I'm working on revisions to the Consensus Docs 300 Agreement for integrated project delivery and am thinking about how to handle change orders in that Agreement.
The document includes the following structure in broad strokes:
- The Owner establishes the program, including an "Allowable Cost" and enters into a single integrated agreement with the architect and contractor at the outset of the project. Everybody signs one agreement. Major trade contractors are brought on board early and may sign joining agreements. Together they form and IPD Team
- The IPD Team undertakes a validation study of the owner's program and comes up with an Expected Cost for the Project.
- The Core Group (everybody is equal, but some are more equal than others) establishes a Target Cost to shoot for during the design process.
- The Core Group establishes a financial incentive plan to get everyone collaborating in a feel good manner towards the Target Cost.
- Everybody uses Target Value Design and innovates to drive the cost down towards the Target Cost.
- At some point before start of construction, and before financial close on the construction loan, the parties agree on an Estimated Maximum Price. This is to put the bankers at ease.
- The EMP may or may not be binding, i.e. like a GMP. If it is not binding, the parties will have their profit/fee at risk to cover overruns--but they will be paid the Cost of the Work no matter what (i.e. owner is ultimate guarantor if the wheels come off). The EMP will usually be higher than the Target Cost, but lower than the Expected Cost, and lower than the Allowable Cost.
- A Risk Pool plan will establish the goals of profit participation (pain share/gain share)
So this is where the change order question comes in. The current CD 300 has a changes provision that reads very much like a GMP contract changes provision. I.e. every time the owner twitches and it looks like there is an impact on costs, there is a change order request. However, this does not really seem appropriate for an integrated, collaborative agreement outlined above.
The contractor will be paid its cost
of the work for any change in scope, but there is the issue of how much the Target Cost, Expected Cost,
EMP, or Allowable Cost should be adjusted--or if they should be adjusted. One or all? This matters because the Target Cost and Expected Cost will be used to determine the pain/gain share. If we monkey with the work that makes up the original Expected Cost it will be difficult to measure how much innovation has happened and how this should be rewarded.
It's not obvious how to articulate this in the agreement.
- Allowable Cost: this should not usually need modification, assuming the Expected Cost and Target Cost are significantly lower than the Allowable Cost the Project will still be completed within the Allowable Cost.
- Expected Cost: in the case where a change does not exceed the “cost savings” that has been achieved from the original Expected Cost, no adjustment to the Expected Cost should be required. i.e. no need to automatically change the Expected Cost if we are still below the original Expected Cost.
- EMP: same rationale comes into play; if the IPD team has innovated savings, an owner change that spends some of these savings by adding new scope should not necessarily result in an increase of the EMP. Does this depend on what the anticipated cost was at the time the EMP was set?
- Contractor’s and architect’s fee: if fee is originally set on the expected cost, the fee increases/construction dollar in ground as the target cost is lowered and achieved. Should the contractor or architect be entitled to new fee if scope is added that moves the cost back up toward the originally expected cost? Why? How much? Contractors and architects, of course, will want to share in the cost savings they helped create that the owner is now taking advantage of.
Food for thought.
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