National Institute on The Law of Public Contract Award to Appeal || Changes, Changed Conditions,...

Changes, Changed Conditions, Suspensions and DelaysAuthor(s): Harold GoldSource: Public Contract Law Journal, Vol. 2, No. 1, National Institute on The Law of PublicContract Award to Appeal (October 1968), pp. 56-65Published by: American Bar AssociationStable URL: http://www.jstor.org/stable/25753740 .

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56 NATIONAL INSTITUTE : AWARD TO APPEAL

but also of government, can be prime movers toward this goal. Thank you

very much.

Current Developments and Problems

Unique to the Construction Contract

chairman Mr. Spector: I will just take 30 seconds or less to introduce the moderator of this after noon's program. You have already met him; he was a guest at the head

table at the luncheon and I introduced him at that time. Mr. E. K. Gubin

practices law here in Washington. He has lectured and has written exten

sively in this field of Government contracts. When I mentioned this morning that in this age of overspecialization, there was one firm that specialized in con tract terminations, I was thinking of him. Mr. E. K. Gubin.

moderator Mr. Gubin: After hearing these two jokesters at lunch today, I decided to tear up any stories I would normally use, and also because of the lateness of time, to

jump right into our most intriguing afternoon session, which pits the law firm of Gold and Orlandi against that of McWhorter and Morris, on the

subject of "Current Developments and Problems Unique to the Construc tion Contract." None of these gentlemen will get any introduction from me, because as you have heard before, their introductions are all in the book. Would you all turn to page 29, and with baited ears listen to the golden

tongue of our next speaker, Harold Gold.

Changes, Changed Conditions, Suspensions and Delays Harold Gold Counsel, Naval Facilities Engineering Command, Washington, D.C.

speaker Mr. Gold: Thank you, E.K. I might say, that's as good an introduction as you have

given me at any time.

Trow vom Baur said this morning, among other things, that Washington



CHARLES: LUNCHEON ADDRESS 57

was a peculiar town, that nobody told any jokes around here, that when he was in New York he used to hear about two a day. It seems to me, then, that

just as beauty is in the eye of the beholder, jokes are in the ears of the listener. Nonetheless, I am not going to be frustrated and throw myself to the

ground.

The construction business is one of risk. In a sense, despite the common characteristics of certain types of construction and the repetitive aspects of the same general type of structure, the performance of the individual con struction contract and the finished structure that results is unique. It is the

product of a particular timeframe, a specific site and the vicissitudes of both nature and of man. The longer one is exposed to the vagaries and the un certainties inherent in the construction business, the more, I believe, is the

respect developed for the members of the industry who keep working at it, regularly and earnestly.

Lest those who have known me over the years are induced to believe, from the foregoing statements, that I have suffered a case of "softening of the brain/5 let me hasten to add that I am not at all certain that there is any

measurable relationship between the risks inherent in the construction busi

ness, the general methodology by which construction bids are prepared, and the language of the articles in the Standard Form of construction contract that we are considering here today. If that sounds like an extravagant over

statement, I would like to suggest to the lawyers and contract administrators in the audience that they resort to a little experiment to test its validity. Any

one of you can get together with the contractor's representative who is

charged with the preparation of a bid for a proposed Government construc

tion contract. Tiy to ascertain from that individual, first, what he under stands to be the contractor's rights and responsibilities under the Changes Article, the Changed Conditions Article, the Delays-Damages Clause, and the Suspension of Work Clause. If his answers demonstrate an understand

ing of the clauses, or even a knowledge of their existence, try to ascertain what amount is included in the bid to reflect the contractor's rights and

responsibilities under such clauses. If the quiz program is not over at that

point, then I suggest asking the man who prepares the bid what modifica tions would be made in the bids if the Changes Article in the proposed con

tract were modified to overcome the "Rice Doctrine," or if the changes we

will consider today affecting the "Changed Conditions" Article and the

Suspension of Work Article were effected. I submit that you will find your self probably deeply involved in a classic case of "theory v. reality." How

ever, the purpose of this session is neither to bury nor to praise, but to dis

cuss?and I quote from the "Gospel according to Spector" in your program: "Our subject is the new Federal Standard Clauses and prediction as to their

impact upon the administration of public construction contracts."

Bill Orlandi will follow, discussing some of the problems inherent in these



58 NATIONAL .INSTITUTE: AWARD TO APPEAL

changes from the Government's point of view. John McWhorter and Stanley Morris will deal with them from the contractor's point of view and from the

surety point of view, respectively. However, to set the scene, I will discuss the changes that are being made in the clauses. In the outline which you have been furnished, you will find under my by-line?sometimes in rather

cryptic, outline language?a primer on the Changes, Changed Conditions, and Suspension of Work Clauses in the Standard Form 23-A, before and after 1 February, 1968. I will attempt to avoid undue repetition of the ma terial in the manual. Rather, as the lead-off member of this panel and to set the stage for my colleagues and fellow participants, I would like to devote the remainder of my time to highlighting the modifications which have been

made in the clauses. Before doing so, and at the risk of boring those in the audience who may have heard it before from others, a bit of background.

In June of 1964, the General Services Administration initiated a study of the problems encountered in the administration of construction contracts. A study group, made up of representatives of most of the major contracting agencies, made an intensive review and analysis of the problems and filed a preliminary report on 1 March, 1966, making proposals for changes. These

proposals were submitted for comment to Government agencies, to construc

tion industry representatives, professional Bar groups, and interested individ uals. In the light of the comments received, the study group submitted a

supplemental report on 8 May 1967, which set forth additional modifications. Then ultimately, on 22 November 1967, the Administrator of GSA pub lished the revised clauses in the Federal Register (Volume 32, No. 230, pages 16269-70) indicating that they were to be "effective February 1, 1968, with respect to all invitations for bids and requests for proposals initiated on or after that date, but may be observed earlier." I now refer you for further

study to that Federal Register citation, because along with the regulation indicating the changes, they have included what they call an appendix, which sets forth the background and nature for revisions to the contract clauses. During the course of the study group's deliberations, they reached the conclusion that it would be desirable to create a legislative history, so

called, which could be available for future use for interpretation problems, to set forth at least the intent of the drafters of the new clauses. Whether this will help or hinder remains to be seen, but you should be familiar with them.

Now, it might be said, by one having a penchant for historical labels, that the principal modification effected in the Changes Clause might be regarded as the termination of the "Hundred Years War Minus Ten." That would be a euphemistic way of stating that the Changes Clause in the Government contract, now just about a hundred years old?the citation is McCord v.

U.S., 1873?and the Rice Doctrine, having its genesis in the Chouteau case back in 1877, have now been brought into conformity with current concepts



gold: changes, changed conditions, suspensions, delays 59

of equity and fairness in Government contracts. Some might say that the "mills of Gods" do, indeed, "grind slowly."

Now, the study group's stated objectives in revising the clauses included the following points, not necessarily in the order of their importance:

1. Clarification of the authority of the contracting officer with respect to the making of changes.

2. To give express recognition in the contract document itself of the doctrine of constructive changes.

You heard vom Baur this morning discussing the conception of construc tive changes. This removes the constructive changes doctrine, if you will, from the determination arena, the interpretation by courts and boards, to the contract itself. It gives a view, if you will, to the constructive change in the contract. To answer as an aside a question which was asked of me

earlier in the day, I want to make it clear that the clauses we are talking about here are applicable to the construction contract and it alone. The sup ply contract has its own problems which are not dealt with per se in these

changes. The third stated objective?and I think from the point of view of the

contractors in the industry, as I have heard their complaints voiced over the

years, particularly since 1957?is the elimination of the adverse effects of the Rice Doctrine, insofar as it has been interpreted not to include appropriate consideration of the effect of a change upon affected aspects of contract work not specifically covered by the change order. And fourth, clarification and revision of the notice requirements imposed by the Government on the contractor.

I might say, incidentally, that some of the seminars I have participated in on this subject, one of the contractors who has a penchant for Biblical statements said of the changes made in the changes clauses, "What the Gov ernment giveth on the one hand, the Government taketh away by the notice

provision.' I am prepared to debate that with my friends on my right.

Underlying these basic objectives was the study group's desire to redis

tribute the economic risk for changes and differing site conditions, and to

facilitate administrative adjustment of claims under the construction con

tract, thereby tending to minimize the problem of "frationalization of rem

edy" that you heard of this morning. The principal substantive revisions

which are made in the three clauses you are here to consider, are in the

Changes Clause itself, although with respect to the other two clauses there are changes in their titles and some revisions of language.

Now, as to the Changes Article, each of you should now have a copy of

the revised Changes Clause which I neglected to have included in the writ ten material in your manual. You may find it helpful to follow the language of the new clause as I attempt to highlight the major changes that have

been made. Paragraph (a) of the new clause provides authority to effect



60 NATIONAL INSTITUTE! AWARD TO APPEAL

a change by "written order designated or indicated to be a change order." The clause requires a label of a written order, that it is a change order.

The work in the change order has still to be within the general scope of the contract, and sets forth by way of illustration the specific categories of

changes intended to be covered. The stated purpose of this revised language is to extend the operation of the Changes Clause beyond the old "drawings and/or specifications" language, which was in the old clause, to include other

changes in the order, such as changes in the method or manner of perform ance, not necessarily in some agencies, covered in the specifications, in the

provision of sites and services or, indeed, the requirement of acceleration in

performance. Each of these would be recognized as a change in the work. The "cardinal change" doctrine, about which you may read in the manual, still remains in effect?and this means that if a change is not within the gen eral scope of the contract, it would still be not covered by the changes article but would provide the basis for a claim in breach of contract in the Court of Claims.

The study group also pointed out that the revised scope of the Changes Clause does not eliminate the necessity for or the efficacy of a Suspension of Work Clause, since mere delay in furnishing the site, for example, would not be a change but would still be covered by the Suspension of Work Clause if the delay is compensable. Similarly, deceleration actions not related to a

change, or unreasonable delay in the issuance of a change order, being in the nature of a suspension, delay, or interruption, remain within the coverage of the Suspension of Work clause and not in the revised changes article.

Now we come to paragraph (b) of the clause, which is completely new. It provides, as I said earlier, the contractual coverage for "constructive

changes." Lest there be some misunderstanding, what we are talking about

here is a situation in which the contracting officer's representative says or

does?takes some action which he does not regard as a change, which then creates a dispute as between him and the contractor and which ultimately is determined by the board, for example, to have been a change. Then, under the doctrine that it will do what the contracting officer should have done in the first place, the Board will direct the issuance of a change order in its decision. That's what we are talking about in the constructive changes area. This paragraph (b) provides that other?that is, other than a written order, which is designated as a change order?other written and oral orders (in cluding they say directions, instructions, interpretations or determinations) from the contracting officer, which cause a change in the work that is within the general scope of the work, will be treated as a change order, provided that the contractor gives written notice that he regards such order as con

stituting a change. This is referred to in the appendix of legislative history, if you will, as the "apprisal notice." The contracting officer is advised by the contractor that his word or deed is regarded as a change, even though he,



GOLD: CHANGES, CHANGED CONDITIONS. SUSPENSIONS, DELAYS 61

the contracting officer, has not so labelled it. It should be pointed out that the notice requirement in this paragraph,

as well as the subsequent 20-day requirement is intended to mitigate against the practice of presenting claims based on "constructive changes" long after the work has been done, and at a time when the Government may have

difficulty in not only adequately assessing the claim, but in dealing with it. While we are on the subject of notice, and so that you understand that

the imposition of the notice requirement is not a matter of mere whim or

whimsy, I would like to digress for a moment to emphasize and underline the need for adequate notice to the contracting officer, not only in the Changes Article but in the other articles of the construction contract. What I have to say applies particularly to construction in the Department of Defense, but it is applicable to almost a comparable degree in the construction operations of the civilian agencies. Military construction projects authorized by the

Congress are the product of a process which involves the Department of

Defense, the Bureau of the Budget, the Armed Services and Appropriations Committees of both the House and Senate, and then ultimately the signa ture of the enacted Bills of the President.

The specific projects involved are specified in the Acts as "line items" and have specific appropriations allocated to them. A contracting officer operat ing under such an authorization and appropriation for a project must com

plete the job within the restraints of such authorization and appropriation. Accordingly, if in the performance of the construction a situation arises, such as a "constructive change," a "changed condition," or a "suspension of

work," which may be the basis for additional compensation to the contractor ?and therefore diminish the funds otherwise available?the contracting offi cer must be apprised of such claims so that he may make the necessary ad

justments in the project to enable him to assure its completion within the limitations of his authority and money.

Continuing with our analysis of the clause, paragraph (c) provides that "no order, statement, or conduct of the contracting officer shall be treated as a change" except as specifically provided for in the clause itself. This

means that only those "constructive changes" provided for in paragraph (b) may be considered under the Changes Clause. This is designed, if you will, to avoid the pyramiding of the concept of constructive changes. However, it does not preclude the contractor in other cases from seeking relief under some other contract clause that might be applicable. For example, you have

the Suspension of Work Clause, or in the courts for breach of contract.

Paragraph (d) is the equitable adjustment provision. It attempts to make

clear that if a change effected under the clause causes an increase in the cost of or in the time required for the performance of any part of the work, "whether or not changed by any order," an equitable adjustment is to be

made. This is probably the most important revision in the Changes Clause.



62 NATIONAL INSTITUTE! AWARD TO APPEAL

The inclusion of the phrases "any part of the work" and "whether or not

changed" is intended to eliminate the Rice Doctrine and to provide that

delay costs which result from or are caused by a change, either ordered or

constructive, will be considered in arriving at an equitable adjustment of such

delay was the "necessary, reasonable, and foreseeable result of the change." I would like to observe, parenthetically, that except for defective specifica

tion situations, the revised Changes Clause will continue to have no ap

plicability to any delay prior to the issuance of a change order. An adjust ment for such type of delay, as appropriate, will be under the Suspension of Work Clause.

Another important revision in the equitable adjustment provision in para

graph (d) is the provision that a contractor who seeks relief in a construc

tive change situation, not involving defective specifications, cannot recover

for any costs arising more than 20 days prior to his furnishing the apprisal notice required by paragraph (b) of the clause. This 20-day period of cost

limitations, I might point out, is similar to that which has been applicable to the Suspension of Work clause in use in the armed services ever since 1960.

I don't think that we have had the kind of problems that caused vom

Baur to predict that its use in this clause will be so ineffective and will prove so useless that it will be soon withdrawn. It is important to remember also that the clause makes no provision for waiver of this 20-day limitation.

Now, the exception for defective specifications from the 20-day require ment was adopted because of the special circumstances involved in such cases of defective specifications, in which the contractor is directed to con tinue work under specifications which are subsequently found to be defec tive. However, in constructive change orders involving defective specifica

tions, the apprisal notice required by paragraph (b) must be given. Further

more, the equitable adjustment for such defective specifications are limited to the costs reasonably incurred by the contractor in attempting to comply with defective specifications for which the Government is responsible and not the contractor. Where a contractor continues to incur costs after he

knows the specifications are defective, it would seem clear that such costs would not be reasonable costs under the language of the clause.

Before leaving the equitable adjustment provision, it should be noted that the "Truth in Negotiations Act," of which you will hear more later, is ap plicable if the amount of the equitable adjustment is over $100,000. In other

words, despite the fact that the original contract was awarded on the basis of formal advertising, and therefore the original contract, though greater in amount than $100,000, would not have been subject, an equitable adjust ment under the change order which involves more than $100,000 will be

subject to the "Truth in Negotiations" requirement. Now, because the old changes clause had no reference to constructive



gold: changes, changed conditions, suspensions, delays 63

changes, it did not cover the furnishing of an apprisal notice or of a claim statement in such cases. In effect, the old clause merely required the con tractor to submit a notice of intent to assert a claim where a change order is issued. Also, there was no specific requirement to provide information on the nature and extent of the claim. The requirement for such information in the new clause is expected to enable the contracting officer to evaluate a claim

properly, particularly in a constructive change situation, and would take such action as may be appropriate in the circumstances.

A further revision in the clause concerns the authority to extend the time for the filing of a claim. Under the old changes clause, the time for sub

mitting a notice of claim could be extended by the contracting officer; the revised clause places this authority in the government, instead of the con

tracting officer. This change is intended to eliminate the problem as some

people saw in the law, as to whether a contract board of appeals could extend the period if they determined that the Government had not been

prejudiced by the delay. It is made clear now that when an extension is

granted by the Government, it includes all authorized representatives of the Government.

Paragraph (f) provides that "no claim by the contractor for an equitable adjustment hereunder should be allowed if asserted after final payment under this contract." The meaning of this provision is quite self-evident.

Attention is invited to the fact that there has been omitted from the revised changes clause the following language which had been in the old clause.

"If the parties fail to agree upon the adjustment to be made, the dispute shall be determined as provided in Clause 6 of the General Provisions; but

nothing provided in this clause shall excuse the contractor from proceeding with the prosecution of the work as changed. Except as otherwise provided in this contract, no charge for any extra work or material will be allowed."

According to the appendix which accompanied the issuance of the new

clauses, these provisions of the old clause were deleted for the following rea

sons: (a) because the existence of an administrative remedy is established

in a disputes situation by the Disputes Clause itself; there is therefore no

need to reiterate in clauses covering particular aspects of the contractual

agreement the availability of that remedy. It is also noted that the deletion

of a separate disputes provision from the Changes Clause, or from the dif

fering site conditions or the Suspension of Work Clause, does not alter or

diminish in any respect the applicability of the Disputes Clause or the juris diction of the administrative boards. The contractor is obliged to continue

work pending resolution of the dispute. The final sentence of the old clause relating to "extra work or material"

has been deleted as unnecessary, since the revised clause covers all applica tions for adjustment thereunder, whether based upon a change order or a



64 NATIONAL INSTITUTE: AWARD TO APPEAL

constructive change. So much for the Changes Clause itself. With respect to what used to be known as the "changed conditions" arti

cle, the framers of the new clauses felt they would become purists, and they said that the conditions didn't really change, that they were there all the time. Therefore, rather than say "changed conditions," it would be more ap

propriate to use the word "Differing Site Conditions." Then they made some relatively minor provisions in the clause, apart from, obviously, the

overcoming of the Rice Doctrine language. The "Differing Site Conditions" clause includes a "whether or not

changed" phrase to make the scope of the equitable adjustment under this clause compatible with that of the Changes Clause overcoming the Rice Doctrine. The requirement in the Differing Site Conditions Clause, that no

claim will be allowed unless the required notice is given, now provides that the time within which such notice must be filed?such as, "before such conditions are disturbed" in the introductory language?may be extended

by the Government. The purpose of this modification is to expressly permit consideration of a claim even though notice is not given and to continue

application of the so-called "no prejudice to the Government rule" in appro

priate cases. As in the Changes Clause, the time extension may be made by the "Government" rather than being limited to the "Contracting Officer."

The last clause we have to consider is the Suspension of Work Clause. You will note from the outline that the old clause had a long name?price adjustment for . . . et cetera. It was commonly referred to, of course, as the

suspension of work clause. It was in part patterned on the suspension of work

clause, that the Corps of Engineers of the Army had begun to use back in World War II. The difficulty that some people found with the title of the old clause that existed before Febuary 1, 1968, was that if you went to some of the published contract services and you wanted to look up in their indexes cases on suspension of work, you couldn't find them, because the clause did not bear that label. Hence the change in the title of the clause.

In addition, with respect to the adjustment, there have been some tech nical and editorial revisions. The reference to "without the fault or negli gence of the contractor" which appeared in the old clause in the first sen tence was deleted and added to the second sentence. In addition to stating that no adjustment shall be made for delays due to "other causes," the latter sentence also excludes delays for which an equitable adjustment is provided or excluded under any other provision of the contract. Accordingly, a con

tractor cannot claim delay costs for suspension in connection with a change order covered by the Changes Clause. For the same reason I pointed out in the consideration of the Changes Clause, the old language in both the

Changed Condition Clause and the old Suspension of Work Clause referring to the Disputes Article has been deleted as being unnecessary. Now, to conclude, although my presentation has been billed as a discus



GOLD*. CHANGES, CHANGED CONDITIONS, SUSPENSIONS, DELAYS 65

sion of the clauses from the Government's point of view, I trust that you have not found, me giving you the equivalent of an impartial history of the Civil War as told by a Confederate General. Thank you very much.

moderator Mr. Gubin: We will now hear from another distinguished member of the Government's

team, William R. Orlandi.

From the Government's Viewpoint William R. Orlandi Deputy General Counsel, U.S. Army Corps of Engineers, Washington, D.C.

Ladies and Gentlemen: My part in the program is to discuss some of the

problems which will grow out of the implementation of the revised clauses which were covered by Mr. Gold. As lawyers, we know that substantial

revisions, such as have been made in these clauses, will obviously upset many of our precedents and interpretations which had general acceptance among us in the past, and will put us in an entirely new ball game where a great deal of new law will be generated in the years to come. Therefore, I can only look into a crystal ball and speculate on a few of the problem areas which

we expect to develop. I might observe that the speculation about some of the problems which I will cover is, in my estimation, the reason why it took so long to revise these clauses.

I wish to make it clear, that while I am talking about the difficulties these revisions will cause the Government, I am not advancing a case against the revisions themselves. These revisions in my opinion are fair and equitable, and I feel that in the long run they will result in better and more realistic

pricing of construction. This is so because of the removal of a major con

tingency factor from the contractor's estimate of the work. Of course, this

conclusion is most difficult to prove, for when we talk about contingencies we

are talking about a practice which is generally conceded to exist but little

is known about the extent of its actual use. There is no way to authorita

tively establish the extent of contingency bidding that has occurred in the

past to protect the bidder against impact costs under the old changes and

changed condition clauses. Bidders are not required and do not disclose how they have prepared their

bids. While we have no authoritative figures on contingency bidding, there



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