WOLAITA UNIVERSITY

Procurement And Contract Management

Contract Change
Management
Betelhem A.
December 2019
 Contract Changes Management

The two most important issues considered in contract

change management are Uncertainties and Changes.
Uncertainties: are issues that can be either
difficult to reasonably predict or unknown
during the planning phase of procurement
and contract management.

Changes: are issues require alterations

during the implementation phase of
procurement and contract management.
 Information
Influence and
Uncertainty
Cost

Project Project Project Ti

Formulation Implementation Completion
Phase Phase Phase Time
Uncertainties are multi-dimensional. They
can be Information related, and / or Time
based, and / or Ambition related; etc. Besides,
they deal with complexity, risk, opportunity,
ambiguity and confusion associated with the
project under consideration.

For instance, when uncertainty is understood

as the difference between the amount of
information required to perform the task and
the amount of information already available by
the planning team.
Uncertainty is higher in the early phase and
reduces through time by getting more and
better information.

Uncertainty is not only related to the future

but also the knowledge of the past as well,
that is; information records and experience.

Uncertainty can never be eliminated.

Therefore, all projects will be planned under a
certain level of uncertainty. That is why
changes occur during implementation.
Uncertainties can be mitigated using the
following four interventions used in project
contracts:

Absorbing: Understanding projects are

planned under uncertainty and changes are
expected during implementations imply
alternative provisions for implementation
phases such as Contingencies, which are made
and used to absorb changes caused by
uncertainties.
Dividing or Splitting: When a project
uncertainty is high or there is less past
experience, dividing projects into packages or
different phases in order to make them smaller
in sizes and their complexities, etc is to divide
or split to reduce risks due to uncertainties.

Postponing: When Contracts could not clearly

state specifications, quantities and estimates;
they often place Provisional Quantity or
Provisional Sum to postpone uncertainties.
Transferring: Lump Sum Contracts, DB and
BOT delivery systems are some form of
contractual approaches to transfer uncertainties
from Owners to Providers.
Requirement Changes Management Systems

Clauses 51 and 52 of the General Conditions of

FIDIC Red Book provided provisions for
Alterations (Additions and Omissions) to enable
Project Owners use the Engineer (the Consultant)
to make requirement Changes.

They can cause review of designs and / or

create additional or changes in designs and /
or just work orders to instruct contractors to
carryout the requirement changes.
While project owners retain the right to
requirement changes, the contractor is obliged to
accept as per the conditions of the contract.

However, the contractor is entitled to request and

agree upon new or existing rates for such
changes.

Change Orders are written instructions, agreed

by the Project Owner or His Representative,
directing the Project Doer to make changes.
There are three kinds of Change Orders:
Unilateral Change Order: provides the right to any of
the parties to make changes without causing any effect
on the other parties or disrespecting any laws, regulations
and rules binding the contract and itself
It requires notification to the other parties for knowledge.

Bilateral Change Order: Requires the agreement and / or

consent of the two contracting parties (the Project
Owners and The Project Provider). requires the respects
for laws, rules and regulations binding the contract and
itself .
It requires notification to the other parties for knowledge.
Multilateral Change Order: is a type of change
order that require the agreement and / or consent of
the three or more contracting parties (the Project
Owners, The Project Providers, The Project
Financiers and / or the Regulators). It requires the
respects for laws, rules and regulations binding the
contract and itself
It requires notification to the other parties for
knowledge.
Requirement changes based on the different types of
change orders modifies contracts in either of or the
combinations of the following three ways:
Time changes only,
Time changes accompanied by Cost
Compensations, and
Cost Changes only.
 Time Changes Management System

Contract Time can either be Competitively or

Directly assigned. In both cases, Time planning can
be made using different approaches such as using
CPM , PERT, Bar Charts, Gantt Charts, Network
Diagrams and Tables can be used to show Time Plans
and Accomplishments.

Contractual Agreement finally defines the Contract

Time of a project. The Completion Time of projects
include:
Dates between Contract Agreement and
Handing Over of Site,
Mobilization Period(s),
Contract Time, and
Justified and Agreed Supplementary or
Extension of Time.
Where, Dhos = Date for Handing Over of Site; DCont =
Date for Contract Agreement; Thos = Time between
Contract agreement and handing over of site; Dstart =
Date for Start of Construction Works; Tmob = Time
for Mobilization; DComp = Date for Completion Time;
Tjust = Time for Justified Delay; and Tsupp = Time for
Supplementary Works or Agreements.
 Time Delays and Overruns
Time delays can occur in components of a project
or trades of works, but when their cumulative
effect makes the actual completion time beyond
the contract completion time, it is called time
overrun.
Contractors in some instances accelerate projects
in order to avoid liquidated damages. In this case,
though part of the project did delay; it is
compensated which makes the delay irrelevant.
However, contractors will lose some profit if they
depend on accelerating options most often.
 Classification of Delay
Justifiable and Non - Justifiable Delays
Justifiable delays are delays that occurred due to
causes which are beyond the control of project doer
(contractor).

If delays are caused by project owners, the contractor

or the consultant or the supplier is directly justified
for the effects on delay of the project. Force Majeur
will also be one of the causes for justifiable delay.
Non - Justifiable or Non - Execusable Delays are
delays that occurred due to negligence to fulfill
contractual obligation and are within the control of
the contracting parties. Contractors or Consultants or
Suppliers will be liable for Non - Justified delays.

While Justifiable delays can be either compensable or

non compensable; Non - justifiable delays will cause
remedial rights for the project owners.
Compensable and Non – Compensable Delays

Delay damages can involve additional costs incurred

by the contractor as a result of the extended duration
of its performance. These typically include costs of
idle laborers and equipment, higher costs of
performance during the later period of time.
Examples of the type of additional costs
associated with delays include:
Extended or Increased management / supervisory costs
Additional payment / performance bond premiums (
how it is settled in payments)
Additional liability insurance premiums
Extended equipment / trailer rental costs
Materials escalation costs
Unanticipated weather protection
Idle labor / equipment charges
The other component of delay damages is the
unabsorbed overhead associated with the delay period.
( if u have plenty projects it has to be divided to the No.
of projects)
In order to assert a valid claim for delay damages is
to see your contract. There are some contractors who
sign a contract with a clause:
No Damage for Delay: prohibits recovering of
additional costs incurred as a result of delay,
regardless of the cause in creating the delay.
Conditional Recovery: limits ability to recover or
make a claim for delay or impact damages, so that
the recovery is very much dependent on causes of
delay and their CPM Network. This obviously
excludes recovery for any unjustified delay
damages.
Additional Time and Compensation for
Delays:
The third view does not inhibit or limit rights
to recover due to delay damages.

Certainly, the amount of compensable

damages and your ability to prove them are
also a part of the decision.
 Typical project owners Delay Claim
Liquidated Damages- are typically used when a
determination of actual damages are impossible to ascertain.

Actual Damages – is collected when there is no liquidated

damages provision and off course if there is a direct
involvement in the project. It includes :
1. additional supervision expenses,
2. other additional actual expenses
3. overhead expenses
4. if leased, reasonable value of loss of use and the lost rents,
5. if not leased, reasonable value of loss of use, interest expense,
interest expense during the delay period and
6. foreseeable damages the owner may have incurred including
lost profits from a business. .
 Evaluating delay claims,

In Evaluating delay claims , five

aspects must be taken into account:
The effective duration of delay
The effect of delay on work intended to be
done
The costs attributable to the delay
The nature of costs / expenses
The resources and acceleration /
expediting measures
 Typical Contractors’ Delay Claim

Indirect Costs – job site overhead, extended

general conditions
Home Office overheads
Direct costs – Equipment, Labor and material
costs
Other Damages – interest on the claim, loss
profits on jobs etc.
Attorney Fees – if applicable in the contract
document.
 Disruption
A contractor’s work is disrupted if he is
prevented from carrying out the works in
accordance with an approved programme.
If the prevention results from one or more of
several events provided for in the contract,
the contractor is able to claim for an
extension of time, additional costs or both.
The effect of a disruption is to prevent the
contractor from working in an efficient manner
or in a logical sequence.
 Prolongation
Prolongation is a delay to a critical activity,
which extends the time for completion of the
whole of the works. If the cause of the delay
is not the responsibility of the contractor, it is
highly probable that an extension of time will
be justified.
Extensions of time carry with them additional
costs to the contractor associated with the
increase in the length of the contract period.
 Acceleration
An acceleration arises when the contractor
claims that he has had to mobilise additional
resources to complete the works within the
current time of completion through no fault of
his own.
acceleration has its own cost
 Remedial Rights
Remedial rights are provisions entitled for
non performances of the contractual
obligation by the contracting parties.
• Time Extension - It is a provision for justified
time delays in which the delay may or may not
be entitled for compensation.
• Acceleration – is required when projects are
needed to be completed before the contract
completion time. the contractor is entitled to
compensation and time extension if and only if
justified delays are compensable.
• Liquidated Damages