Protect Your Right To Payment By Following Nedd

By on July 1, 2022
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In order to preserve your right to payment, you must satisfy the contractual requirements supporting a change order for the increased costs or time due to the delay. The key to the successful presentation of change order claims is educating your team on the following:

1.    NOTICE

  • Review the change order and notice provisions of your contracts. Make your contract searchable and insert the term “Noti” and look for the items listed below.

  • Who:  Check the designated representative for notice.

  • It may not be the project manager.

  • Confirm who can authorize the change order.

  • Is owner approval required?

  • Ensure that the party approving the change order has authority to do so.

  • What:  Check for specific information required by the contract.

  • Provide ALL information available.

  • If certain information is not yet available, state that the information will be provided when available.

  • Reserve all rights to amend and submit additional information.

  • Request both an increase to the Contract Sum and Contract Time.

  • Make the request even if you do not believe the delay or time necessary will cause a significant impact.

  • When:  Check the time deadline for notice.

  • Does the contract provide for waiver if notice is not provided?

  • How:  Check the method for providing notice.

  • Does it require certified mail?

  • Is email sufficient?

  • If email is not proper notice, be sure to issue via the required method in addition to email.

  • IF YOUR CUSTOMER DOES NOT ALLOW A TIME EXTENSION OR REJECTS YOUR NOTICE, respond and provide further notice that you consider the rejection a “Constructive Acceleration” and will be forced to incur overtime and other potential labor, material, and equipment costs.

2.    ENTITLEMENT

  • Prepare and submit an entitlement packet that demonstrates your legal and factual entitlement to a change.

  • Legal Entitlement: Review your contract for clauses that would allow for the recovery of delay and/or acceleration costs, or look for common law options that may invalidate no-damages-for delay clauses such as the delay was “beyond the contemplation of the parties” or if you were “constructively accelerated”.

  • Search your contract for the following terms:

  • “Excusable Delay”

  • Delay

  • God (Acts of God)

  • Epidemic

  • Quarantine

  • No Damages for Delay

  • “Time Extension”

  • “Sole Remedy”

  • “Accelerat” – Acceleration damages are different from delay damages. If you request a time extension and are not granted the extension, you may have a claim for directed, or constructive acceleration.1

  • Factual Entitlement: Prepare a comparison demonstrating the impact on your baseline schedule from your planned schedule.

  • Supplement entitlement packet to substantiate the basis for the change order.

  • Track and document each day of delay through schedules, time sheets, daily reports, payroll documentation, or other project records.

  • Provide updated entitlement packet to support change order request as information is updated.

  • Save the entitlement packet and all supporting information where it can be easily located, updated, and shared.

3.    DAMAGES

  • Track and document amount of actual costs incurred (to the extent possible).

  • Monetary Damages may include:

  • Increased cost of materials

  • Increased cost of labor

  • Increased cost of equipment rental charges

  • Storage of materials

  • Additional supervision or field costs for the extended duration

  • Costs associated with de-mobilization and re-mobilization

  • Lost overhead and profit

  • Costs for extended general conditions, equipment costs, or rental costs

  • Additional bond or insurance premiums

  • Tax implications

  • Document and provide proof of ALL Expenses:

  • Labor – Compare original estimated hours with actual hours delayed or spent in overtime.

  • Use daily time cards, certified payroll, daily reports, or a separate phase code in your job cost accounting to track actual labor delays and impacts.

  • Materials – Gather notices from suppliers relating to increased costs and delays. Gather the invoices and checks showing payment for any increased costs.

  • Equipment – Gather proof of down-time hours through daily time cards, certified payroll, daily reports, or a separate phase code in your job cost accounting to track labor.

  • Be prepared to produce your rental agreement of proof of cost and payment for rental.

  • Overhead and Profit – Cite to contract section setting forth allowable OH&P on changes.

  • Storage, Subcontractor and Vendor Costs – Produce invoices and proof of payment for increased costs resulting from delays and acceleration.

4.    DON’T WAIVE YOUR CLAIMS

  • Check language in ALL lien waivers and ALL payment applications and ALL change orders to make sure (1) pending claims, (2) unpaid contract balances, and (3) unpaid retainage are not waived.

  • Be aware of potential releases included in online payment applications (Textura).

  • Confirm that contract does not provide that acceptance of payment is a waiver of all claims.

  • If it does, consider whether to accept payment.

  • Be aware claim deadlines.

  • Follow dispute resolution procedures in the contract (including time provisions).

  • Be aware of statute of limitations to file lawsuits.

  • Bond and lien claim deadlines.

 

For questions, contact Denise M. Motta.

1 A claim for constructive acceleration arises where (1) there is an excusable delay; (2) you properly request a time extension; (3) the request for extension was denied; (4) you were ordered to complete the project by the original completion date despite the excusable delay; and (5) you accelerated performance and incurred additional costs. A claim for directed acceleration arises where (1) you are ordered to accelerate (perform in a shorter period than originally allowed by the contract schedule); (2) the delays prompting the acceleration were excusable; and (3) you accelerated performance and incurred additional costs.

Filed under Change Orders, Right to Payment

Is The Failure To Comply With A Change Order Notice Provision A Material Breach?

By on June 17, 2015
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Division I of the Washington Court of Appeals recently sought to answer this question. It held that the failure of an owner and builders to comply with a written change order requirement did not materially violate a loan agreement. In Top Line Builders v. Bovenkamp, 179 Wn. App. 794, 320 P.3d 130 (2014) the property owner entered into a fixed-price contract with a builder to construct a custom residence. The owner secured a loan from his bank in an amount sufficient to cover the contract price with an allowance for potential cost overruns. The owner, builder and bank subsequently entered into a tri-party Loan Procedures Assignment and Consent Agreement (“LPA”) which mandated that any change orders resulting in cost overruns would be in writing and would be submitted to the Bank.

Over the course of construction the owner and builder agreed on a number of modifications to the construction plans—modifications which caused overruns. As you can guess, the owner and builder failed to execute the required change orders in violation of the LPA. Following completion of the home the builder moved to foreclose its lien for the balance of the unpaid contract price and overruns. The amount sought, however, did not exceed the total loan amount. The bank, a named defendant, sought to limit the builder’s recovery to the unpaid balance of the fixed price contract by arguing that the bank had no obligation to pay overruns because the change orders were never submitted.

The Court of Appeals ruled that the builder was entitled to the entire unpaid balance, including the amount owed under the change orders. The court held that the failure of the owner and builder to submit written change orders was a technical and immaterial breach of the LPA because “even if change orders were presented to [the bank], it had no right to object or require [the owner] to deposit additional funds.” In short, no harm no foul.

Although the court held that no material violation of the LPA occurred, this ruling should not be construed as an invitation to disregard the terms of your construction contracts. Had the change orders created overruns in excess of the total loan amount, the court likely would have found a material violation of the LPA.

Filed under Breach of Contract, Change Orders, Construction Contracts, Cost Overruns, Loan Procedures Assignment

School District Cannot Withhold Retention When the Only Dispute Is Whether Contractor Is Entitled to More Money for Change Orders

By on April 2, 2015
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In a decision that should be self-evident to most readers, the California Second District Court of Appeals held that a school district could not avoid prompt payment act penalties when the “dispute” it relied upon to hold retention longer than 60 days after project completion was a dispute over the contract price owed to the contractor for change orders and delay and disruption. In East West Bank v Rio School District (April 1, 2015) 2015 DJDAR 3677, the District at the end of the project withheld $676,436 in retention after project completion and after all stop notices were released. It was still holding the retention 10 years after project completion when the trial court issued its decision.

The only dispute after project completion was whether the contractor was entitled to more money for 150 proposed change orders. Pointing out that the purpose of the statute was to prevent public entities from wrongfully delaying the payment of retention, the Court noted that once the withholding was no longer necessary to provide security against mechanic liens and deficiencies in the contractor’s performance the funds should be released.  The District had no business holding the retention hostage as leverage to resolve the other disputed issues. The Court upheld the trial court assessment of the statutory 2% per month penalty.

Filed under Change Orders, Lien, Prompt Payment Act, Stop Notice Releases