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Change Order

16 replies [Last post]
Tue, 2008-09-16 03:18
Christian Adrian ...
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Dear All

A client issues a change order to the contractor, however the contractor believes that the valuation of the change order is very low. How is the contractor going to address this issue?

a) Accept the change order and submit a claim
b) Reject the change order and submit a full claim
c) Any suggestions/opinions from you guys...

As I am not in the field of contracts/claims, I would appreciate any suggestions, comments, or enlightenment...

Thanks!


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Replies

Fri, 2008-09-19 15:35
#1
Christian Adrian ...
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Mike, Andew & others

Thank you for the comments and information..

Kind regards

Christian
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Thu, 2008-09-18 06:09
#2
Andrew Flowerdew
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Mike,

I doubt I’m the best person to ask advice for on Islamic matters, there are many people out there a lot more knowledgeable than me.

I do get involved in disputes in Islamic countries and thought that I should at least get to grips with the basics. If you find yourself involved you need to ask someone local who is out there, the differences in interpretation between each group can be very subtle but important.

Riba for instance is usually associated with interest payments, (banned in all Islamic countries), but in some places it has a wider interpretation, then does it apply to only personal transactions or business transactions, or both.

Some countries have separated Shari’ah law from Commercial law, some haven’t.

Things vary from place to place and you have to do your homework on each and every occasion.
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Thu, 2008-09-18 05:47
#3
Mike Testro
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Hi Andrew

Happlily my overseas commitments are ended. In the unlikely event that I need your advice on Islamic matters I will approach you on a professional basis.

Best regards

Mike Testro
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Thu, 2008-09-18 04:50
#4
Andrew Flowerdew
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Mike,

I think I advocated the contract being followed a few posts ago. It appears that the contract envisaged this situation and has a procedure for sorting it out - hence follow that procedure is my advice.

A few more things for you to Google, (in the Middle East context):

Riba: Qur’an, Surah 2, Al Baqarah, v 278 to 280 & Surah 4, Al Nisa’ v 161

Gharar: Qur’an, Surah 2, Al Baqarah, v 188 & Surah 4, Al Nisa’ v 29

Good Faith / Honouring your agreement: Verse No 1 Surah Ma-ida & Verse No 34 Surah Isra

Due process: Qur’an IV:135

(A Surah is a ‘chapter’ of the Qur’an – 114 of them)

The exact meaning to a Muslim will depend on what school of teaching they come from: Sunnite, Shi’ite, Wahabbi or Ibadi – and then there’s the sub divisions of these four, (Hanifah, Maliki, Shafi’i, Hanbali, Shi’ah, Zaydi, Sunnis - apologises if I’ve forgotten any), which may slightly change the meaning again.

Each group is to be found in different parts of the world from the Middle East, Africa, India and the Far East. The Islamic world is an interesting place to do business and although I am not a Muslim, if you’re going to do business out there then you have to have a basic understanding of Islam and be aware of the differences.
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Wed, 2008-09-17 14:28
#5
Christian Adrian ...
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Mike

The employer is different from the engineer however the contractor is not allowed to directly communicate to the employer unless going thru the engineer, and you are right that there is no mechanism to refuse doing the change order, as stated in one of the paragraph of contract clause:

“Upon receipt of a Change Order issued by the Engineer, Contractor shall immediately commence such change so that all the dates set forth in the Contract Schedule will be met. Failure to commence any such changes in timely fashion shall entitle the employer to invoke the provisions of the General Condition titled ‘Forfeiture’.”

Andrew

Strangely but I agree with you, here in Middle east you are bonded by your words and in worst cases if you have done badly you could even get blacklisted to the whole GCC countries. However, I am not certain if the employer is a Muslim or not.


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Wed, 2008-09-17 14:23
#6
Mike Testro
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Hi Andrew

I always enjoy reading your input - especially when I learn something new - and I am not being ironic here.

But you are saying that a change order needs two signatures to make it binding - a concept that is applicable in the Middle East or anywhere else for that matter.

If the change order has been imposed by one party and not accepted by the other party then the notion of Riba - Unjustified Enrichment or Usury (I have just googled the word) - will surely apply?

I think this is the situation that started this thread and we may have drifted off the original question.

If the imposed change order is not accepted then the contract claim procedure should be operated.

Best regards

Mike Testro.
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Wed, 2008-09-17 11:29
#7
Andrew Flowerdew
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Mike,

Not exactly, and it would depend exactly in the Middle East where you were, but a signed Change Order with no reservation of future rights will be normally taken to mean that both parties have agreed to what is on it, that is the deal, negotiations are over.

In the Middle East your word is your bond, the signing and dating of a document will vitually always be taken to indicate that agreement has been reached. So unless it says to the contrary, agreement has been reached on all it contains.

Interestingly, if the Employer is a Muslim, he should abide and be guided by the notion of Riba which prohibits illicit gain or unjustified profit and enrichment.

I know foreign contractors that have been caught out exactly this scenario. They have just signed the Change Order and returned it thinking they will be able to do the usual and go back, re-visit and argue over it later. They were disappointed!!!!!
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Wed, 2008-09-17 10:28
#8
Mike Testro
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Hi Andrew

Surely even in the middle east an Employer/Engineer cannot rig a change order by fixing a price for less than the job is worth and get awy with it.

Best regards

Mike Testro
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Wed, 2008-09-17 09:16
#9
Andrew Flowerdew
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Samer,

Because it appears that the contract foresaw such a situation arising and has a procedure in it for dealing with it.

The parties agreed to the contract, hence they agreed to use the procedures contained it it.
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Wed, 2008-09-17 09:08
#10
Samer Zawaydeh
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Dear Christian,

Why don’t you just clarify the situation with the Owner/Engineer through a detailed letter supporting your extra cost for the scope. The more detail you provide, the better your argument is.

If you do not agree, you can always ask to solve the problem through amicable settlement.

If that does not work, then you can seek arbitration. You will need all your supporting documents of course, and a panel of experts will decide on what is just.

Good luck.

Samer
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Wed, 2008-09-17 08:10
#11
Andrew Flowerdew
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Christian,

I think your last post answers the question as what path to follow.

But do not accept the Change Order without reserving your rights to claim additional money/time - actually put something on the sheet of paper that the Change Order is written on to that effect and return it to the Employer along with a covering letter setting out your reasons for disagreeing. If there’s room do similar on the actual Change Order and refer to the letter.

A signed and unqualified Change Order in most Middle East countries is the end of the story. Whats written on it is the work to do and the money you’re going to get paid for it, deal done. There is no going back at a later date and arguing over time or money if you haven’t reserved your right to do so.

It appears in this case, (like alot of contracts), you’ll have to carry out the work and then argue about the money using whatever claim procedure is in your contract.
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Wed, 2008-09-17 08:07
#12
Mike Testro
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Hi Christian

It seems that you are being set up by your employer/engineer to get work done without having to pay for it.

I doubt that there is a mechanism in your contract for you to refuse to carry out any change orders without being in breach of contract.

My advice is to operate the "claim" mechanism immediately and delay the work on the change until the very last minute.

There is no legal system that will allow one party to order work and not pay a proper value for it. In the UK it is called "Unjust Enrichment".

If your contract is being manipulted by the Employer/Engineer to get something done for nothing then you should go for legal judgement.

By the way is the Employer/Engineer one or two different people.

Best regards

Mike Testro
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Wed, 2008-09-17 07:09
#13
Christian Adrian ...
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Dear All

Here is the prelude, previously the contractor was issued a Notification of Change by the employer/engineer and was requested to submit a proposal for the said changes. The contractor then submits his proposal with a total $ value. However, as time passed by the employer/engineer informed the contractor that the Notification of Change will be replaced by a change order. Now that the change order has been issued, the change order $ value represents only the on-site manpower resources under the general requirements yet the descriptions in the change order includes additional scope as well.

Mike here is what stated in one of the contract clause which I believe allows the contractor to do a full claim.

"In the event the contractor does not agree the terms of a Change Order issued pursuant to subclauses 3 and 4 above, Contractor may pursue the matter in accordance with the provision of the General Contract titled ’Claim’. However, notwithstanding any such claim, Contractor shall, proceed diligently with the Change Order work."

Is it wise to accept the CO and then claim the rest or simply reject it then submit a full claim?
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Wed, 2008-09-17 02:18
#14
Karim Mounir
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Hi Christian,

Every change order should be based on a certain methodology of evaluation.
This methodology should be available in your contract (such as value engineering basis,evaluation) clauses in FIDIC.

I believe that it is common from the consultant/client to underestimate your CO evaluation, however if you have the proper papers (such as invoices, QS sheets, day work record,..) then this can assist you a lot.

You can also rely on "amicable settlement" clause in your contract (if available) in order to finalize the issue prior to issuing your claim/arbitration.

Regards,
Karim
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Tue, 2008-09-16 22:20
#15
Alex Wong
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Hi

Am I reading it wrong here, the contractor think the value of the CR is low... still do they want to cover the cost.

I believe in any contract there should be terms and conditions allow the client issue CO or (CR) that is not a claim, simply a change to the project scope. Then you reply with the change impact costing, then if the client approved it, you should include the changes in your schedule.

Just like getting a new order on top of existing order.

HTH

ALex
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Tue, 2008-09-16 17:57
#16
Mike Testro
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Hi Christian

As always it depends on what it says in your contract.

Normally in most forms the client - ot his representative - issues a change order and the contractor prices it - the client then decides to go ahead or not.

Please tell me why you are getting a low valuation and what your contract says if you do.

Best regards

Mike Testro
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