August 10, 2018
Author: Donald S. Horvath
Organization: Jenner & Block LLP
It is extremely unusual for a construction project to go from the bidding phase to substantial completion without a change order. As changes in the work are almost inevitable, the goal of each of the parties to the construction process, architect, contractor and owner, is to minimize both the number and the impact of changes in the work on the project. Equally important to the process, however, is for the parties to allocate responsibility for the changes, both in terms of which party will bear responsibility for the cost of the changes, and which party will bear responsibility for the additional time to perform the work associated with a change.
The legal rights of the parties involved in a construction project are determined, in most cases, by the terms of the construction contract into which they have entered. As a result, the strength or weakness of each party’s legal position is determined in large part by the terms of that contract. These seminar materials discuss certain provisions found in construction contracts that determine whether, and to what extent, the work in question will be treated as extra work, entitling the contractor to be compensated for the work (either monetarily, or with an extension of time to complete the work, or both), or additional work, for which no compensation is required. The provisions discussed are not meant to be an exhaustive list of provisions that address the parties’ rights in connection with changes in the work, but are meant to touch on some of the most common situations in the construction process that result in the need for a change or modification in the work.
Because the use of the contract forms developed by the American Institute of Architects is prevalent in the construction industry, this paper also generally discusses the treatment of these provisions by reference to the AIA Document A101-2007, Standard Form of Agreement between Owner and Contractor (the “A101”), and AIA Document A201 - 2007, General Conditions of the Contract for Construction (the “A201”).
1. SCOPE OF WORK.
The basis of any construction contract are the provisions of the contract relating to the scope of work to be performed by the contractor. The scope of work defines the work the contractor expects to perform and the product the owner expects to receive. The scope of work provisions should be as specific as possible. Any vague or ambiguous terms will invite problems as the project progresses.
From the owner’s perspective, there are certain broader requirements that are appropriately included in the scope of work. For example, the owner will want to require the contractor to “comply with all applicable codes or laws.” A contractor reasonably could agree to this provision, but the contractor will want to avoid other broad standards, such as a requirement to perform the work “to owner’s satisfaction.”
The A101 requires that the “Contractor fully execute the Work described in the Contract Documents . . . .” (Article 2). The contract documents are then listed in Article 9 of the A101. The drafter of the contract should be very careful to list each of the contract documents specifically and accurately (including draft numbers and dates). Any ambiguity or error could cause a disagreement between the owner and the contractor.
The scope of work provisions in a contract typically will incorporate drawings, plans and other specifications. This permits the owner to adequately specify what it expects from the contractor. The parties should be careful, however, to ensure that the various drawings, plans and specifications incorporated in the contract work are in harmony with one another.
It also is common for the parties to establish a hierarchy of documents to determine which provisions and contract documents control in the event of a conflict between any two provisions or between the terms of the contract and the drawings and specifications.
Interestingly, the A101 does not provide for a hierarchy of documents. The rationale is likely that a hierarchy of the contract documents is not necessary, because, pursuant to the A101, it is generally the architect’s obligation to interpret the contract documents.1
In the event that a construction contract is silent or ambiguous related to the scope of the work, a court may admit parol evidence to determine each party’s intent when entering into an agreement. See e.g.: West Bend Mut. Ins. Co. v. Talton, 997 NE 2d 784 (Ill. App. Ct. 2d 2013).
1.2. Plans and Specifications.
The provisions of the construction contract focusing on the drawings, plans and specifications for the project also are important for determining whether a contractor will be entitled to compensation or extensions of time for perceived changes in the work. Many construction disputes result from ambiguity in or disputes about the project's plans and specifications. This includes virtually all of the common disputes, including delays, extras/changes, and differing site conditions, as well as disputes over the adequacy and completeness of the final product. In Illinois, the general rule is that a contractor will not be held liable for breach of contract if it (i) performs its work in accordance with the plans and specifications furnished by the owner, and (ii) does so in a workmanlike manner. Georgetown Township High Sch. Dist. No. 218 v. Hardy, 38 Ill. App. 3d 722 (4th Dist. 1976). Accordingly, construction defects caused by defective plans and specifications generally are the responsibility of the owner. St. Joseph Hospital v. Corbetta Constr. Co., Inc., 21 Ill. App. 3d 925 (1st Dist.1974).
1.2.1 Plans and Specifications Provided to the Contractor by the Owner.
Generally, a contractor is not responsible for loss or damages resulting solely from defective plans and specifications provided by the owner. Id.. The contractor is obligated to build in accordance with the owner's plans and specifications. As discussed below, the parties should take this into account when they are negotiating the construction contract, and the construction contract should delineate those circumstances when contractors should be compensated for extra costs and delays incurred in attempting to follow the owner's defective plans and specifications. The owner makes an implied warranty of plans and specifications. Fattore Co. v. Metro. Sewerage Comm'n of the County of Milwaukee, 454 F.2d 537 (7th Cir. 1971); McCarthy Bros. Co. v. State of Illinois, 47 Ill. Ct. Cl. 15 (Ill. Ct. Cl. 1995). The contractor's performance obligation is measured by the contract documents, and the contractor is required to proceed in accordance with the plans and specifications in a workmanlike manner. To protect itself, an owner should have a provision in its agreement with the architect that makes the architect liable for certain claims relating to defects in the drawings and specifications prepared by the architect. Typically, contract documents will contain a number of express warranties intended to distribute risks and responsibilities for construction problems. For example, a contractor may guarantee to remedy defects in work for one year following completion. This does not mean, however, that the contractor necessarily guarantees the ultimate result of its work. Despite the existence of the contractor's warranty, if the contractor fulfills the obligation to complete the work in accordance with plans and specifications provided by the owner, it is not responsible for the adequacy of the final product. See W.H. Lyman Constr. Co. v. Village of Gurnee, 84 Ill. App. 3d 28 (2d Dist. 1980).
Construction contract documents may not address the owner's warranty of accuracy or suitability of the plans and specifications for the project. Courts have found this to be an implied warranty imposed by law. This implied warranty may relieve the contractor from responsibility for loss or damage resulting from defective plans and specifications prepared by, or at the direction of, the owner. This implied warranty is sometimes called the Spearin doctrine, from the United States Supreme Court case of United States v. Spearin, 248 U.S. 132 (1918). In Spearin, the government brought suit against a contractor who sought to recover damages due to an improperly functioning sewer system. After finding that the government had furnished the contractor with the plans and specifications for the project, the Supreme Court stated that by inserting the articles prescribing the character, dimension, and location of the sewer, the government imported a warranty that if the specifications were followed, the sewer would be adequate and held that liability for faulty plans and specifications in a construction project falls upon the owners. Id. At 137.
1.2.2 Design vs. Performance Specifications.
Courts have long held that there is a difference between design specifications and performance specifications Aircraft Gear Corp. v. Kaman Aerospace Corp., 856 F. Supp. 446 (N.D. Ill. 1994). Design specifications explicitly state how the contract is to be performed and permit no deviations. Id. Detailed design specifications contain an implied warranty that, if they are followed, an acceptable result will be produced. Id. Performance specifications, on the other hand, specify the results to be obtained and leave it to the contractor to determine how to achieve those results. Id. In general, the Spearin doctrine applies only where the government or owner provides detailed design specifications and does not apply to performance specifications. Id.
1.2.3 Interplay Between Spearin and Contractual Clauses.
The implied warranty exists despite general clauses requiring the contractor to examine the site, to check the plans, and to assume responsibility for the work until completion and acceptance. The Supreme Court noted in Spearin that the obligation to examine the site did not impose upon the contractor the duty to make a diligent inquiry into the history of the site with a view to determining, at the contractor’s peril, whether the sewer specifically prescribed by the government would prove adequate. The duty to check plans did not impose the obligation to pass upon their adequacy to accomplish the purpose in view. Id.
One way to attempt to shift the burden of which party is responsible for the risk of changing site conditions delaying or impacting the project is to include a site investigation clause in the construction contract. A site investigation clause imposes a limited duty on the contractor to check the accuracy of the specifications and of any descriptions of site conditions. See: W.H. Lyman Constr. Co. v. Village of Gurnee, 84 Ill. App. 3d 28 (2d Dist. 1980); see also Brant Constr. Co. v. Metro. Water Reclamation Dist. of Greater Chicago, 967 F.2d 244 (7th Cir. 1992). That duty may extend to all facts which the contractor gained or should have gained by a reasonable site investigation, and the duty applies whether or not the contractor actually conducted such an investigation. S.S. Mullen, Inc. v. United States, 389 F.2d 390 (Ct. Cl. 1968); Chris Berg, Inc. v. United States, 389 F.2d 401 (Ct. Cl. 1968).
The A201 addresses the contractor’s obligation to perform a site investigations and to familiarize itself with the local conditions in Section 3.2. Section 3.2.1 of the A201 provides “Execution of the Contract by the Contractor is a representation that the Contractor has visited the site, become generally familiar with local conditions under which the Work is to be performed and correlated personal observations with requirements of the Contract Documents.” Section 3.2 goes on to explain what the site investigation obligation entails. Owners should take note that the duty to investigate the site does not necessarily require the contractor to verify measurements, dimensions, or other “positive assertions” made by the owner in the contract documents. Accordingly, if an owner wants to impose this duty on the contractor, and to better enable itself to argue that the contractor should not be permitted to make a claim for extra work if the plans and specifications do not match the conditions in the field, it should modify the general conditions to expressly state the obligations of the contractor to verify measurements, dimensions and to discover other inconsistencies in the plans and specifications.
1.2.4 Patent Defects – Errors Discoverable Prior to Bidding.
The contractor who bids a project may be under an affirmative duty to discover obvious or “patent” errors and ambiguities in the plans and specifications and to call those errors to the attention of the owner before submitting a bid. A party to a contract should not profit from contractual errors or omissions about which he knew or should have known at the time of bid preparation. On that basis, courts may refuse to grant relief to contractors whom they charge with knowledge of flagrant defects or omissions in the contract documents. Newsom v. United States, 676 F.2d 647 (Ct. Cl. 1982).
The determination of whether defects are “patent” depends on the facts of the case. Courts generally limit a “patent defect” to a major discrepancy or error. The discrepancy must be so glaring as to put the contractor on notice that something is seriously wrong with the contract terms, such that the contractor should be or actually is aware of the problem. Id. The existence of a patent defect will, in itself, raise a duty of inquiry regardless of the reasonableness of the contractor’s interpretation. Id. On the other hand, contractors may not be required to spot hidden ambiguities, check tolerances, or add missing information. Blount Bros. v. United States, 346 F.2d 962 (Ct. Cl. 1965).
1.2.5 Latent Defects – Errors Discovered After Contract Award.
Unforeseen problems with the contract documents often arise once performance starts, despite the contractor's best efforts during bidding. Errors, inconsistencies, and discrepancies not apparent during bidding often come to light when construction is underway. Such problems are called “latent” or “hidden” defects because they are not obvious at the time of bidding. During the course of construction, the contractor is normally obligated by the contract to notify the owner of possible defects in the plans and specifications. Regardless of the contract provisions, a contractor should always promptly advise the owner of any defects which the contractor discovers in the plans and specifications. Section 3.2.2 of the A201 makes this an express obligation of the contractor. Such notification allows the owner to determine how to resolve the problem. In the event the defect must be cured by changes in the plans and specifications and extra work is required to resolve the problem, the contractor is entitled to appropriate adjustments in the contract price and completion date. See e.g: W.H. Lyman Constr. Co. v. Village of Gurnee, 84 Ill. App. 3d 28 (2d Dist. 1980).
The distinction between “patent” and “latent” defects may not apply when a contractor has actual knowledge of a defect or omission in the contract documents prior to bidding. See: Newsom v. U. S., 676 F.2d 647 (Ct. Cl. 1982) (holding contractor could not recover for extra work because there was patent ambiguity on the face of the plans and specifications because the specifications required construction at three sites, but the drawing only showed construction at one site). If it can be shown that a contractor bid a project while knowing of a defect or omission, the claim to recover extra costs for resolving the problem may be denied. Id. at 651. Bidders will be bound by their actual knowledge of defects in the contract plans and specifications, when such knowledge existed prior to bidding. Id.
The terms and conditions of the construction contract will determine whether the adverse consequences of a delay encountered in a construction project will be borne by the owner or the contractor. A delay in the progress of the project can lead to change orders and, where the delay is the responsibility of the owner, a change order in favor of the contractor resulting in either an extension of the time to complete the project without penalty, an increase in the amount payable by the owner, or both. Accordingly, this portion of the seminar materials will deal with a number of the provisions in construction contracts that are designed, in part, to allocate the risk of delays, both in terms of time and money, to either the owner or the contractor.
2.1. Commencement Date and Completion Date.
A construction contract generally should identify the date on which the project commences by expressly indicating a specific date or a certain number of days following the contract award. As an alternative to a specified commencement date, a contract may allow an owner to trigger the commencement time by issuing a notice to proceed to the contractor. A notice to proceed provision provides an owner flexibility to resolve problems such as demolishing structures, relocating occupants and obtaining funds, permits and access to the site. BRAMBLE, BARRY B. & MICHAEL T. CALLAHAN, CONSTRUCTION DELAY CLAIMS, § 2.03 (3d ed. 2000). Disputes often arise if the time period between the awarding of the contract and the commencement time is significant, leading to extension requests, claims for additional costs or abandonment of the project. Id. Accordingly, to avoid such disputes, a bid should include an expiration date or the contract should specify a date by which the owner must issue the notice to proceed. Id. Illinois courts have held that a party to a contract that is vested with discretion must exercise such discretion reasonably. Exchange Nat’l Bank of Chicago v. U.S. Fidelity & Guaranty Co., No. 81 C 7119 1985 WL 4067, at *2 (N.D. Ill. Nov. 21, 1985). Accordingly, if the contract does not specify a date by which the owner must issue a notice to proceed, the owner generally must issue the notice in a reasonable time.
A construction contract also should ordinarily specify the completion date of the project, and the contract should provide that the owner is entitled to certain remedies if the contractor does not complete the project within the time allotted (e.g., liquidated damages for each day of delay). The contract should provide, however, that the time period for completing the project is subject to equitable adjustments for reasons such as (i) delays caused by other parties (but not the subcontractors), (ii) acts of unrelated third parties, (iii) force majeure, and (iv) change orders and changed conditions.
Article 3 of the A101 provides for a set contract time, “subject to adjustments of the Contract Time as provided in the Contract Documents.” Unfortunately, the AIA contract documents contain conflicting provisions regarding adjustments of the contract time. Section 8.3.1 of the A201 provides that if the contractor is delayed at any time “by an act or neglect of Owner . . . or by changes in the Work, or by labor disputes, fire, unusual delay in deliveries, unavoidable casualties or other causes beyond the Contractor’s control, or by delay authorized by the Owner pending mediation and arbitration, or by other causes which the Architect determines may justify delay, then the contract time shall be extended by Change Order for such reasonable time as the Architect may determine” (emphasis added). However, Section 8.3.1 also requires that the contract time be changed by Change Order (as defined in the AIA A201) which, as stated above, requires the signature of the owner. Section 8.3.2 provides that claims relating to time shall be made in accordance with the applicable provisions of Article 15 of the A201 (which means that the architect will initially decide the matter, and if the parties cannot agree, such decision is subject to arbitration)2. The parties might consider simplifying this section by stating that the parties will either agree on a change order, based on the architect’s recommendation, or the matter will go to arbitration.
In most construction contracts, the completion date occurs on the date on which the project is substantially completed, which is among the most important dates in the life of a construction contract. The merits of, for example, a delay claim often depend on establishing if and when the contractor substantially completed the project. Accordingly, the contract should define substantial completion, establish the consequences for failure to substantially complete the project, and identify how substantial completion is determined and who makes the determination. Section 9.8.1 of the A201 defines substantial completion as “the stage in the progress of the Work when Work or designated portion thereof is sufficiently complete in accordance with the Contract Documents so the owner can occupy or utilize the Work for its intended use.” Owners may want to make this provision more specific by adding additional conditions to be satisfied in connection with the substantial completion of the project.
2.2. Owner and Contractor Considerations.
The owner needs to have a reasonably certain date upon which to expect completion, and specific deadlines allow the owner to measure the progress of the contractor and provide important evidence for completion-related disputes. However, owners without the proper resources to administer a formal notice process should delete such clauses from their construction contract. In addition, because the parties to a contract have an implied duty of good faith, an owner must be careful not to issue a notice to proceed if the contractor cannot complete the work within the contract time due, for example, to factors beyond the contractor’s control such as weather. See generally J&B Steel Contractors, Inc. v. C. Iber & Sons, Inc., 162 Ill. 2d 265, 278 (1994). If an owner suspects the contractor may be unable to perform the work, the owner does not need to postpone issuing a notice to proceed if the contractor’s inability to perform is within the contractor’s control (e.g., broken equipment). BRAMBLE, supra, at 2-14. Finally, to avoid a circumstance in which a contractor’s delay may cause the owner to be delinquent in delivering a notice to proceed, an owner may want to make the issuance of a notice to proceed contingent upon the contractor having met certain conditions such as providing certificates of insurance, payment and performance bonds, subcontracting plans or a project schedule.
From a contractor’s perspective, the contractor needs to have a basis on which to allocate resources and manpower and to schedule other projects. A contractor also must be careful not to waive or release any claims against an owner by voluntarily extending the bid acceptance period or by accepting final payment on a construction project. See Worden-Allen Co. v. Illinois, No. 2263,1947 WL 3218, at *2 (Ill. Ct. Cl. March 25, 1947). In addition, if an act or omission by the contractor (such as failure to provide certificates of insurance) forces the owner to delay delivering the notice to proceed, the contractor’s delay may constitute an inexcusable delay and may not be compensable. BRAMBLE, supra, at 2-14.
With respect to the completion date, an owner must avoid waiving the completion date by failing to threaten or assess liquidated damages, to object to contractor performance issues, or to respond to a notice from a contractor indicating that it will not finish the project by the completion date. Id. If an owner is deemed to have waived the completion date, the owner may be required to establish a new and reasonable completion date before resorting to its remedies under the contract such as terminating the contract or assessing liquidated damages. Id.
2.3. Extension Clauses.
It is generally accepted that the time for performance may be subject to equitable adjustment based on conditions beyond the control of the contractor. See, e.g., Amp-Rite Elec Co. v. Wheaton Sanitary Dist., 220 Ill. App. 3d 130, 151, 580 N.E.2d 622, 636-37 (2d Dist. 1991). The contract should include clauses which provide that the contractor be allowed additional time to complete a project in the event that a delay is caused by the owner, its agents, the architect or another prime contractor (but not the contractor's own subcontractors). Also, the contract should allow for extensions based upon: general acts of third parties, including common carriers and suppliers; unforeseeable acts of God, including unusually bad weather and earth movement; casualty losses (e.g., fire or explosion) not caused by contractor; labor strikes; vandalism; and war.
To obtain a time extension or to recover additional compensation for extended project performance in connection with a delay, a contractor may have to demonstrate that a delay was critical. See Fru-Con Corp. v. State, No. 86-CC-0870, 1996 WL 1566061, at *23 (Ill. Ct. Cl. Jan. 17, 1996). The determination of whether a construction delay qualifies as critical or noncritical is normally made using the critical path method (“CPM”) schedule analysis, which divides the project into various activities representing discrete work tasks. One sequence of activities is called the “critical path.” A delay involving work on the critical path will delay all subsequent activities on the path and will necessarily delay final completion of the construction project. A delay involving work not on the critical path generally does not affect the completion date and, thus, a contractor generally may not be able to obtain a time extension or additional compensation for extended project performance for non-critical delays. Most attorneys seek the assistance of expert consultants in developing or analyzing a delay claim because distinguishing between critical and non-critical delays can be complicated and a CPM schedule can be manipulated to suit a drafter’s agenda.
2.4. Types of Delays.
2.4.1 Excusable Delays.
The broadest way to classify types of construction delays is to distinguish excusable delays from inexcusable delays. An excusable delay is a delay that is beyond the control of the contractor and should result in equitable adjustment of the performance time under the contract. See, e.g., Amp-Rite, Ill. App. 3d at 151. Excusable delays may include delays caused by (i) the owner, its agents, the architect or another prime contractor (but not the contractor's own subcontractors); (ii) general acts of third parties, including common carriers and suppliers; (iii) unforeseeable acts of God, including unusually bad weather and earth movement; (iv) casualty losses (e.g., fire or explosion) not caused by contractor; (v) labor strikes; (vi) vandalism; and (vii) war. See generally Walsh v. North American Cold Storage, 260 Ill. 322, 329 (1913). If a contractor demonstrates that a delay is excusable, the contractor may be entitled to extend the contract performance time, to recover additional compensation for extended project performance, and to avoid the assessment of damages by the owner depending on whether the delay is compensable.
The terms of the contract generally determine whether a delay is excusable or inexcusable. Relevant contract provisions include the extension clause, the force majeure clause and the scheduling clause. Owners and contractors should review extension clauses carefully.
As noted above, extension clauses might also be called excusable delay clauses because they establish the specific circumstances for which a contractor delay is excusable. A contractor benefits from a broadly drafted extension clause, while an owner benefits from a narrow extension clause that limits the events listed as excusable.
2.4.2 Inexcusable Delays.
An inexcusable delay is a delay that is not excusable under the terms of the contract and generally is caused by the contractor. By contract or by operation of law, the contractor assumes the risks of the costs and consequences related to an inexcusable delay for itself and others such as subcontractors. Inexcusable delays may include (i) weather conditions that should have been anticipated in the contractor’s estimate and schedule; (ii) subcontractor actions; (iii) the contractor’s failure to evaluate the project site appropriately; (iv) inadequate supervision of the project; (v) failure to provide proper equipment; and (iv) removal and replacement of nonconforming work. Inexcusability is used as a defense to requests for time extensions or delay claims.
An inexcusable delay may constitute a breach of contract and allow the owner to recover damages and terminate the construction contract. At a minimum, an inexcusable delay will not entitle the contractor to a time extension or additional compensation for performance beyond the initial completion date.
It is often difficult for owners to establish that a delay was inexcusable because owners typically do not maintain sufficiently detailed schedules or records. As a result, an owner must draft the delay clause very carefully to limit the types of delay that are deemed to be excusable. If an owner does not do this, the contractor will likely be able to make reasonable claims for increased costs or time extensions, since contractors more often maintain detailed records and are in a better position to monitor job progress.
2.4.3 Compensable Delays.
Excusable delays may be further classified as compensable or non-compensable delays. A compensable delay is a delay for which the contractor is entitled to additional compensation for the costs of the delay and, depending on the circumstances, a time extension. See Fru-Con Corp., 1996 WL 1566061, at *23. In order to recover damages, the contractor must show that (i) the owner was solely responsible for the delay, (ii) the delay occurred on the critical path, and (iii) the delay was not concurrent with a contractor delay or excusable delay for which neither party is at fault. Id. Examples include delays resulting from change orders; differing site conditions, work suspensions, defective specifications, lack of site access, delayed shop drawing approval, and late, defective or improper owner-furnished property or equipment. A noncompensable delay is an excusable delay for which no additional compensation is available, although the contractor is entitled to an extension of performance time. Examples of noncompensable delays depend on the terms of specific contracts, but may involve delays relating to strikes, abnormal weather, or acts of God.
2.4.4 Concurrent Delays.
A concurrent delay occurs when there are two or more independent causes of delay during the same time period, although not literally the same time period. The “concurrency” period can be related by circumstances even if the causes do not occur at the same time. Analyzing concurrent delays can be complex. Deciding which event caused a particular delay -- and how long that delay lasted -- involves substantial factual analysis. Different jurisdictions apply different tests for establishing concurrent delay. Ultimately, concurrent delay exists where two or more separate causes led to the same calendar delay. For example, if the owner took 30 days too long to approve steel shop drawings on a building project, the contractor could not properly order the steel and might claim a 30-day delay. But if the contractor was late installing the footings, the steel could not have been installed even if it arrived on time. In this instance, the owner and the contractor provide separate causes for a concurrent delay.
Maintaining detailed construction schedules that establish the start and finish dates for particular activities and field records that identify why a particular delay occurred makes it far easier to identify accurately the cause of a particular delay and its effect on project completion. In this regard, the parties should meet regularly to determine whether a project is on schedule and, if not, whether there are actions that can be taken to bring the project back on schedule. By maintaining open and regular communications, the owner and the contractor likely will be able to minimize the effects of delays. Moreover, clear indications of the time in which each segment of the contract and the contract as a whole are to be performed allow the owner to measure the progress of the contractor and provide clear indicators later for any disputes that arise over completion. Owners and contractors have an implied obligation to not cause delay which will cause harm to the other party, absent contractual provisions indicating otherwise
3. CHANGES AND EXTRAS.
In most cases, some changes to the plans and specifications or the work contemplated by the contract will be necessary before completion of the project because of lack of detail, errors, omissions, improvements, or aesthetic, cost, or other concerns. Changes and extras can create disputes and careful planning in the contract stage is vital. Accordingly, every construction contract should include a change order clause (“Change Order Clause”), which provides the owner with a mechanism by which it is permitted to require alterations or additions so long as it agrees to compensate the contractor for the additional work. If a contract does not include a Change Order Clause, the owner may theoretically be required to enter into a formal amendment of the contract each time there is some need for a change to the plans and specifications or the contract terms.
The Change Order Clause of any contract should establish (a) a procedure pursuant to which (i) Change Orders (as discussed below) are requested/cancelled; and (ii) compensation is determined; and (b) when compensation is payable. With respect to compensation, obviously the parties cannot always anticipate the cost of a particular Change Order, but they can specify the amount of the fee to which the contractor will be entitled. Furthermore, a contractor will want the contract to provide whether there will be any restriction on the type, size, amount or timing of a Change Order. Without such a restriction, the owner could change the whole nature of the project by Change Order. Finally, the parties often agree that all Change Orders will be in writing. This can help reduce the likelihood of future disputes.
The A201 sets forth several procedures by which a party may request changes in the work. They are (i) a Change Order, (ii) a Construction Change Directive (as defined below), and (iii) minor changes in the work.
3.1. Types of Changes.
3.1.1 Change Order.
A Change Order as defined in Section 7.2.1 of the A201, is a written document signed by the owner, contractor, and architect setting forth their agreement with respect to the change in the work, any adjustment to the contract time, and any adjustment to the contract sum. Using a Change Order is the preferred method to request a change in the work, because the agreement of the parties as to the change is set forth in writing. If the owner wants the right to make changes that are not included within the scope of work contemplated by the contract, the owner must specifically set out the owner’s right to do so in the contract.
The specific type of change encountered affects both the enforceability of the requested change as well as the amount that will be paid for such change. As a general rule, an owner may only request changes which are within the general scope of the work described in the contract documents. Under Illinois law, a request falling outside the general scope of the parties' agreement will not be enforceable under the existing contract, but instead will constitute a new contract. Compare Bulley & Andrews, Inc. v. Symons Corp., 25 Ill. App. 3d 696, 701, 323 N.E.2d 806, 810 (1st Dist. 1975) with Kell v. Kosary, 93 Ill. App. 2d 400, 403, 236 N.E.2d 349, 351 (1st Dist. 1968).
In Kell, the contractor initially agreed to construct new living quarters and garage for the owner. The parties subsequently agreed that the contractor would renovate an old garage at the same location. The Court determined that the agreement to renovate the old garage could not be enforced as part of the initial construction contract, because the subject matter was so different, but instead constituted part of a separate oral construction contract. Kell, 93 Ill. App. 2d at 403, 236 N.E.2d at 351. By contrast, in Bulley, the owner modified the type of “rustification strip” used by the contractor, who was held to have consented to an enforceable modification of the contract, rather than to a new contract, because the modification was consistent with the scope of the existing contract. As a result, the contractor was prohibited from seeking additional compensation for the expanded (but consistent) scope of work in the modified contract. Bulley, 25 Ill. App. 3d at 701, 323 N.E.2d at 810.
The courts have provided little guidance for the determination of whether a proposed change falls within the general scope of an agreement or is beyond the scope. One court has defined such changes as those which fairly and reasonably fall within the contemplation of the parties when the contract was executed. Freund v. United States, 260 U.S. 60, 62 (1922).
Another court has suggested that the determination of whether a change is beyond the scope of the contract is a matter of degree and the ultimate determination can be reached only “by considering the totality of the change” both as to its “magnitude” and “quality.” Saddler v. United States, 152 Ct. Cl. 557, 561, 287 F.2d 411, 413 (Ct. Cl. 1961). The United States Court of Claims focused on whether the changes were such that the end product was substantially different from the work the parties originally agreed to provide. J.D. Hedin Constr. Co. v. United States, 347 F.2d 235, 258 (Ct. Cl. 1965).
A change order that falls beyond the general scope of the contract is referred to as a “cardinal change.” Allied Materials & Equipment Co., Inc. v. United States, 214 Ct. Cl. 406, 409 (Ct. Cl. 1978). Cardinal changes are unenforceable and may constitute a breach of contract. In such a situation, the contractor may terminate performance and sue for damages. Id.
3.1.2 Constructive Changes.
The A201 defines a construction change directive (“Construction Change Directive”) as a written order prepared by the architect and signed by the owner and architect directing a change in the work prior to an agreement on the adjustment to the contract time or contract sum. See Section 7.3.1 of the A201. This method is useful when the parties need to expedite the work and do not have time to gather the necessary information on price. Nonetheless, at the earliest possible time thereafter, the parties should finalize the changes to the contract price and time by way of a written Change Order.
A common issue is whether a directive from an owner or the owner's representative constitutes a change at all. An owner may request a change to the procedure or timing of performance as a project progresses. Such situations may result in an increase to the contractor's cost of performance. In these situations, a contractor will want a written change order to document the change so that it can collect additional costs resulting from the directive.
Conversely, the owner's agent will resist issuing a change order in those instances where it is simply altering the timing or procedure for performing an agreed task. See Duncan v. Cannon, 204 Ill. App. 3d 160, 166, 561 N.E.2d 1147, 1151 (1st Dist. 1990) (labor and materials that are incidental and necessary to the execution of the contract cannot be regarded as extra work). The issue of whether extra compensation can be successfully claimed is a fact-intensive question which turns on the extent of the added burden on the contractor's performance and the language in the contract. Any situation involving a disputed constructive change should be carefully documented by the parties, highlighting their communications and the actual impact on performance. In order to recover compensation, a contractor must be able to demonstrate the exact nature of the change and the owner's agreement to the change. Wilmette Partners v. Hamel, 230 Ill. App. 3d 248, 264, 594 N.E.2d 1177, 1189 (1st Dist. 1992); Curran Contracting Co. v. Woodland Hills Dev. Co., 235 Ill. App. 3d 406, 415-18, 602 N.E.2d 497, 504-05 (2d Dist. 1992).
3.1.3 Minor Changes in the Work.
Section 7.4 of the A201 permits the architect to order minor changes in the work not involving an adjustment to the contract sum or the contract time. This could be problematic for the owner because the architect specifically has the power to bind the owner to such minor changes. Accordingly, depending on the degree of control an owner desires to exercise over the project, the owner may desire to modify the contract to provide that the order for minor changes should be signed by the owner and architect.
3.2. Additional Work vs. Extra Work.
Disputes about changes in the work become important when there is a disagreement as to whether work conducted by the contractor or subcontractor is “extra” work or “additional” work. Extra work is work which is outside the scope of the contract contemplated between the owner and contractor and, accordingly, will support a claim by the contractor for additional compensation or additional time to complete the project, or both. North Shore Sewer & Water, Inc. v. Corbetta Construction Co., 395 F.2d 145 (7th Cir. 1968). Additional work, on the other hand, is work which is within the original scope of the contract and stems from the tasks which were originally contracted for. Additional work will not be subject to additional compensation by the owner, but may permit an extension of time to complete the project. Id. As noted above, Change Orders under the A101 and A201 require the parties, by their terms, to reach agreement upon the appropriate adjustment to the time for the contractor’s performance and the contractor’s compensation for the modifications described in the Change Order. As a result, disputes regarding whether work required by an owner under the contract constitutes additional work or extra work generally result from Construction Change Directives and minor changes in the work ordered by the owner or its representatives. The types of modifications owners and their representatives have sought to implement by Construction Change Directives and minor changes has proved to be legion. Some of the more common ones follow: (a) the owner directs the contractor to alter the sequence or timing of its work; (b) the owner seeks to “clarify” contract requirements that are vague or ambiguous with regard to performance standards; (c) the owner’s architect or engineer imposes excessive standards at the time of inspecting completed work; and (d) the owner’s architect or engineer seeks to make revisions to correct or revise arguably defective drawings or specifications. Changes of these types frequently can increase the cost of a contractor’s performance or the time it will take the contractor to complete the project. Most contracts will require the issuance by the contractor of a notice of claim for the extra work associated with a Construction Change Directive or a minor change in order for the contractor to preserve its rights to additional compensation or time.
Accordingly, careful documentation and notice to the owner of the contractor's claim are imperative. Wherever possible, the contractor should carefully detail the ways that the revised work is inconsistent with the original requirements, the impact to the schedule, and the other added costs.
Illinois courts clarified the elements of what constitutes additional work and what constitutes extra work in the 1967 case of Watson Lumber Co. v. Guennewig, 79 Ill. App. 2d 377 (1967). See e.g.: Stark Excavating, Inc. v. Carter Constr. Servs., 967 N.E.2d 465 (Ill. App. Ct. 4th. 2012). In Watson, a contractor built a home with a contract price of $28,206, but full payment was withheld by the owner due to disputes over the construction. The contractor sued to recover the full contract price, and made additional claims for extras which were furnished by the contractor. The court in Watson held that a contractor seeking to recover for extras must establish all of the following elements:
- The work was outside the scope of the contract promises;
- The extra items were ordered by the owner
- The owner agreed to pay extra, either by words or conduct;
- The extras were not furnished by the contractor as his voluntary act; and
- The extras were not rendered necessary by any fault of the contractor. (Watson at 390).
3.3. Illinois Statutes Governing Change Orders.
3.3.1 Illinois Public Works Contract Change Order Act.
In 2004, Illinois implemented legislation which established certain requirements for change orders in connection with construction projects for local government units and school districts. The Illinois’ Public Works Contract Change Order Act (the “Change Order Act”) (50 ILCS 525/1 et seq.) requires units of local government and school districts to rebid change orders that are 50 percent or more of the original price. The Change Order Act became effective on June 1, 2004. The legislative intent of the Change Order Act indicates that its purpose is to rein in contractors who are awarded public works contracts by making unreasonably low bids and then attempt to use the change order process to increase the contract price so that the contract amount will more accurately reflect the actual costs for the project. The Change Order Act applies to construction contracts that meet the following requirements:
- The contract was entered into by a unit of local government or school district;
- The contract authorizes or necessitates any increase in the contract or subcontract price that is 50% or more; and
- The contract is not governed by the Illinois Procurement Code. 50 Ill. Comp. Stat. 525/5.
The Change Order Act leaves open at least two questions Illinois courts have yet to address. The Change Order Act does not address the following issues: (i) if the dollar amount of multiple change orders comes out to more than 50% of the price of the agreement in the aggregate, but no individual change order exceeds the 50% threshold to fall under the governance of the Act, does the project have to be re-bid?; and (ii) if the original contract does not have to be bid, does a change order that exceeds the 50% threshold have to be rebid? The courts or legislature will need to address these issues.
3.3.2 The Illinois Procurement Code.
A second Illinois statute that affects government construction contracts is the Illinois Procurement Code, 30 Ill. Comp. Stat 500/1-1. The Illinois Procurement Code governs state construction contracts and all purchase contracts by or for any state agency.3 The Illinois Procurement Code imposes additional significant bidding procedures on these contracts, including the methodology of the submission of the original bid. Accordingly, change orders which subject the final contract price to rise above a certain dollar threshold are required to receive written permission from the state agency which authorized the bid. 30 Ill. Comp. Stat 500/30-35. The Illinois Procurement Code mandates the government agency responsible for the contract to issue written approval if a contract adjustment exceeds a certain percentage increase in the original contract amount.4
3.4. Procedure for Implementation of Change Orders.
Virtually all construction contracts have provisions requiring a written order signed by the owner for additional work. Nevertheless, Illinois, like most jurisdictions, has carved out an exception to the requirement for a written order where the party has waived it and knew of the change or accepted the work with knowledge of the change. See, e.g., Mendelson v. Ben A. Bornstein & Co., 240 Ill. App. 3d 605, 616-17, 608 N.E.2d 187, 194-95 (1st Dist. 1992) (owner who knew of the change waived written order requirement by not strictly enforcing requirement); Berg and Assoc., Inc. v. Nelsen Signal & Wire Co., 221 Ill. App. 3d 526, 535-36, 580 N.E.2d 1198, 1204 (1st Dist. 1991) (actions or words of parties can waive requirement that written order be required for extra work); Bulley & Andrews, Inc. v. Symons Corp., 25 Ill. App. 3d 696, 703-04, 323 N.E.2d 806, 811-12 (1st Dist. 1976) (owner ordered extra work, was aware that it was extra, and permitted it to proceed without an order, thereby waiving need for written authorization).
A contractor also must guard against following the directive of an owner's representative who does not have the authority to make changes on behalf of the owner. Typically, construction contracts designate the individuals having authority to make changes which are binding upon the owner.
Under Illinois law, a contractor working on a public project acts at its own peril if it follows the directive of an owner's representative who lacks the authority to issue change orders. Illinois imposes a duty upon such contractors to determine the identity of the appropriate representatives. Hagee v. City of Evanston, 91 Ill. App. 3d 729, 733-34, 414 N.E.2d 1184, 1186-87 (1st Dist. 1980) (“anyone dealing with a governmental body takes the risk of having accurately ascertained that he who purports to act for it stays within the bounds of his authority.. . .”). In some circumstances, a contractor may argue that it acted upon the directive of an owner's representative who had apparent authority to act on the behalf of the owner.
4. NOTICE PROVISIONS.
The parties to the construction contract should pay close attention to the notice provisions of the contract. Notice provisions (i) facilitate requests by the parties for possible modifications and revisions to construction contracts including change orders, and (ii) are necessary to facilitate the discussion between owners and contractors with respect to possible delays in the performance of the work and similar issues arising during the construction process. A typical notice provision will provide for the timing of the notice, the person to whom the notice must be given, the manner in which the notice must be served, and the subsequent documentation to be provided by the party giving the notice. Each contract is different, and the specific times and conditions under which notices are required by owners and contractors vary widely. Nevertheless, courts will generally enforce these provisions, which can impose unanticipated adverse consequences on a party that fails to comply with the notice requirements. See generally Sarnoff v. De Graf Bros., Inc., 196 Ill. App. 3d 535 (1st Dist. 1990).
When notice provisions are clear and unambiguous in a contract, courts will normally construe notice requirements in strict accord with their meaning in the contract. Dean Mgmt., Inc. v. TBS Const. Inc., 790 N.E.2d 934 (Ill. App. 3d 2003). Actual or constructive notice has been deemed adequate by courts in regard to contractors seeking additional compensation for work performed under the agreement when the notice provisions of the terms of the agreement were ambiguous. Id. Additionally, courts have not deemed a failure to strictly comply with the notice provisions of an agreement fatal to a claim. Suburban Auto Rebuilders, Inc. v. Associated Tile Dealers Warehouse, Inc., 902 N.E.2d 1178 (Ill. App. 3d 2009). Written notice requirements of change orders have been waived by courts when the conduct of the parties indicates their intent to waive such stipulations. See e.g.: Lempera v. Karner, 79 Ill. App. 3d 221 (Ill. App. Ct. 1979).
Regardless of whether or not a court may impose strict notice requirements on a claimant under a construction contract, careful attention should be given to the notice provisions in a construction contract to assure that the notice requirements are reasonable under the circumstances, and will provide adequate notice to all parties involved without causing unnecessary burden to either party.
The A101 and A201 provide good examples of the importance of notice provisions in construction contracts. As noted earlier, the time the contractor is required to commence the contract can be set by a notice to proceed from the owner. This is contemplated by Section 3.1 of the A101. The A201 includes more than 15 different circumstances under which one party must give notice to the other (including, among others, claims for changes in the work), and the timing requirements with respect to such notices vary. As a result, both the contractor and the owner should refer to the contract regularly to ensure compliance with the procedures for making and preserving claims under the contract. Moreover, each party should consider whether it would benefit to add a single page to the contract that laying out all of the notice rules and deadlines in a single place in a straightforward way. This 15 minutes of foresight could save substantial time and money during the course of construction, and could serve to reduce the possibility of litigation
5. DIFFERING SITE CONDITIONS.
5.1. Site Inspection Clauses.
Contracts generally contain a clause requiring the contractor to review information regarding the site provided by the owner and make a visual inspection of the site. For example, Section 3.2.2 of the A201 requires the contractor to “study and review” information regarding the site provided by the owner and “observe any conditions at the site affecting it.” Generally, the contractor will not be required to identify sub-surface or otherwise hidden conditions. Tectonics Inc. of Florida v. United States, 10 Cl. Ct. 296, 303 (Cl. Ct. 1986). Alternative clauses can shift responsibility to identify sub-surface conditions and shift liability for resulting costs to the contractor.
5.2. Changed Conditions.
In addition to an acceptable site inspection clause, contractors should insist on the inclusion of a differing site and changed conditions clause in the contract. A major variable in construction contracts are concealed or unknown site conditions. Such conditions can result in major changes in the cost and timing of the performance of a contract. As an initial matter, the parties should be advised to inspect the site prior to the commencement of construction to ascertain the condition of the property. In any event, contractors generally desire to insert a clause in the contract that provides that the parties will adjust the price and timing of the contract if the contractor discovers an unforeseen condition. This clause may be refined by describing, to the extent possible, the type of conditions that are included or excluded from the Scope of Work.
If the contractor insists upon adding such a clause, the owner may desire to perform a subsurface investigation and require the contractor to review the results of the investigation prior to the execution of the contract. If a subsurface investigation is performed, the contract should specifically provide that the contractor acknowledges that it has reviewed the subsurface investigation report and take that report into account in making its bid and the subsurface conditions described in the report should not be treated as unforeseen conditions under the contract. In addition, the parties should attempt to list, to the extent possible, any other types of conditions that should be included in or excluded from the Scope of Work. The contract also should include a provision describing how to deal with any changes to the contract required by unforeseen conditions that arise and that have been excluded from the Scope of Work. Section 3.7.4 of the A201 provides generally that if the contractor discovers concealed or unknown conditions, the architect will recommend an equitable adjustment in the contract sum or contract time or both.5 Under this provision, the architect is the initial arbiter of disputes.
This means that the architect will provide the parties with an estimate of any change to the contract sum and contract time, and then, if one of the parties disagrees with the architect’s recommendation, “that party may proceed as provided in Article 15 of the A201.”6 Since these disputes often come up at the beginning of a job (e.g. contractor finds that soil conditions are such that it will be extremely expensive to put in a foundation), the delay can telescope to affect the entire schedule of the job. A disagreement over site conditions often pushes everything back from the beginning of the project. The party that assumes the risk of dealing with differing site conditions can often end up footing a very expensive bill, and it should be clear in the contract how those costs are to be allocated. See Roy Strom Excavating Co. v. Miller-Davis Co., 149 Ill. App. 3d 1093, 1098-99, 509 N.E.2d 105, 109-10 (1st Dist. 1986); Calumet Constr. Co. v. Metro Sanitary Dist. of Greater Chicago, 222 Ill. App. 3d 374, 380, 581 N.E.2d 206, 210 (1st Dist. 1991).
Whether the condition was anticipated is the key issue concerning differing site conditions. Careful drafting of the contract documents will help to alleviate any dispute as to what the parties anticipated. The failure to disclose a condition can indicate its absence. For example, the discovery of a substantial drainage system that was not documented on surveys provided to the contractor was a differing site condition. Horton Indus., Inc. v. Village of Moweaqua, 142 Ill. App. 3d 730, 740, 492 N.E.2d 220, 227 (5th Dist. 1986). Peat pockets which were not indicated by the soil borings provided to the contractor and incorporated into the contract were unanticipated conditions for which the contractor was entitled to recover. Roy Strom Excavating Co, 149 Ill. App. 3d at 1098-99, 509 N.E.2d 105, 109-10. Underlying roofing layers that are not shown on plans have been deemed not indicated and, thus, a differing site condition. Skip Kirchdorfer, Inc., ASBCA No. 22722 79-2 BCA ¶ 14,092, at 69, 313 (1979). Plans which specify the location of utilities in places other than indicated can be unanticipated conditions. Dale Constr. Co. v. United States, 168 Ct. Cl. 692 (1964).
Even in the absence of a differing site conditions clause, the contractor may still be able to recover the costs associated with extra work; however, such recovery is less certain and more complicated. The theory upon which such recovery is based is typically a claim that the owner breached its implied warranty of the accuracy of the plans and specifications. United States v. Spearin, 248 U.S. 132, 136-37 (1913). To recover on such a theory, the contractor generally must prove that affirmative misrepresentation in the plans constitutes either a failure to disclose conditions known to the owner or defective plans and specifications.
The most common form of concealed or differing site conditions involves excavation. The contractor that is performing excavation or clearing work or is working with materials that are not readily observable prior to commencement of the work may find itself shouldering large unexpected cost overruns unless the contract contains such a clause. See, e.g., Illinois Constructors Corp. v. State of Illinois, 45 Ill. Ct. Cl. 124 (Ill. Ct. Cl. 1993). The contractor must review a site carefully and make sure that the owner has taken careful soil borings so that the contractor can adequately estimate the cost of excavation. Even if the owner has provided the contractor with soil borings, the contractor must make sure that those soil borings are accurate. But see, Roy Strom Excavating Co., 149 Ill. App. 3d at 1098-99, 509 N.E.2d 105, 109-10 (subcontractor allowed to recover against contractor based on inadequate borings originally provided by State and incorporated into contract).
As soon as the contractor discovers a concealed or differing condition, the contractor should notify the owner in writing and should not begin any work regarding that condition until agreeing with the owner on how to remedy the condition.
A contract “indication” of a subsurface or latent condition is any statement or information which would lead a reasonable contractor to believe that the condition mentioned or shown will be present or that a condition not mentioned or shown will not be present. The most specific and reliable indicators of subsurface conditions are soil boring logs. Metro. Sewerage Comm’n v. R.W. Constr., Inc., 72 Wis.2d 365, 375, 241 N.W.2d 371, 378 (1976). “Indications” are not necessarily positive or specific; they may be proven by inferences and implications which need not meet the test for certain types of fraud. Foster Constr. C. A. & Williams Bros. Co. v. United States, 193 Ct. Cl. 587, 605, 435 F.2d 873, 881 (Ct. Cl. 1970). They “need [be] only enough to impress or lull a reasonable bidder.” Stock & Grove, Inc. v. United States, 204 Ct. Cl. 103, 133- 34, 493 F.2d 629, 645 (1974). As examples:
- a note in the plans requiring concrete to be placed “in the dry” indicated that the contractor would be able to de-water while excavating and thus excavate “in the dry,” see Foster Constr., 193 Ct. Cl. at 617-22, 435 F.2d at 889-92;
- a provision in the contract allowing the use of compressed air to control groundwater indicated that conditions would allow compressed air to be successfully used for that purpose, see Metro. Sewerage Comm’n, 72 Wis. 2d at 381, 241 N.W.2d at 376-77;
- a specified compaction method indicated that the soil was capable of being compacted to the required density utilizing that method, see Ray D. Bolander Co. v. United States, 186 Ct. Cl. 398, 416-19 (1968). Moreover, express indications of certain conditions indicate the absence of other conditions not mentioned, and the failure to disclose a condition can indicate the condition is absent:
- drawings and specifications of site in original bid documents did not show substantially all of an existing tile drainage system, see Horton Indus., Inc. v. Village of Moweaqua, 142 Ill. App. 3d 730, 740, 492 N.E.2d 220, 227 (5th Dist. 1986);
- location of sewer along curb line, presence of overhead utilities, proximity of private property, and traffic volume indicated that extensive dewatering would be unnecessary, see Metro. Sewerage Comm’n, 72 Wis. 2d at 380, 241 N.W.2d at 380.
One of the most commonly litigated issues in changed conditions cases is the extent to which subsurface conditions of the entire site are indicated by the logs of soil borings, which graphically profile the soil at the precise location of the drill hole. Typically, the reliability for predicting soil conditions beyond the confines of the test cylinder is disclaimed. Erickson-Shaver Contracting Corp. v. United States, 9 Cl. Ct. 302, 304-05 (1985). While it is true that, as an “absolute proposition,” a boring and its attendant log only show the conditions in the drill hole:
We live, however, in a practical world and it is certainly not practical, even if it were possible, to drill every square inch of a proposed construction site to determine subsurface conditions. This fact of life has to be taken into consideration in determining what use prospective bidders reasonably can make of the boring log information furnished to them.
Accent General, Inc., 87-2 BCA ¶ 19,689, at 99,680-81 (ASBCA 1987). Recognizing that soil boring logs are the most specific and reliable indicators of subsurface conditions and that interpolation is inevitable, courts have applied a standard of reasonableness under the circumstances. Erickson-Shaver, 9 Cl. Ct. at 304-05. Factors to consider in determining the reasonableness of the contractor's interpretation of soil boring logs include the number and spacing of the borings, the topography of the site, the consistency or variation of the information conveyed in the logs, the consistency or discrepancy with other subsurface indications in the contract documents, the type of equipment used, the presumption that the soil boring layout was designed by the engineer to give an overall view of the site, and any information that might put the contractor on “inquiry” notice. See, e.g., Alps Constr. Corp., 73-2 BCA ¶ 10,309, at 48,667 (ASBCA 1973) (despite exculpatory language, “a reasonable bidder could infer from the pattern of test holes that they were reasonably representative of the subsurface conditions throughout the construction site generally”); see generally McClure, “Differing Site Conditions: Evaluating the Material Difference,” 15 PUB.CON.L.J. 138 (1984).
Contractors are entitled to rely upon contract indications of subsurface or latent conditions. Roy Strom Excavating Co., 149 Ill. App. 3d at 1098-99, 509 N.E.2d at 109-10; Shank-Artukovich, 13 Ct. Cl. at 354. Reliance is presumed, and will be considered unjustified only if a reasonable contractor should have anticipated the changed condition after a relatively simple inspection of the job site. Alley Constr. Co. v. State, 300 Min. 346, 349-50, 219 N.W.2d 922, 924-25 (1974), Foster Constr., 193 Ct. Cl. at 614, 435 F.2d at 888.
5.3. Material Difference.
No specific rule exists to determine when actual conditions “materially” differ from those indicated in the contract documents. See generally Gregory H. McClure, Differing Site Conditions: Evaluating the Material Difference, 15 Pub. Con. L.J. 138 (1984). Each case depends upon its own particular facts. Factors to be considered in making that determination include design failures or changes caused by conditions, a comparison of estimated and actual quantities, and whether the actual conditions require the contractor to utilize different and more costly construction methods or equipment than reasonably anticipated. See, e.g., Thos. M. Madden Co. v. State of Illinois, 48 Ill. Ct. Cl. 319, 1996 WL 1057736, * 4-8 (Ill. Ct. Cl. May 7, 1996); Maitland Brothers Co., 85-2 BCA ¶ 18,041 (ASBCA 1986); State Road Department v. Houdaille Industries, 237 So. 2d 270 (Fla. App. 1970).
Some courts have recognized that the proper measure of damages in a changedconditions case is an amount equal to the difference between (1) the fair and reasonable cost of performing the work if the conditions had been as indicated, and (2) the fair and reasonable cost of performing the work under the circumstances found to actually have existed. Metro. Sewerage Comm’n, 72 Wis. 2d at 384, 241 N.W.2d at 382.
Sometimes the contract will provide the measure of damages through an “equitable adjustment clause” which may be held to apply to damages incurred as a result of a changed or differing site condition. In such a case, a contractor may be limited in the damages that are recoverable under the contract. See, e.g., Calumet Constr. Corp. v. Metro. Sanitary Dist. Of Greater Chicago, 222 Ill. App. 3d 374, 380, 581 N.E.2d 206, 210 (1st Dist. 1991) (contractor allowed to recover cost of labor plus 15% markup, cost of materials plus 10% markup and the actual cost of equipment).
1 Under the 2007 revisions to the A201, the “Initial Decision Maker” will initially decide the matter, and if the parties cannot agree, such decision will go to mediation. If the parties fail to resolve their disputes through mediation, such decision will go to binding dispute resolution. See Section 8.3.2 and Article 15 of the 2007 revisions to the A201.
2 Under the 2007 revisions to the A201, the “Initial Decision Maker” will initially decide the matter, and if the parties cannot agree, such decision will go to mediation. If the parties fail to resolve their disputes through mediation, such decision will go to binding dispute resolution. See Section 8.3.2 and Article 15 of the 2007 revisions to the A201.
3 Certain exceptions to the Illinois Procurement Act are listed in 30 Ill. Comp. Stat. Ann. 500/1-10(b).
4 When the contract amount is no more than $75,000, the percentage is 9% (maximum $6,750). When the contract amount is between $75,001 and $200,000, the percentage is7% of the amount above $75,000 plus $6,750, but not to exceed 7% of $200,000 (maximum $14,000). When the contract amount is between $200,001 and $500,000, the percentage is 5% of the amount above $200,000 plus $14,000, but not to exceed 5% of $500,000 (maximum $25,000). When the contract amount is in excess of $500,000, the percentage is 3% of the amount above $500,000 plus $25,000. 30 Ill. Comp. Stat 500/30-35(b).
5 The parties should be aware of Section 3.7.5 of the 2007 revisions to the A201, which provides that if the “Contractor encounters human remains or recognizes the existence of burial markers, archaeological sites or wetlands not indicated in the Contract Documents, the Contractor shall immediately suspend any operations that would affect them and shall notify the Owner and the Architect.”
6 Under Section 15.2.1 of the A201, the person making the initial decision may be someone other than the architect.