Payment of the Non-Contested Value of Change Directives

May 31st, 2019

The project owner may generally, through the intermediary of its professionals, make changes to the contracted work.

That right is subject however to the process provided for in the contract documents.

While terminology can vary depending on the type of contract involved, the parties generally will proceed in accordance with one of the following methods in order to determine the price adjustment and, as the case may be, the extra time necessary for performing the contract:

  • concluding an agreement on the price adjustment, known as a “Change Order”;
  • arriving at the adjustment in accordance with the terms specified in the original contract, on a “cost plus” basis, known as a “Change Directive”.

In the case of a Change Order, the adjustment agreed to in the agreement will be reflected in the request(s) for payment submitted by the contractor as the changes in the work are performed.

It should be noted in this regard that:

  • the contractor must, in connection with the change, specify not only the direct costs involved, but also, if applicable, the extra time required for the performance of the amended contract and the additional indirect costs involved. Consult our article (in French only): La procédure prévue au contrat d’entreprise : une question de vie ou de mort pour vos réclamations
  • the contractor cannot be compelled to accept the change, for example where the project owner and its professionals refuse, erroneously in the contractor’s opinion, to provide for extra time to complete the performance of the work or for the indirect costs entailed by the change (the project owner then has various options, i.e. propose a partial Change Order accompanied by a carefully worded reservation, issue a Change Directive, pursue negotiations with a view to concluding a Change Order, or abandon the proposed change).

In the case of a Change Directive, certain situations may arise, such as:

  • the continuation of negotiations by the parties for the conclusion of a Change Order during or after the performance of the additional work called for in the Change Directive (the project owner will want the adjustment agreed to before the contractor submits a request for payment for the additional work);
  • partial contestation of the price adjustment requested by the contractor (the project owner will then want to delay making full payment until the dispute is resolved, thereby putting pressure on the contractor).

Pending the final determination of the price adjustment, the project owner must pay the non-contested value of the additional work performed, as is expressly provided in several contracts, including those of the Canadian Construction Documents Committee (the “CCDC”), and in accordance with applicable principles of Quebec civil law.

The contested value may be the subject of a dispute notice pursuant to the procedure specified in the contract, the terms of which must be carefully examined.

Ultimately, if the dispute is not settled by common consent, the parties will have to justify their conduct to the arbitrator or to the Court seized of the file and suffer the consequences, particularly as regards their credibility and the damages they may be ordered to pay (note in particular the sanctions that may be imposed by the Court in the event of abuse).

The parties must therefore bear these considerations in mind.

We thus recommend that you:

  • carefully scrutinize the provisions of your contract that pertain to changes in the work, and if they allow it, for example in the case of CCDC contracts:
    • daily submit the costs incurred pursuant to a Change Directive so they can be audited by the project owner and its professionals;
    • ask the project owner to specify in writing what it considers to be the value of the additional work called for in the Change Directive;
    • include the non-contested value in your requests for periodic payments;
    • indicate in writing your intention to submit the contested value to the dispute resolution process;
    • include in your receipts for payment a reservation of rights for the contested portion of the value;
  • follow the dispute resolution procedure set out in the contract.

If the project owner refuses to comply with the contract or otherwise acts unreasonably, we recommend that you consult a lawyer in order to initiate mediation between the parties. Failing that, you can send the project owner a demand letter insisting on compliance with the contract, taking care to ensure that the documents on file substantiate the owner’s defaults so that appropriate legal action can be taken to sanction them if necessary.