Chapter 7: Changes to the Contract

Section 1: Change Orders

Overview

A Change Order (CO) is used to amend the contract work, whenever a significant change in the character of the work occurs or a time modification is required. Refer to Article 4.4, “Changes in the Work”, of the
Standard Specifications
, the P-CST-001, “Construction and Maintenance Contract Administration – Change Order Policy”, and the CST SOP 01-22, “Change Order Process”
.
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,
    except for non-site-specific contracts
    .
The
Standard Specification
 defines a “Major Item”, as “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. Neither a CO or an overrun will change an original bid item into a major item.
When generating the final estimate, line numbers with the Major Item indicator (M) that have an overrun/underrun of +/- 25% will populate a deficiency. Review the Over-Under Run Report by Item to identify the major items for the project. If the major items are within the 25% variance, a CO is not required. Follow the steps in the SiteManager Contract Administration Manual to remove the estimate deficiency. If there is an overrun/underrun of the +/- 25%, review the Over-Under Run Report by Line Nbr to determine which line item(s) will need to be adjusted by CO.
COs must be processed in a timely manner. Ensure that the CO is approved before beginning the changed or altered work; the Area Engineer (AE) may give verbal approval prior to formal approval in SiteManager (written documentation stating the date of verbal approval is required).
A CO is required for the contract amendments listed below:
  • an error or omission in the contract (for consultant contracts refer to Professional Engineering Procurement Services Division (PEPS) procedures)
  • differing site conditions
  • adding a specification
  • adding new items of work
  • resolving a dispute
  • changing the sequence of work
  • other contract changes
  • major item over run or under run
    .
A CO may not be required for
 the contract amendments listed below. Show the following amendments in the final (as-built) plans:
  • Slight change, relocation, or adjustment
    • of a crossroad drainage facility or drainage channel; the flow line, grade, or the skew of a drainage pipe or culvert.
    • of the road grade line
    • signal pole, or illumination pole foundation
    • addition or deletion of a driveway pipe
Submit COs requiring a design exception to the appropriate division (Design, Bridge, or Traffic Safety) for approval.

Change Order Preparation

Prepare COs using the guidelines in this chapter when contract revisions, additions, or deletions to the work are necessary. 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. Determine the method of work, need for additional time, need for additional resources, impact to traffic, and cost
.
Request in writing a cost breakdown from the contractor for labor, equipment, subcontractors, materials, and additional costs
.
Prepare a price justification for all added items to determine if the contractor’s submitted prices are fair and reasonable. Compare contractors’ prices to the Statewide or Districtwide average low bid unit prices, a comparative cost analysis using similar work or small quantity to justify the cost. Do not approve COs based solely on the contractor’s submitted request and documentation. Negotiate with contractors for prices that are not substantially supported by the price justification. Once prices have been approved by the district, initial all price justification documents received from the contractor to ensure they have been reviewed and include with the CO supporting documentation
Obtain assistance from the Construction Division (CST), DES, or the District Construction Office (DCO), as needed. Obtain contractor’s agreement regarding the scope of work and basis of payment for the CO. Provide the contractor the CO to sign
.
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 approved or predictable at the time of CO execution
.
The DCO assists the AO with the CO description and reason coding, if necessary, and coordinates with the District or Construction Division (CST) FHWA Liaison to confirm federal participation. The AE and /or DCO also coordinates with the District Transportation Planning and Development (TP&D) Financial Manager to procure funding for CO's. Ensure that all COs are signed and sealed
based on the Delegation of Signature Authority
.
Show all information and quantities about the proposed change on the CO. A performance bond is required if the CO increases the contract cost above the $100,000 threshold.
Construction Division form
Form 2146
, “Change Order Checklist,” is to be completed and included with all COs. The following steps should be completed when preparing a CO:
  1. Include the following information in the CO description: What is the CO for, Why is the CO needed, Where is the CO work being performed, and How will the CO work be accomplished
    .
  2. Funding – Coordinate with DCO to determine funding category. If the CO involves third party funding, complete the funding notification sheet (
    Form 2146-AFA
    , “Advanced Funding Agreement”). Provide notice to the local government or other third party. Ensure that an authorized third-party representative signs the Form 2146-AFA, regardless of the CO amount. See “Advanced Funding Agreements”, under “Other Factors Affecting CO’s” for additional requirements. The contractor is not responsible for any delays the district may have in the obtaining a third party’s signature. The dollar amount to be placed for the Advance Funding Notification or Donation Agreement (third party funding) on the CO should be the same as the dollar amount on line 3(a) on the Form 2146-AFA, which should be only the amount of contract items corresponding to the third party without the CO & Contingency and Indirect Costs
    .
  3. Participation – Before adding items in SiteManager, coordinate with DCO to determine participation. Participating and non-participating pay items must be on separate CO’s
    .
  4. Determine appropriate function (zero dollar, overrun, time extensions, etc.)
  5. Determine appropriate CO reason code(s) using
    Form 2146-RC
    . Reason codes may be associated with federally non-participating CO depending on the circumstances for the CO
    .
  6. Are there any added or modified plan sheets (include in the description if the plans are TxDOT or Consultant Design)
    .
  7. Has environmental clearance been addressed? Include a statement in the CO description.
  8. Are the costs reviewed, verified and are they considered fair and reasonable? Include a fair and reasonable statement in the CO description.
  9. When adding new pay items, check the
    bid code list
    for existing items available in SiteManager. Only use Unique CO item (UCOI) when an appropriate item code is not available
    .
  10. For all items being added or modified, include CO# in the item’s description tab. Under the New Contract Item tab, add a supplemental description in the following format, “Added by CO#X”. When using a UCOI include the CO#, short description of the item and the Unit of Measure (UOM) (if not paying by the dollar) in the supplemental description tab.
  11. Copy the supplemental description, navigate to the CO Item tab, and paste the supplemental description into the CO Item Description field
    .
  12. CO signatures can be either written or electronic. Signatures must follow District, Construction Division and Executive Director “Delegation of Authority” memos, found on
    Contract Services Division
    webpage (internal access only)
    .
  13. Are there any TDLR requirements?
  14. Determine if the CO requires Form 1295. See “Texas Ethics Commission Form 1295”, under “Other Factors Affecting CO’s”, for additional requirements
    .
  15. Determine whether or not time adjustments are required. If so, provide a description, including a breakdown of the days added
    .

Additional Time Guidance

When addressing time choose one of the following Methods
:
  1. Add time extension number and time in the box provided
  2. State in the narrative that no time is added by this CO
  3. State in the narrative that time will be addressed later in the project when time impacts to the critical path are known
    .
Methods 1 and 2 are preferred. Method 3 should not be normal practice. If time cannot be agreed on with the contractor upon execution of a CO, Method 3 is acceptable
.
Per FHWA,
M
ethod 3 for adding time should rarely be used. Discussion of additional time needs to take place with the contractor. This may be done by reviewing when work will take place on the most recent accepted project schedule.
Questions to consider include:
  • Is the CO work on the critical path or affects current and downstream critical path activities?
  • Will a crew need to be pulled from a critical path activity to do the CO work?
  • Is a crew available to work off critical path for the CO work?
  • Can a crew from a different project be mobilized to perform the CO work off critical path? Will involve negotiating additional cost.
  • Will additional barricade months be needed? Be wary of contractor requesting to move work to end of project.
  • Is float time available to mitigate some or all of the needed time?
  • Is the extent or impact of the
    CO
     work able to be estimated?
Document the information and then work to resolve the time issue as soon as possible (not at the end of the project).

Extending Project Limits to the Contract

Districts may extend project limits without a CO if all the following conditions are met.
  • Transition or tie-in work is less than 1,500 feet
  • The work has a value of less than $50,000
  • No changes made to unit bid prices
  • The scope of work remains the same
  • The funding category remains the same
  • No new control section jobs (CSJ) are required
  • No additional environmental clearance is necessary
If all the above conditions are not met, then a CO must be submitted for DE approval, regardless of the amount. Be sure to maintain the integrity of the competitive bid process.

Adding a CSJ to the Contract

When all the above conditions are not met, then a CO would be created to add a CSJ. Use the following procedures to add CSJs to the contract through a contract CO:
  • Area Office - Notifies DCO, District Design, and Financial Management Division (FIN) there is a need to add a new CSJ to a project
  • District Design – Assigns the CSJ number and updates the “Contract CSJ” in TxDOTCONNECT
  • DCO – Adds the new CSJ in SiteManager (when adding the new CSJ in the system do not use dashes in the project number: example: 181202023)
  • Area Office – Will complete the CO and coordinate with DCO and District Design completion of the CO
  • DCO/District Design – will coordinate with FIN
  • FIN - Upon receipt of the CO, FIN will add the CSJ to PeopleSoft and updates to the FPAA.

Public Interest Findings (PIF) – Federal Aid Projects

COs on federally
funded
 projects require a PIF if they extend project limits, add project locations, or significantly change the contract scope. A PIF is a letter requesting concurrence from Division Director of Construction Division to proceed with a CO. Use the
PIF letter template
on the CST Support page to request concurrence. This concurrence represents FHWA approval as a delegated action through the Stewardship and Oversight
Plan
 (S&O). Adding locations for districtwide projects such as seal coat projects do not require a PIF concurrence. For Texas Division Involved Projects (TxDIP) projects, coordinate with FHWA as stated in the project’s S&O
Plan
. More TxDIP information found in Section 2, of this chapter.
Consider the following questions in determining whether a change in scope has occurred:
  • Have the contract work elements changed?
  • How does the additional work impact quantities and cost?
  • Does the proposed change impact the complexity of the work?
  • What is the cumulative impact on the project?
  • What is the substantial benefit to the public for not bidding out the additional work?
Include the following in a PIF:
  • CO explanation
  • Explanation of the reason(s) the CO is needed
  • Statement on how the price is justified
  • Justification of need, such as a description of emergency work, transition end work, explanation of cost saving over cost to re-let or, other imminent need discussion
  • Time impact and justification statement
  • Statement of environmental clearance status along with necessary updates to meet environmental requirements. Notice of Intent threshold impacts, if applicable
  • Texas Department of Licensing and Regulation (TDLR) review for Texas Accessibility Standards (TAS) compliance, if applicable
  • Whether the CO is federally participating or not
  • Funding source category
Fully state funded projects do not require a PIF but are to be reviewed and approved by the District Engineer (DE).

Environmental Review Requirements

The
District Environmental Staff
 must approve all COs for environmental clearance. Include evidence of review and approval as supporting documentation. The CO description must contain a statement addressing environment clearance.
Example:
District Environmental Staff
 reviewed this CO and approved it for environmental compliance on 02/19/20.

COs Affecting DBE Goal

Any CO that may increase or decrease the value of the contract will also be considered for the overall DBE goal. Refer to Chapter 14, for additional guidance.

COs Involving Contractor Force Account Work

When an agreement of the COs scope of work and basis for payment cannot be reached with the contractor, the
Standard Specifications
 states that the work may proceed under Article 9.7, “Payment for Extra Work and Force Account Method”. Force account items can be added with a CO using a Force Account bid item. Reasons for using force account procedures must be part of the CO supporting documentation.
Use
Form 316
, “Daily Report of Force Account Work”, to capture the actual time, equipment, labor, and materials used for the work. CO documentation should include but is not limited to:
  • Equipment rates established in accordance with Article 9.7. Verify rates utilizing
    Equipment Watch
  • All payrolls with applicable wage rates (Refer to Chapter 15, “Contractor Workforce,” for more information)
  • Material invoices associated with the force account work
  • Contractor invoice(s)
  • Time needed to complete the work, and
  • Any additional information necessary to support the CO.
COs for force account work less than $30,000 may be prepared based on the contractor’s estimated costs for labor, equipment, and materials. Refer to Special Provision (SP)
009-002
. Agree to the labor, equipment, and material rates used for the force account work prior to beginning work.
A 5% markup will be added to the subcontractor’s submitted price for the prime contractor’s administrative cost, superintendence, and profit. Request a price breakdown of equipment, labor, and materials when a price submitted by a subcontractor is not fair and reasonable. Cost incurred by the state needs to be justified.

Taxes

TxDOT is not required to pay taxes on services and materials fully incorporated into its projects, nor is it required to provide a certification to prove tax exempt status per the Texas Administrative Code,
Title 34, Rule 3.322
(c)(4). Refer to the
Contractor Manual
on the Texas State Comptroller website.

Unilateral COs

Do not use a unilateral CO for work that is outside the scope of the project. Work that is outside the limits (except when addressing transition areas) or that is outside the original intent of the project should not be forced on a contractor through the use of a unilateral CO. Notify CST of any unilateral CO’s. These types of CO’s do not require CST review or concurrence. The DE will approve and sign all unilateral COs.

Payment for COs

Process payment for CO items once approved and should only occur during the regular progress estimate cycle. On occasion, agreements to pay for CO work is allowed using the PAY ADJUSTMENT POSITIVE bid item (i.e. change order is complete and is only pending final signatures; or a CO is approved mid-month and payment needs to be processed). The use of Pay Adjustment Positive can be used to temporarily process payment(s) to the contractor. It must be done with caution and include supporting documentation. Ensure that double payment is avoided by accurately processing the adjustments to the affected pay items once the CO is fully approved. Pay Adjustment Positive should never hold a value at the end of a project.

Other Factors Affecting COs

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 Contract Services Division (CSD).
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 CSD to amend an AFA or Donation Agreement.
Texas Department of Licensing and Regulation (TDLR) Submissions
If the CO causes the total contract amount for the pedestrian elements to exceed $50,000, or it modifies the existing plans set it will need to be registered with TDLR and/or reviewed by a Registered Accessibility Specialist (RAS). Submission for this process can be found on
TDLR Construction Accessibility Requirements
on CSTs intranet page.
Converting Change Orders from Participating to Non-Participating
In the event the District mistakenly processes a CO as federal participating (when it should have been non-participating), the District must make the correction in SiteManager. To do this, process a participating CO to subtract items that were added under the incorrect CO, then process a non-participating CO re-adding the items. This process may be completed similarly to convert non-participating CO to participating.
Texas Ethics Commission (TEC) Form 1295
Texas 1, Texas Administrative Code,
Chapter 46 and Texas Government Code §2252.908
stipulates that a governmental entity or state agency may not enter into certain contracts with a business entity unless the business entity submits a disclosure of interested parties (TEC Form 1295) to the governmental entity or state agency at the time the business entity submits the signed contract to the governmental entity or state agency.
Beginning with contracts let after January 1, 2016, CST handles receipt and acknowledgement of Form 1295 for all state-let construction and maintenance contracts prior to execution and in case of a change in interested parties, but the district must fulfil the requirements before processing:
  • if a project is let less than $1 million and a CO adds value to increase the project value to $1 million.
  • any CO with a value equal to or greater than $1 million, or
  • cumulative COs that increase the contract amount by $1 million or more. (E.g., CO #1 + … CO #9 = $900,000. CO #10, for $100,000, cumulatively increases the contract by $1 million and will require a new Form 1295. Following CO #10, a new form is necessary only if additional COs (individual or cumulative) increase the contract value by $1 million or more.)
CST Standard Operating Procedure 01-19 provides instruction for:
  • Contractor completes the Form 1295 on the
    Ethics Commission
    website, the Contractor should print the form and complete the remaining requested information of the hard copy.
  • AO internal processing of CO and Form 1295, and acknowledgment of receipt in the Texas Ethics Commission's Electronic Filing Application.
  • Once the Contractor completes the Form 1295 on the Ethic Commission website, the Contractor should print the form and complete the remaining requested information on the hard copy.
  • Once that information is completed on the hard copy form, the Contractor should provide that to the District and upon receipt the District then logs onto the Ethics Commission website and acknowledges the Contractor's Form 1295.

Bond Information

Existing bid items should include the 1% bond, and any overruns are compensated per the contract. Bid items added by CO should include an additional 1% to offset the cost of the bond. A performance bond is required if the CO increases the contract cost above the $100,000 threshold.

Change Order Audit

CST will perform quarterly audits of COs. CST will request executed COs from the district along with supporting documentation.