1. CONSTRUCTION CHANGE DIRECTIVES UNDER THE NEW PUBLIC BID LAWS Speaker: STEVEN B. LOEB, Esq. BREAZEALE SACHSE & WILSON, LLP Tel: (225)387-4000 steven.loeb@bswllp.com

2. AIA DOCUMENT A201 GENERAL CONDITIONS (2007) ARTICLE 1 GENERAL PROVISIONS § 1.1.1 THE CONTRACT DOCUMENTS Contract Documents include:  a Change Order  a Construction Change Directive  a written order for a minor change in the Work issued by the Architect

3. ARTICLE 7 CHANGES IN THE WORK § 7.1 GENERAL § 7.1.1 Changes in the Work may be accomplished after execution of the Contract, and without invalidating the Contract, by Change Order, Construction Change Directive or order for a minor change in the Work, subject to the limitations stated in this Article 7 and elsewhere in the Contract Documents.

4. ARTICLE 7 CHANGES IN THE WORK § 7.1 GENERAL § 7.1.2 A Change Order shall be based upon agreement among the Owner, Contractor and Architect; a Construction Change Directive requires agreement by the Owner and Architect and may or may not be agreed to by the Contractor; an order for a minor change in the Work may be issued by the Architect alone.

5. ARTICLE 7 CHANGES IN THE WORK § 7.1 GENERAL § 7.1.3 Changes in the Work shall be performed under applicable provisions of the Contract Documents, and the Contractor shall proceed promptly, unless otherwise provided in the Change Order, Construction Change Directive or order for a minor change in the Work.

6. § 7.3 CONSTRUCTION CHANGE DIRECTIVES § 7.3.1 A Construction Change Directive is: a written order prepared by the Architect signed by the Owner and Architect directing a change in the Work prior to agreement on adjustment in the Contract Sum or Contract Time, or both.

7. § 7.3 CONSTRUCTION CHANGE DIRECTIVES § 7.3.1 The Owner may by Construction Change Directive, without invalidating the Contract, order changes in the Work within the general scope of the Contract consisting of additions, deletions or other revisions, the Contract Sum and Contract Time being adjusted accordingly.

8. § 7.3 CONSTRUCTION CHANGE DIRECTIVES § 7.3.5 Upon receipt of a Construction Change Directive, the Contractor shall promptly proceed with the change in the Work involved and advise the Architect of the Contractor’s agreement or disagreement with the method, if any, provided in the Construction Change Directive for determining the proposed adjustment in the Contract Sum or Contract Time.

9. The Public Works Act makes no provision for construction change directives or force account work. ARE CCD’s LEGAL ON PUBLIC PROJECTS?

10. La. R.S. 38:2221 “A. Except as provided herein, no contract shall be let on a cost-plus basis.” The sole exception cited Publicly owned hospitals may purchase materials and supplies through cost-plus contracts entered into with a qualified group purchasing.

11. La. Atty. Gen. Op. No. 94-7 April 4, 1994 The contract provided that extra work shall be paid at the unit prices or agreed prices stipulated in a change order, or that the Owner may require the contractor to do such work on a “force account” basis.

12. La. Atty. Gen. Op. No. 94-7 April 4, 1994 The “forced account” method provided a means of fixing costs based on established hourly rates and overhead when the parties cannot agree to compensation on any other basis.

13. La. Atty. Gen. Op. No. 94-7 April 4, 1994 Although the original public contract is not done on a cost-plus basis, change orders to the contract done on a forced account basis would invoke the cost-plus method to calculate payment which is prohibited by state law.

14. La. Atty. Gen. Op. No. 94-7 April 4, 1994 Therefore, the Attorney General stated his opinion that changes done on a cost-plus basis violate La.R.S. 38:2221, and are null and void.

15. The prohibition against “cost-plus” contracts under La. R.S. 38:2221 extends to any public contract that requires that the contractor receive not only the “cost” but also some “plus” which is typically a percentage to pay for overhead and profit. The prohibition does not include design professional contracts Lafourche Parish Water Dist. No. 1 v. Carl Heck Engineers, Inc., 346 So.2d 769 (La.App. 1 st Cir. 1977)

16. ARE CCD’s LEGAL ON PUBLIC PROJECTS? While no court or Attorney General opinion has been issued directly addressing whether a “Construction Change Directive” under § 7.3 of AIA Document A201 may lawfuly be used on a public works project, the provisions of § 7.3.7 uses cost plus overhead and profit as the method of determining the amount to be paid the contarctor.

17. Further consider the new amendments to the Louisiana Public Bid Law adopted in 2014. ARE CCD’s LEGAL ON PUBLIC PROJECTS?

18. REVISIONS TO LOUISIANA PUBLIC BID LAWS 2014 Act 759 SENATE BILL NO. 468 Effective August 1 2014

19. (3)(a) " Change order " means any contract modification that includes an alteration, deviation, addition, or omission as to a preexisting public work contract, which authorizes an adjustment in the contract price, contract time, or an addition, deletion, or revision of work. LA. R.S. TITLE 38:2211 - Definitions

20. 2014 amendment changes the law so that now any type of modification that alters the contract time or money or revision to the Work falls within the category of “change order.”

21. Change Orders La. R.S. 38:2212 M. (1) All public work contracts shall contain provisions authorizing the issuance of change orders within the scope of the contract. (2) All change orders shall be in writing or in electronic format if the public entity has the capability to receive change orders electronically. All change orders shall be signed by the contractor and the public entity or its design representative.

22. The new Act changes the law  To be a “change order” it SHALL be signed by:  the contractor and  the public entity or its design representative Change Orders La. R.S. 38:2212

23. The new Act changes the law:  Thus, a document. such as a construction change directive (CCD) signed only by the Owner and Architect but never signed by the Contractor, cannot as a matter of law, serve as an authorization to change the “contract price, contract time, or an addition, deletion, or revision of work.” Change Orders La. R.S. 38:2212

24. ARE CCD’s LEGAL ON PUBLIC PROJECTS?

25. MAYBE But only if: the document does not violate the “cost-plus” prohibition under La. R.S. 38: 2221 and the Contractor signs the work directive; or the work directive does not “authorize an adjustment in the contract price, contract time, or an addition, deletion, or revision of work”

26. If the Contractor signs the CCD, then it is a “change order.” The change order should be “lump sum” to avoid the prohibition against “cost-plus.” If the Contractor does not sign the CCD, then the question becomes: Does the document “authorize an adjustment in the contract price, contract time, or an addition, deletion, or revision of work.”

27. SUGGESTED LANGUAGE FOR SUPPLEMENTARY CONDITIONS § 7.3.11 Superseding and replacing any other provision in the Contract Documents to the contrary, the Contractor acknowledges that a Construction Change Directive (CCD) is not a Contract Document, shall not serve as a contract modification, and does not authorize an adjustment in the contract price, contract time, or an addition, deletion, or revision of the Work. However, the Contractor stipulates and agrees to promptly perform any work set forth in a CCD reserving all rights to assert a claim per Article 15. Payment for CCD work shall be paid per § 7.3.9.

28. Steven B. Loeb Breazeale Sachse & Wilson, L.L.P. P.O. Box 3197 23rd floor One American Place Baton Rouge, LA 70821-3197 steven.loeb@bswllp.com Tel: 225-381-8050 Cell: 225-933-7842