Thursday, July 7, 2011
Amendments, Addendum, Change Orders, etc.
In contracting you may have Addendums, Amendments, Change Requests and Change Orders and many times people use the terminology differently. Here’s how I learned the difference between these documents.
An addendum is something that “adds to”. Addendum are most commonly used to describe a document that changes a request for bid or request for proposals prior to their due date. Those types of addendum do not require mutual agreement. You may also have Addendums to the agreement that describes documents that are “added to” the agreement prior to signing. In that case the agreement with the addendums requires mutual agreement.
Attachment. The most common legal use of the term attachment is to describe the process of seizing property to ensure satisfaction of a judgment. A non-legal definition describes something that is added to. For example a contract could have several attachments.
Amendment. The word “amend” means to change, so an amendment is a document that changes an existing agreement and it signed by both parties. Most agreements require that any change to the agreement require an amendment to the agreement that must be signed in writing by both parties. There are exceptions to this where the agreement may contemplate the Buyer being able to make unilateral changes to the scope of the work. Another alternative is when the parties agree to an alternative method to constitute a writing,
Exhibit in a contract sense is a document labeled with an identifying mark (as a number or letter) and made part of the contract to which it is relevant.
Change order. Change Order refers to situations when you have the unilateral right to order a change. For Buyers to have that unilateral right to make changes by change order the agreement must provide that right and include provisions on how the cost of those changes will be established. True change orders are used for work where costs of the changes can be easily established by rates or pre-agreed formulas.
Change request. This describes a request by one part to the agreement to change something in the agreement. In some usages a change request may be titled a Change Order and the nature of the shifts based upon the actions of the parties. When Change Orders are used in conjunction with an agreement that doesn’t provide for a unilateral right of the buyer to make the change, what they really are is change request. The other party has the right to agree or not agree to what is being requested. If they don’t agree and the document if not signed by both parties it has no standing as a contract document. If they do agree and they sign the document, people may call it a change order but what it really is at that point is a later writing that amends the agreement irrespective of what you call it.
Whether you use a change order to make unilateral changes or need to get mutual agreement for every change will depend upon what type of work you are managing.
I negotiated and managed construction contracts at one point in my career and for large projects where you could have several thousand change orders. Many times they required immediate decisions or the work would stop. If you didn’t make and immediate decision work would continue and if you wanted it change you would have to go back and perform rework. If every time you had to wait for the Supplier to agree or if the Supplier could refuse to perform the work, no construction project would ever get done.
My personal preference are
1) Use addendum only for documents that are used in pre-bid or proposal stages.
2) For documents that will be part of the agreement when signed or get added later I would use exhibit or attachment following the convention that it be marked and be made part of the agreement.
3) For documents that require mutual agreement I prefer to call them change requests when they are made and assign an amendment number when they are agreed.
4) For documents that do not require mutual agreement I prefer to call them change order and assign and amendment number when they are issued.
5) I use amendment to describe any document that changes the agreement.
What you call a document needs to be consistent with the Agreement that it is changing. If the agreement requires changes be done by written amendments signed by both parties you should use amendments.
How you manage the documents is important from a contract administration perspective. My preference is to keep change requests separate and track them separate as not all may be agreed. If the agreement said that any changes to the agreement require a written amendment signed by both parties and you wanted to use change orders, the agreement should say that change orders signed by both parties constitute an amendment to the agreement. If they are agreed, you could assign an amendment number to them, rather than track change orders separately from other contract amendments. If you keep it within the amendment process and assign amendment numbers to each approved change order you will have a single historical reference of all the changes that were made to the agreement. If you maintain separate amendments and change orders that would require tracking and assigning a separate change order number for all unilateral and mutually agreed change orders that would be different fro any number initially assigned to it so you don't have gaps in your numbering caused by ones that weren't agreed..
In the event of a dispute frequently you may need to prove exactly what the agreement consisted of at a specific point in time. If you assign amendment numbers and do so promptly after agreement you should have all changes in order agreed making it easier to determine what the contract said on a particular date. If you manage amendments and change orders separately you need to check both to understand what the actual agreement was at that time.
One last consideration is what your contract system will allow you to include and manage. If it allows you to do both you could use both. If it only allows amendment to be tracked then every change order should be converted to an amendment for tracking purposes.