AIA offered suggestions for preventing RFIs and for improving the RFI process. AIA’s prevention methods included:

· A discreet coordination phase to “tighten up” design documents;

· A constructability review before the construction budget is set;

· “Tight” scopes of work and a detailed scope review meeting before awarding subcontracts; and

· Better and more frequent use of pre-bid meetings.

AIA’s suggestions for improving the RFI process included:

· Accompanying the RFI with a “lowest cost” solution;

· Requiring references to the drawing and specification number;

· Assigning a priority and/or required response date; and

· Recommending that “the design team should endeavor to provide timely, accurate responses to legitimate RFIs.”

At a minimum, the RFI should convey the drawing, submittal and/or specification number in question,[43] identify the possible impacts to cost, schedule and other drawings and specifications, identify the level of urgency, and propose a solution. The design and construction contract documents should identify who is responsible for leading RFI administration and link RFI administration with submittal administration (including the schedule for submittals).