Change order limitations are sometimes imposed on public works contracts by statute, regulation or the contract itself. The underlying policy is to protect the project budget and the integrity of the public procurement process by limiting the expansion of the contractual scope of work. A limitation typically states that if the estimated cost of a change order exceeds a certain percentage of the original contract price, the additional work must be put out to bid.

Change order limitations can lead to devious tactics, however. In a recent California case a public project owner and its construction manager tried to circumvent a ten percent limit in a site work contract in order to avoid the delay of competitive bidding. New grading work was to be added to the general building contract and the building contractor would sub the work to the site contractor.

The project owner never amended the building contract and the building contractor wouldn’t pay the site contractor for the “subcontracted” work. The owner and CM settled with the site contractor. But when the site contractor sued the building contractor, the purported subcontract was ruled an unenforceable sham.

From the Construction Advisor