A change is work that falls outside what was originally agreed in the contract. Changes occur in virtually all construction projects, and they are the main reason why the contract sum rarely matches the amount that is actually paid or invoiced.
A change always has a consequence — in cost, in progress, or both.
Two links in the chain
A construction project normally has two contract links, and a change is handled differently depending on which link it concerns:
Client versus main contractor — governed by NS 8405 (construction contract) or NS 8407 (design and build contract). This is the main contract. In AIMZ it is called Change Order Client, and it normally generates income for the main contractor.
Main contractor versus subcontractor — governed by NS 8415 (subcontract under NS 8405) or NS 8417 (subcontract under NS 8407). In AIMZ it is called Change Order Sub, and it normally increases costs for the main contractor.
NS 8415 and NS 8417 mirror the main contract, with the important difference that the subcontractor has no direct contractual relationship with the client. The standards apply in Norway; other countries use their own standards where the provisions may differ, but the main features of what a change is are universal.
The total order in each link is always contract work + changes.
Why do changes occur?
Two overall reasons:
Change in scope — the delivery is extended or reduced. For example, more square metres of parquet than originally agreed.
Change in quality — a solution is delivered differently, but serves the same function. For example, one-strip parquet instead of three-strip.
How do they arise?
Passed on from the client. The client orders a change from the main contractor, who passes it on in full or in part to the subcontractor. This is the most common source of changes in the subcontract.
The main contractor orders on its own initiative. For coordination reasons, progress reasons or its own preferences for a solution.
The subcontractor discovers conditions that require a change. Design errors in the basis, or unforeseen conditions in its own scope of work. The subcontractor must then notify the main contractor.
Interface problems between trades. Very common: a clash between the subcontractor’s work and other trades, requiring the delivery to be adjusted.
Regulatory or external conditions. Changed regulations or official requirements that arise along the way and were not part of the original contract basis.
The process
The change arises. The client orders it, or the main contractor or subcontractor discovers a condition that deviates from the contract basis.
The duty to notify applies. Whoever discovers the condition must notify the other party «without undue delay». If this is not done, the right to an adjustment of the contract price and an extension of deadline may be lost — regardless of whether the claim itself is justified.
Pricing takes place in each contractual relationship separately. The subcontractor prices according to its own unit prices and site setup and operation costs, not automatically what the main contractor receives from the client. This is the core of the back-to-back idea: each link handles pricing in its own contractual relationship.
The main contractor often waits for a price before passing it on. Because the main contractor must submit a consolidated claim to the client, it often waits until the subcontractor has delivered a priced change claim. This creates the familiar time pressure between the main contractor’s own deadlines towards the client and the need for correct documentation from the subcontractor.
Recourse up the chain. The subcontractor submits a claim to the main contractor, the main contractor assesses it and passes it on in full or in part to the client, the client takes a position, and the main contractor responds to the subcontractor based on that.
Back-to-back
The back-to-back principle means that the subcontractor’s rights and obligations towards the main contractor mirror the main contractor’s rights and obligations towards the client — the same notification logic, the same documentation requirements, in principle the same deadlines, just shifted one link along the contract chain.
The principle applies to the logic, not the figures. A claim that moves up the chain is not automatically the same size in each link.
Negotiation is the norm
A notified claim is rarely the final amount. A negotiation normally follows — because the scope is disputed, because the price is not considered to reflect the work, or because the other party believes the condition is already covered by the contract work.
Pure tactics also occur. The industry has low margins, and negotiations tend to intensify when one of the parties is heading for a low coverage ratio on the project. Changes may then be notified without much rationale.
This is why AIMZ distinguishes between the claim that has been notified and the amount you yourself use in the forecast. See the articles on Change Order Sub and Change Order Client.