Permissible Changes in Scope of Work for Construction Contracts (2015)

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Legal Research Digest 67 NATIONAL COOPERATIVE HIGHWAY RESEARCH PROGRAM September 2015 PERMISSIBLE CHANGES IN SCOPE OF WORK FOR CONSTRUCTION PROJECTS This report was prepared under NCHRP Project 20-06, Topic 20-03, “Legal Problems Arising Out of Highway Programs,” for which the Transportation Research Board is the agency coordinating the research. The report was prepared by Eric M. Kerness, Kerness Consulting, and Kurt Dettman, Constructive Dispute Resolutions. James B. McDaniel, TRB Counsel for Legal Research Projects, was the principal investigator and content editor. The Problem and Its Solution State highway departments and transportation agen- cies have a continuing need to keep abreast of operat- ing practices and legal elements of specific problems in highway law. This report continues NCHRP’s practice of keeping departments up-to-date on laws that will affect their operations. Applications Following the award of a construction contract on a trans- portation project, the procuring agency may need to modify the scope of the work. Given the often unpredict- able nature of construction projects, after award of the contract it often becomes necessary to change the con- tract to account for unforeseen circumstances or different conditions than anticipated at the time of bid and award. There are two basic types of changes: 1) changes ordered or directed by the awarding agency and 2) changes requested by the contractor for reasons permitted by the contract or by law. Whenever a modification is desired, the agency should consider whether it constitutes a significant change in the character of the work subject to restrictions under 23 C.F.R. 635.109. The agency should also consider whether the change violates competitive procurement require- ments as a matter of state or local law, or whether the agency is required to include the work in question in a new procurement. The line between permissible and impermissible changes is not clearly drawn. Procuring agencies would benefit from legal guidance regarding the laws applica- ble to contract modifications in different states. Accordingly, this research: • Identifies the policy reasons underlying restric- tions on contract modifications. • Identifies state and federal statutes and regulations affecting modifications. • Highlights the importance of including a provi- sion for modifications in the contract. • Provides examples of practices followed by depart- ments of transportation in determining whether modifications are allowed. The focus of this digest is to explore whether there are statutory, procedural, or legal tests to determine when the issuance of a contract modification is permissible. The old test of the dichotomy between a change outside the scope of the contract (cardinal change), which is not permissible, and a change that is within the scope of the contract, which is permissible, has been replaced with statutes and guidelines that clearly indicate when a change order can be used for changed work or when that changed work must be competitively advertised. This digest should be useful to transportation attor- neys, financial officials, contracting officers and person- nel, engineers, and other transportation officials. Responsible Senior Program Officer: Gwen Chisholm Smith