5.4 Managing Contract Changes
5.4 Managing Contract Changes
The goal of the Contract Manager is to manage change effectively, and in accordance with the contract, to limit impact on the contract and project scope, schedule and budget. Fortunately, the terms and conditions and any special provisions contained in the contract documents will govern the way the parties deal with this change. Complying with and enforcing the provisions of the contract results in a disciplined, transparent, effective and legally binding process for managing change. ((HRS §103D-501 and HAR 3-125 provide legal authority for contract administration clauses on how to deal with changes during performance of goods, services and construction contracts.))The contract clauses mandated by HRS §103D-501 and found in HAR 3-125 are required for use in invitation for bids or requests for proposals and may be used in other contracts subject to HRS 103D. These clauses, provide contract administrators and project managers strong tools to manage changes associated with scope, schedule and price.
Over the course of a contract it may become necessary to make changes to the contract. The changes may be minor, administrative changes or they can be substantial, affecting scope, cost and/or period of performance. It is during post-award administration of a contract that the contract type selected during the market research phase becomes of critical importance. Contract Managers need to manage these based on not only the contract clauses but also the contract type.
Understanding how these two elements work together makes contract administration more effective. For example, it is only under extraordinary circumstances that a price adjustment would ever be warranted in a firm-fixed price contract. A request for price adjustment does not automatically entitle the contractor to more money or more time, as the contractor must demonstrate there actually is a change and that change was not the fault of the contractor and has resulted in increased cost and/or schedule slippage before relief is provided.
There are 2 main types of modifications that may occur in a contract relationship:
- Unilateral Modifications
- Bilateral Modifications
Note: Do not use Constructive Changes as described below:
Constructive Changes are considered any actions or inactions on the part of the public agency that have not been made through formal change order. Constructive Changes cause the contractor to perform additional work outside the scope of the original contract. This type of contract change typically occurs when direction is given to the contractor, or is perceived to be given to the contractor, by someone within the public agency who lacks the authority to order the change. Contractors who begin performance under such circumstance do so at their own risk. State personnel who direct changes of this type would be subject to a procurement violation.
The following sections provide details of these methods of contract modifications and changes.
5.4.1 Unilateral Modifications
A unilateral modification, often referred to as a change order, is one issued by the contracting officer without requiring consent or signature of the contractor. It generally occurs for two reasons:
- The right to unilaterally modify the contract has been given to the State contracting agency in the contract itself, or
- The modification is for an inconsequential change.
The agency’s right to make unilateral changes is pursuant to the changes clause of contract. The agency must stay within its contractual rights of the language prescribed in the term and conditions allowed in the contracts. Common types of unilateral modifications include:
- Issuing of change orders
- Making administrative changes
- Addressing minor clerical errors
- Exercising options in a contract
- Issuing suspension, work/stop or termination notices
5.4.2 Bilateral Modifications
A bilateral modification, also referred to as a contract modification, requires the approval of both parties in signatory form. Generally when used in public purchasing, contract modification is the term used for a change to specifications, delivery point, rate of delivery, period of performance, price, quantity, or other provisions of a contract made within the scope of the contract.
Bilateral modifications are typically prepared by the State agency and forwarded to the contractor for approval. Bilateral modifications generally alter one or more substantive terms of the contract and generally utilize existing contract clauses as the basis for the modification. For goods, services and constructions HAR 3-125 details the specific clauses that must be incorporated into the appropriate contracts to ensure the contract manager has the correct tools to manage contract changes. In all cases, the contract manager should reference the specific language of their contract to understand the tools it has available to manage the contract. Examples include:
- Change Clause
- Modifications Clause
- Changes for Construction Contracts
- Differing Site Conditions
- Default, Delay and Time Extension