Ensuring Clarity and Cooperation: The Essential Elements of a Change Order Procedure in EPC Contracts
EPC contracts are designed for efficiency, but unforeseen circumstances or project refinements can necessitate changes. A well-defined “change order procedure” clarifies how these adjustments are handled, promoting a smooth project flow and minimizing disputes.
Here’s a breakdown of key elements for an effective change order procedure:
Initiating Change: A Two-Way Street
The procedure should explicitly grant both the owner and the contractor the right to initiate changes to the project program or specifications. However, the changes proposed by the contractor should be deemed “reasonable” to ensure they don’t significantly alter the project’s core objectives.
Cost Recovery: Transparency Matters
The procedure should clearly state that the contractor has the right to recover any additional costs associated with approved changes. This cost recovery mechanism should be addressed within the existing framework of the contract,potentially through clauses related to extension of time or force majeure events.
A Roadmap for Change Orders:
The procedure should outline a comprehensive roadmap for handling changes, including:
- Who can propose changes: Clearly define who can initiate a change order request, whether it’s the owner or the contractor.
- Evaluation Criteria: Establish clear criteria for evaluating proposed changes. This could involve factors like impact on cost, schedule, and project objectives.
- Approval Process: Outline the steps required for obtaining approvals for changes. This might involve a tiered approval process depending on the significance of the change.
- Documentation Requirements: Specify the type of documentation required to support a change order request.This could include technical details, cost breakdowns, and impact assessments.
- Timeframes: Define clear timelines for submitting and approving change orders. This helps avoid delays and ensures a timely resolution.
- Pricing Mechanisms: Establish a fair and transparent method for pricing changes. This could involve fixed pricing,unit pricing, or other mutually agreed-upon methods.
- Dispute Resolution: Outline clear procedures for resolving any disagreements arising from change orders. This could involve mediation, arbitration, or other established methods.
Collaboration is Key
The change order procedure should be designed to foster collaboration between the owner and the contractor. By emphasizing clear communication, transparency, and fair cost recovery mechanisms, you can ensure a more efficient and less contentious project delivery process.
Remember: Consulting with a construction lawyer is highly recommended. They can ensure your change order procedure is legally sound, promotes collaboration, and protects your interests throughout the project lifecycle.
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