Chapter 7: Changes to the Contract

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Section 1: Change Orders

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Policy

Contract quantities or alterations in the work may be amended, in writing and at any time, to satisfactorily complete the project. As agreed in the original contract, the contractor will perform the work as increased, decreased, or altered. Amend the contract work by change order (CO) whenever a significant change in the character of the work occurs or a time extension is granted. Ensure that the CO is approved before beginning the changed or altered work. Follow the procedures outlined in the Engineering, Architectural & Surveying Services Manual when preparing COs to collect reimbursement for consultant errors and omissions.

Prior to developing a CO, work with the contractor to define the scope of the problem that requires a change to the contract. Evaluate possible solutions with the contractor. Include cost breakdowns and price justifications for any added items. Unit prices that are comparable to bid prices for the same character of work are acceptable without additional justification. Obtain assistance from the Construction Division (CST), Field Engineering Branch (FE), Design Division (DES), or the district construction office, as needed. Obtain contractor agreement regarding the scope of work and basis of payment for the CO. Provide the contractor the opportunity to sign the CO. Do not use the written statement in the contractor’s signature block on the CO form to deny the contractor legitimate additional compensation for work beyond the scope of the CO or for work under the CO that was not apparent or predictable at the time of CO execution.

Article 4.2, “Changes in the Work,” of the Standard Specifications provides that the work may proceed under Article 9.5, “Force Account,” or by making an interim adjustment to the contract when an agreement cannot be reached with the contractor or the contractor refuses to sign the CO.

Unless otherwise specified in the contract, a significant change in character of the work occurs when:

  • the character of the work for any item as altered differs materially in kind or nature from that in the contract or
  • a major item of work varies more than 25% from the original contract quantity. (The 25% variance is not applicable to non-site-specific contracts.)

Unless otherwise specified in the contract, Article 1.75 of the Standard Specifications defines a major item as follows:

An item of work included in the Contract that has a total cost equal to or greater than 5% of the original contract or $100,000, whichever is less.

Note that a major item at the time of bid will remain a major item. An item that is not originally a major item does not become one through overruns, COs, etc.

COs are not required for the contract amendments listed below. Show these amendments in the final (as-built) plans:

  • slight change, relocation, or adjustment:
    • in the flow line, grade, or the skew of a drainage pipe or culvert
    • of a crossroad drainage facility
    • of the road grade line
    • to a drainage channel
    • to a traffic sign, traffic signal pole, or illumination pole foundation or
    • to the Traffic Control Plan
  • addition or deletion of a driveway pipe.

For federal participating COs due to consultant errors where reimbursement is received from the engineering firm as compensation for error, credit the reimbursement amount to the contract.

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Change Order Preparation

Prepare COs using the guidelines in this chapter when contract revisions, additions, or deletions to the work are necessary. COs may be required due to:

  • an error or omission in the contract
  • differing site conditions
  • adding a specification
  • adding new items of work
  • resolving a dispute
  • changing the sequence of work or
  • other contract changes.

Submit COs requiring a design exception to either the appropriate DES, Field Coordination Section or to the Bridge Division (BRG) for approval. Ensure that any COs meeting either of the following conditions are signed and sealed by a licensed professional engineer:

  • proposing major modifications to the TCP or
  • modifying structural designs.

Use a supplemental agreement for project termination.

Send all COs with original signatures to the Construction Division (CST), Labor and Contract Administration Branch (L&CA). Approved COs must be maintained in the original contract file located at CST.

Show all information and quantities about the proposed change on the CO. A performance bond is not required if the CO increases the contract cost above the $100,000 threshold.

Consider using Form 2146 (Change Order Checklist tab) to assist in CO preparation. For COs requiring administrative approval, include a completed copy of the checklist with the transmittal letter of the CO package forwarded to CST-L&CA to expedite the CO approval process.

If an agreement is not reached with the contractor regarding the scope of work and basis of payment for the CO, indicate on the CO form whether the work will proceed under force account or interim adjustment to the contract.

Use the following table for CO preparation:

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Step

Action

1

Determine the most feasible solution while ensuring that PS&E parameters are satisfied. Estimate the cost of the proposed work using contract costs and information provided by the contractor.

2

Number each CO consecutively.

Note: Do not reuse CO numbers.

3

Insert the contractor’s name as it appears in the contract.

4

Reference the controlling control-section-job number (CCSJ) on a project containing several control-section-jobs ( CSJs).

  • Costs are usually prorated to all CSJs in the contract.
  • When changes apply to a specific CSJ on the CO, mention it in the CO under the ‘Explanation’ field for SiteManager contract COs, or item 5, ‘Describe the work being revised’ field for CIS contract COs.
5

Show the limits of the proposed change in station-to-station numbers.

6

Indicate if a change is major or minor according to the definition in this manual for federal-aid (Federal Letter of Authority [FLOA]) projects.

7

For FLOA projects, indicate in the “For Department Use Only” box any federal non-participating amounts and days. A single CO cannot be set up as both federal participating and non-participating in SiteManager.

8

State the reason(s) for the CO listing the primary reason(s) if needed. Refer to Form 2146, Change Order (Code Chart tab) for CO reason codes. Use the Change Order Reason Code Guidance document to determine the proper reason code(s).

9

Describe clearly and concisely a description of and the reason for the work to be done. If a time extension (TE) is granted, state the reason for granting time.

10

Show only those bid items involved in the change, plus any force account work, items, quantities, or prices.

11

Attach a half-size copy of the applicable drawings.

12

If additional time is granted as part of the CO, number the TE consecutively and include in the appropriate blank on the CO form.

13

If the CO involves third party funding, complete the funding notification form, Form 2146, Change Order (3rd Party Funding tab). Provide notice to the local government or other third party. Ensure that an authorized third party representative signs the Third Party Funding Notification Sheet, regardless of the CO amount. Coordinate with FIN to ensure that any monies owed by the third party are collected. See ‘Advance Funding Agreements’ under “Other Factors That May Affect Change Orders” for additional requirements.

14

Sign and seal COs in accordance with the "Procedures for Sealing Engineering Documents" outlined in the Design Division (DES), Project Development Policy manual.

15

Submit the original COs to CST-L&CA.

NOTE: For COs requiring administrative approval, include the Change Order Approval Checklist.


Environmental Review of Change Orders

Forward all proposed COs to the district’s Environmental Coordinator (DEC) for review. The DEC will determine if amended or additional environmental clearance or permits or authorizations are required. Do not proceed with CO work until the DEC indicates environmental requirements have been met.

Change Orders Requiring CST Review

CST must review all COs requiring the Assistant Executive Director for Engineering Operations (AED, EO) or Federal Highway Administration ( FHWA) approval (FLOA projects). Submit these COs to CST-L&CA with a transmittal memo and a completed Change Order Approval Checklist. Include in the transmittal memo, at minimum, the following information:

  • name of the person or firm that prepared the plans
  • reason for the change
  • status of the work
  • cost breakdown and price justification for newly added items (Price justification from a contractor or a district is not required if the price compares favorably to current district or statewide average prices for similar work. Only a statement or the transmittal memo to that effect is needed.)
  • district and statewide average bid prices for newly added items
  • environmental clearance
  • coordination with DES for pedestrian elements that exceed the TDLR $50,000 threshold
  • district bank balance category that may be used to fund the CO.

Include, in the transmittal memorandum to CST-L&CA, a statement of justification for the cost breakdown and price for newly added items similar to the following:

Cost justification has been reviewed and supports the cost for this work on this project. The proposed unit price(s) is fair and reasonable based on a comparison to the statewide and district average unit bid price reports, or the small quantity of work involved, or the difficulty of construction conditions, or an independent cost analysis (attached).

Failure to provide the information listed above may result in the delay of AED, EO or FHWA approval. If expedited approval of the CO is needed, include a notation to that effect in the transmittal memo to CST-L&CA.

Place the CO transmittal in the appropriate mail wallet or designate in some other manner that the CO requires AED, EO approval and send to the attention of CST-L&CA.

Charges to District Bank Balance

To better manage program funding, the district bank balance may be charged for the cost of a CO requiring AED, EO approval. Decisions are made by the AED, EO on a case by case basis.

The AED, EO will notify CST, Field Engineering Branch (FE) of the decision to charge an overrun for an approved CO to the district bank balance. CST-FE will coordinate with DES for any needed program adjustments. DES will then coordinate with the affected district and TPP for any needed adjustments to the Design/Construction Information System (DCIS).

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Other Factors Affecting Change Orders (COs)

Other factors affecting COs include Advance Funding Agreements and the Texas Department of Licensing and Regulation (TDLR) submissions.

Advance Funding Agreements

An Advance Funding Agreement (AFA), or Donation Agreement, is used when some, or all, of a project’s funding is from an outside source, also referred to as third party funding. If the third party is a local government, an AFA is used. If the third party is a private entity, a Donation Agreement is used. AFAs and Donation Agreements are developed and coordinated by the Office of General Counsel, Contract Services Section (OGC - CSS). Refer to Advance Funding Management and Donations in the Contract Management Manual for detailed information about AFAs and Donation Agreements.

Under standard AFA, the local government (LG) is responsible for all non-federal or non-state participation costs associated with the project, including any overruns in excess of the approved local project budget. Obtain payment from the LG within 30 calendar days of the written notification date, unless otherwise provided in the AFA. Include in the required written notice to the LG the exact language in the AFA concerning funding.

Refer to the Contract Donation Agreement to determine if the private sector donor is required to fund overruns. Follow the procedure outlined above for the AFAs if the private sector donor is responsible for funding overruns.

The AFA or Donation Agreement must be amended if the CO expands the scope of the original agreement or the third party contribution is for a fixed amount. Coordinate with OGC-CSS to amend an AFA or Donation Agreement.

Texas Department of Licensing and Regulation (TDLR) Submissions

TDLR performs site inspections on projects submitted to them for PS&E review. Keep TDLR apprised of any changes that affect pedestrian elements on these projects. If COs on these projects affects pedestrian elements, indicate under Item 5 ("Describe the work being revised") of the orm 2146, Change Order form. A copy of the CO must be sent to the appropriate DES, Field Coordination Section. Include, in a transmittal memo to CST-L&CA, the specific reason for sending the CO to DES Field Coordination Section.

Upon receipt of the CO, DES will consult with the Traffic Operations Division (TRF) and determine whether the CO should be forwarded to TDLR for their information. If the CO causes the total contract amount for the pedestrian elements to exceed $50,000, DES will contact the district to coordinate plans submission to TDLR.

Immediately submit a variance request to DES or TRF for any deviation from Texas Accessibility Standards (TAS) discovered on a project that cannot be corrected to attain compliance.

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