The cost and time to perform change order work may increase as a result of COVID-19 impacts that arise after the change order is agreed upon. The Contractor can include contingencies for that risk in its lump sum pricing, but the Owner will have paid an unnecessary premium if those impacts do not materialize.
Consider utilizing a COVID-19 Rider with your change orders. The Rider details the types of COVID-19 impacts that entitle the Contractor to relief, as well as the specific relief. This allows the parties to use their standard process and format for change orders, with the COVID-19 issues addressed in the Rider. A one-page Rider is often all you need. The primary issues to address in the Rider are discussed below.
Start with key definitions. For example, define a COVID-19 Condition as something attributable to COVID-19 not caused by the Contractor and beyond its control. The definition should list specific items, such as mandates concerning COVID-19 issued by public authorities with jurisdiction over the project and supply chain disruptions due to COVID-19, and include a catchall, such as, “other circumstances concerning COVID-19 not caused by the Contractor or those for whom it is responsible.”
Next, define an Unknown COVID-19 Condition as a COVID-19 Condition the Contractor did not know about, and reasonably should not have known about, as of a certain time. There are three primary choices for that point in time: (1) with respect to each party pricing the change order, when it submits its final pricing; (2) when the Contractor submits the overall, final change order pricing; and (3) when the Contractor signs the change order. Option 1 is best for the Contractor because it is the earliest in time (and thus less will be known and more will qualify as an Unknown COVID-19 Condition). Option 3 is best for the Owner because it is the latest in time (and thus more will be known and less will qualify as an Unknown COVID-19 Condition).
Include language entitling the Contractor to a time extension to the extent an Unknown COVID-19 Condition delays change order work on the critical path.
The Rider should distinguish between direct costs (such as materials, equipment, shipping and labor) and field overhead costs (i.e., general conditions and general requirements). Include language entitling the Contractor to additional compensation to the extent the direct costs for the change order work increase due to an Unknown COVID-19 Condition. Include a reference to the final proposal on which the change order is based so that a comparison can be made.
A hotly contested issue is whether to allow additional compensation for extended field overhead costs if an Unknown COVID-19 Condition delays change order work on the critical path. In support of not compensating for those costs, Owners often characterize COVID-19 as force majeure and point to the fact that, traditionally, force majeure entitles the Contractor to additional time, but not money. Contractors frequently counter by stating all delay attributable to an Owner-directed change is compensable. If you are trying to break a log jam on this issue, consider a compromise, such as compensating the Contractor only to the extent the delay exceeds a certain number of days (i.e., the first X days of delay are not compensable), paying for the additional field overhead costs with no markup for fee, paying only for the non-personnel portion of the additional field overhead costs (e.g., trailer, scaffolding and crane rental), or some combination of these concepts.
The party seeking relief generally carries the burden of demonstrating its entitlement to the relief and the amount. An Owner may want to memorialize this point in the Rider by stating the Contractor has the burden of demonstrating the existence of an Unknown COVID-19 Condition, and to the extent it seeks additional time or money, that the condition caused the delay and increased costs.