Providers need to be alive to the risk of contractors becoming insolvent and how to limit the resulting inevitable disruption.
In the third part of our series on contract management pitfalls, we look at the risks and opportunities presented by instructing changes under construction contracts.
Construction contracts will often contain mechanisms under which ‘changes’ or ‘variations’ can be instructed to the scope of works being delivered by a contractor, or the working conditions in which the works are delivered. There are many reasons why social housing providers may find it necessary to issue change instructions, and this can be a very useful mechanism. For instance, where additional works have been identified as being necessary following detailed surveys of properties, or where new property stock has been purchased and the new properties are to be included in the scope of works.
Instructing a change to the scope of works or working conditions does carry a number of risks, and we commonly see disputes arising out of change instructions. In our experience, there are two key themes:
- Is the change clear?
Change instructions need to be very clear as to what is being changed in the contractor’s scope of works, ensuring that both contractor and employer understand the extent of the change. Disputes often arise because the full consequences of the change has not been documented, or the parties had a conflicting understanding of what the change instruction meant.
- Are the time and cost consequences agreed?
A change instruction will often entitle the contractor to additional time and cost, and it is of little surprise that many disputes relate to the extent of the additional time and cost due to the contractor. It is best practice to set out the full extent of the time and cost consequences in the change instruction, so that all parties are clear as to what additional payment will be made.
When used properly, change instructions can be a useful mechanism allowing social housing providers to react to fluctuations in their housing stock and address new construction needs as they are identified. That being said, there are risks associated with instructing changes, and those risks can be managed through carefully documenting the change, and the time and cost consequences.
We regularly deliver training to social housing providers in relation to instructing changes, contract management risks, and dispute resolution.
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