United Statea
Environmental Protection
Agency
Office Of Water
(42O4)
EPA 832-B-83-100
March ^ 983
vvEPA
Management Of
Construction Change Orders
A Guide For Grantees
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Preface
This guidance is offered to a Grantee for
managing the change order process on a
construction contract under a grant from
the U.S. Environmental Protection Agency
(EPA) construction grants program. The
establishment of a change order procedure
serves to expedite changes that arise
during the construction of a project. Uni-
form procedures reduce confusion and
multiple submissions of data for each
change. Efficient execution of a change
order management procedure can save
both time and money. -
The'sections are arranged according to
the order of activities to be followed in
managing the process, from the first claim
or. recommendation for a change tp the
reviewing agency's (EPA or delegated
State agency) acceptance of .the formal
change order document.. The discussion of
the Grantee's duties and responsibilities
emphasizes the need to decide whether a
change order is actually warranted. Also
given particular emphasis is the negotia-
tion process, the purpose of which is to
develop the terms and conditions for the ,
formal change order document. The point
is made that the level of detail should be
appropriate to the dollar amount and com-
plexity of a change order. Typical change
order review procedures used by a
reviewing agency have been included in
the last chapter, since an understanding of-
the review process should help the Gran-
tee to properly prepare the change order
for review and thus avoid delays in
approval.
While this guidance should prove useful
to most Grantees, it was styled particularly
for those who are faced with managing a
grant-assisted construction project for the
first and possibly only time. It is therefore
somewhat general in its presentation,
leaving extensive detail to the many other
available texts on the subject.
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Contents
Introduction 1
References to Federal Regulations .. i
1981 Amendments to the Clean Water Act.". 1
Duties and Responsibilities of the Participants 2
Grantee's Responsibilities 2
Engineer's Role < 2.
Construction Contractor's Responsibilities. 2
Construction Schedule 3-
Prior Approval Requirements 3
Emergency Changes ._. 3
Grant Increases '..' ; ... 3
Disputes : ; 3
Conditions That May Warrant A Change Order .'. 4
Differing Site Conditions ..... " 4
Contract Documents ;4
Construction Contractor Compliance. 5
Subsurface Investigation ; 5
. Errors and Omissions in Plans and Specifications 5
Changes Instituted by Changes in Regulatory
Requirements. ,., 5
Design Changes. 6
General ..: ; 6
Substitution ;. 6
, Relocation of Site ^. 6
Additions 6
Deletions..;,...., : 6
Overruns/Underruns in Quantities 7
Factors Affecting Time of Completion 7
Termination for Convenience ...:... 7
Termination for Default , 7
Suspension of Work 8
Directed Acceleration ..-....:... 8
Time Extensions ....:.. 8
Constructive Acceleration. ; 8
Preparation of the Change Order 9
Preparation for Negotiations ... ....-, 9
Memorandum of Negotiation .,..... 10
Change Order . i 11
No'tice to Proceed - n
Submitting a Change Order to the Reviewing Agency 11
Reviewing Agency Procedures . : : 12
Screening Process .......,....- :.,........,.. 12
Prior Approval Requirements > ;.... 13
Determination of Federal and/or State Funding
Participation.; 13
Review of the Need for Change 13
Reasonableness of the Method of Accomplishing the ,
Objective..' :....' ,.'. 13
Eligibility of the Change ..,.:.. 14
Allowability. of the Costs ,'. : 14
Grantee Management Review. 14
Grantee Notification ; 14
Appeal of Allowability Determination 15
Documenting the Project File For Change Orders 15
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Introduction
\ , h.iiuit! order is a written order by the
i.r.mtri' to the Construction Contractor au-
::, r:.-in.u an addition, deletion or revision
::i h<- Cvork and/or the time of completion
.s: iun tilt; limits of the construction con-
. -:.i : .ifti-r it has been executed. It is a
*;M i ific type of contract modification
uiiu h iloes not go beyond the general
M ojic of the existing contract. , .,'
riii- i:hange order management pro-
, 1-iluri! is used when a need is recognized
i.ir .1 change in the terms or conditions of
i-xisting signed contract documents. It
i>iMii%raliy originates as a claim or a
recommendation for a change from the
Const ruction Contractor or as a request-
lor-proposai from the Grantee, seeking a
change to existing contract documents.
The change order is necessary to increase
or decrease the contract cost or work, in-
terrupt or terminate the project, revise the
completion date, alter the design, or in
general to implement any deviation from
the original contract terms and conditions.
The successful completion of the change
order management process depends upon
the successful execution of the responsibil-
ities of each of the participants: Grantee,
Engineer, Construction Contractor, and
reviewing agency (U.S. Environmental
Protection Agency (EPA) or delegated
State agency). The Grantee must un-
derstand that it alone is responsible for
financing and managing the project to
completion. Because of this, the Grantee is
responsible for determining whether a pro-
posed change is necessary and whether
the cost of the change is reasonable with-
out regard to grant assistance. The En-
gineer is the technical advisor to the Gran-
tee. The Construction Contractor is
responsible for preparing and submitting
the proposal for change and supporting
documentation to the Grantee. Using the
proposal, the Grantee negotiates the con-
ditions of change with the Construction
"Contractor. The Grantee then prepares and
presents the change order plus supporting
documentation to the reviewing agency.
The reviewing agency checks the
documentation for completeness and ade-
quacy and the allqwability of costs, so that
grant participation for the change can be
evaluated. A section on typical reviewing
agency procedures for review of a change
order has been included to give the Gran-
tee an insight into the responsibilities of
the reviewer. . '
The bilateral change, rather than the un-
ilateral change, is one agreed to by both
parties, and is most desirable since it
minimizes disputes at a later date. Should
meaningful negotiations fail, an EPA Gran-
tee, as a Jast resort, has the authority to
make a unilateral change within the scope
of the contract. In order to move the proj-
ect forward, the Grantee can issue a
change order without Construction Con-
tractor agreement under a "changes" con-
tract clause. In this case, the Construction
Contractor must perform the work, but
may elect to dispute the terms and could
recover additional costs from the Grantee
under the same clause. In some cases,
State Law may give the Construction Con-
tractor.specific rights of recovery.
The procedures outlined herein apply to
open, competitively bid, fixed lump sum
or fixed unit price construction contracts
arid have been adapted to the EPA con-
struction grants program. Additional State
and local requirements may also be en-
countered in obtaining change order
approval.
Reference to
Federal Regulations
This guidance describes a change order
management process which is based upon
a combination of EPA regulations and
good management practices. Where the
EPA' regulations require that certain pro-
cedures be followed, the pertinent regula-
tion has been cited by specific reference to
the Code of Federal Regulations (CFR). It
is important to keep in mind that each
construction grant is governed by the reg-
ulations in effect at the time the grant was
awarded. Because the regulations have
been revised a number of times since the
beginning of the EPA construction grants
program, multiple citations are sometimes
given/This guidance will suggest a reason-
able course of action in those particular
cases, but the regulations should be re-
ferred to if there is a question of their
applicability to a particular grant.
1981 Amendments
to the Clean Water Act
The date of May 12, 1982, is mentioned
throughout this guidance because this is
when an extensive revision of EPA's con-
struction grant and procurement regula-
tions were published in interim final form,
which made them effective for all grants
awarded on or after that date. At the time
this guidance was published, these new
regulations were not yet published in final
form. The final regulations will apply to
grants awarded on or after their publica-
tion date. These new regulations sub-
stantially streamlined the construction
grants arid -procurement processes, es-
pecially in the area of procurement of
engineering and construction services.
This revision followed enactment of the
1981 Amendments to the Clean Water Act.
Since the role of the reviewing agency is
lessened by these new regulations, it is
doubly important that the Grantee un-
derstand and carefully manage the change '
order process on the project.
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Duties and Responsibilities
of the Participants
The Grantee is responsible for the ad-
ministration and implementation of the
project for which EPA Construction Grant
assistance is awarded. In accepting the
grant, the Grantee has agreed to pay, pur-
suant to Section 204(a)(4) of the Clean
Water Act, the non-federal costs of treat-
ment works construction associated with
the project. The Grantee is also financially
responsible for any additional non-federal
costs associated with a change. Should the
reviewing agency determine that the
change order is not allowable for federal
* participation, the entire cost would then
be considered non-federal costs.
(40 CFR 33.210; 35.93G-5)
The Grantee is the one who must agree
to any change in the conditions of the
construction contract because it is the
only party that has entered into the con-
tract with th? Construction Contractor.
Grantee authority is exercised by the leg-
islative body through an authorized repre-
sentative, e.g., mayor, business administra-
tor, etc. The Grantee should expect the En-
gineer to exercise that authority stipulated
in the agreement for engineering services.
The Grantee should be aware that the
reviewing agency has no authority to orig-
inate changes to contract documents.
A construction manager is sometimes re-
tained by the Grantee, particularly when
its own forces do not have the expertise or
additional time available to properly man-
age the additional responsibilities. EPA
encourages the construction manager con-
cept, but it should be discussed with the
reviewing agency before any commitments
are made. While the construction man-
ager's role and contractual relationship
with the Grantee differ from those of the
Engineer, it is possible for the Engineer to
assume both roles. The construction mana-
ger would normally be delegated a part of
the Grantee's authority through their con-
tract, so that throughout this guidance any
mention of the Grantee is generally in-
tended to include, the construction man-
ager if one has been retained.
Once a grant is awarded and construc-
tion is underway, the Grantee should not
presume that the Engineer, Construction
Contractor and regulatory agencies will
oversee the management of the project. In
the best interest of the community, the
Grantee should actively manage the proj-
ect to completion. The resolution of com-
plex and controversial questions cannot be
postponed. The Grantee should stay fully
informed and be ready to act on problems
arising daily from the construction. The
Grantee can expect to be faced with pro-
posals to change the terms of the construc-
tion contract, and may encounter cir-
cumstances requiring it to initiate mod-
ifications. The Grantee should be con-
vinced that a proposed contract change is
necessary and reasonable regardless of
federal participation in the cost. The Gran-
tee is responsible for negotiating fair and
reasonable cost and time adjustments for a
necessary change and should ensure com-
petent, timely processing of change order
requests.
Grantee's
Responsibilities
The Grantee is responsible for:
Determining whether a change order is
warranted.
Negotiating a fair and reasonable price
for required changes, or authorizing the
Engineer to do so.
Maintaining costing records for the
change including records of negotiation.
Maintaining current and accurate fiscal
projections of contract and project comple-
tion costs.
Resolving disputes which may have
arisen as a result of a proposal for a
change.
Notifying the reviewing agency in
writing of events or proposed changes
which may require a grant amendment.
These include:
Conditions which require prior writ-
ten approval as included in Prior
Approval Requirements on page 3.
Significant changed conditions at the
project site.
Changes which may increase or sub-
stantially decrease the EPA grant
needed to complete the project.
; Significant delay or acceleration of the
project schedule. This requires con-
tinuous monitoring of the Construc-
tion Contractor's construction sche-
dule.
(40 CFR 30.600, 30.700; 30.900; 33.210; 35.930-6;
35.936-5; 35.938-5)
Engineer's
Role
The Engineer will be expected to:
Act as consultant to the Grantee during
the construction of the project and on
changes that are proposed.
Provide expert opinion on whether a
change is appropriate or not, and if so,
why.
Prepare a fair and reasonable in-
dependent cost and time estimate on the
proposed change to verify that the es-
timate prepared by the Construction Con-
tractor is fair and reasonable.
Negotiate change orders if authorized to
do so by the Grantee.
Construction
Contractor's
Responsibilities
In order to expedite the processing of a
change order, the Construction Contractor
will be expected to:
Furnish and certify the correctness of
sufficient cost and pricing data to enable
the Grantee to determine the necessity and
reasonableness of cost and amounts pro-
posed, and to enable the reviewing agency
to determine the eligibility and allowabil-
ity of costs proposed.
Submit change order proposals within
the time allowed by the contract and enter
into meaningful negotiations on a neces-
sary contract change.
Comply with the record keeping and
accounting requirements set by EPA reg-,
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illations appropriate to the dollar amount
of the change order.
Maintain a current construction sched-
ule, such as a critical path diagram as de-
' scribed below, with the level of detail
based on project size and complexity.
* (40 CFR 33.1030, Clause 8: 35.938-5; Part 35. Subpart
E. App. C-2, Clause 11)
Construction
* Schedule
Among the scheduling techniques used by
the Construction Contractor, one frequent-
ly, used is called the Critical Path Method
(CPM). This is a system where all the con-
struction operations which have to be
done in sequence are shown on a line dia-
gram. The diagram shows the sequence
and length of time it takes to complete
each operation by representing each opera-
tion with ,an arrow. By tracing along the"
various paths of the series of arrows, the
Construction Contractor can determine
which path establishes the minimum time
to complete the work. That path is called
the Critical Path and changes in the timing
of operations along it normally affect the
time of completion. Construction contracts
often require the use and periodic up-
dating of the CPM diagram to control proj-
ect progress and analyze the effect of de-
lays.
Prior Approval
Requirements
In order to obtain change'order approval,
~ written approval from the reviewing agen-
cy is in some cases required prior to the
start of work associated with the change,
because of the significant effect on per-
formance or cost of the project. Conditions
which require prior written approval
. (which is always a formal grant amend-
ment on grants awarded oh or after May
12, 1982) include the following: . .
* Project changes whteh
Alter the project scope or project per-
formance standards.
Alter the type of treatment to be pro-
vided.,1 : '
* Substantially alter the facilities plan,
design drawings and specifications, or
, the location, size, capacity, or quality
of any major part of the project.
Increase the EPA grant needed to
complete the project.
Significantly delay or accelerate the
project schedule. _
» . Contract changes involving dollar
amounts of $100,000 or more on grants
awarded before May 12, 1982, if
any single item (additive or deduc-
tive) exceeds $100,000.
no single item has a value of ,
$100,000, but the total price of the
change order is over $100,000.
the total of the additive items of work
in the change order exceeds $100,000,
or the total of the deductive items of.
work in the change order exceeds
$100,000 even though the net value of
. the change order is less than
$100,000. , . . ,
However, related w.ork must not be split
into two or more amendments or change
orders merely to keep it under $100,000
and avoid the need for prior approval.
For grants awarded on or after May 12,
1982, the reviewing agency may review
proposed change orders over $100,000 if
the Grantee has not self-certified its pro-
curement system. Under these circum-
stances, the Grantee should request prior
review; '
Prior approval is not required for
changes to correct minor errors or minor
changes not addressed by the above men-
tioned prior approval requirements. It is'
also not required for emergency changes
as defined below. /
. It should be noted that the reviewing
agency will respond to requests for prior
approval as promptly as possible in order
to avoid undue project delays. Therefore,
the approval may only coyer the concept
of the change, even though certified cost
and pricing data must be furnished when
prior approval is required because the
amount,of the 'change is $100,000 or more.
Because of this, the approval could be '-
subject to revision based on later review of
the necessity and reasonableness of quan-
tities, cost/price analysis, and allowability
of costs.
'(40 CFR 35.935-11; 35.938-5; 35.2204)
Emergency
Changes
An emergency may be, described as an un-
foreseen combination of circumstances
leading to a hazard to life or health which
can only be alleviated by immediate ac-
tion. Although prior approval is not re-
quired for emergency changes, the
reviewing agency should be notified as
soon as possible after the emergency has
been put under control if the work would
otherwise have required prior approval.
Grant
Increases
It should be noted that approval of a proj-
ect change or change order does not obli-
gate EPA to any increase in the amount of
the grant or grant payments unless an
amendment to increase the grant is also
approved. This is further explained in
Grantee Notification on page 14.
(40 CFR 35.930-6: 35.935-11; 35.2204)
Disputes
Many of the delays and mis-
understandings surrounding ithe modifica-
tion process can be avoided by effective
and frequent communication between the
Grantee and the Construction Contractor.
The Grantee bears the entire responsibility
to settle Construction Contractor claims.
When a claim is submitted, the Grantee
should request and obtain a change order
proposal from the Construction Contractor,
investigate the circumstances promptly,
reach a tentative decision on the merits,
and notify the Construction Contractor of
that decision, justifying the position based
upon the plans, specifications, and other
contract documents. In reaching that deci-
sion, the Grantee may find it advisable to
obtain legal advice or to consult with rep-
resentatives of the reviewing agency.
If the Grantee determines that a change
order proposal is meritorious, it should be
negotiated and settled through a
bilaterally-executed change order. If the
Grantee determines that a change order
proposal is unmeritorious, the Construc-
tion Contractor may decide to pursue the
claim through litigation, arbitration, or
other form of dispute resolution. In that
case, the Grantee may request the
reviewing agency's advice arid assistance
prior to assessing and/or" defending against
the claim. Reviewing agency technical and
legal assistance can also be requested for
the administration and enforcement of
construction contracts, especially where a
dispute may jeopardize completion of the
project. The following chapter, entitled
Conditions that May Warrant a Change
Order will be of assistance in judging the
merit of a change order proposal. Prompt
action to resolve disputes cannot be over-
emphasized, since efficient .execution of
the entire change order management proc-
ess can save both time and money.
(40 CFR 33.210; 35.936-5; 35.938-5; 35.970; 35.2350)
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Conditions
that May Warrant
a Change Order
A change order is issued in writing from
the Grantee to the Construction Con-
tractor, stating that it represents a change
to the contract. This is normally done after
the Grantee determines that a proposed
change is necessary. The change order
proposal may have originated from either
the Grantee's own perception of the situa-
tion or from a request by the Construction
Contractor.
The following are common categories of
conditions which generally give rise to a
need for contract changes:
Differing site conditions
* Errors and omissions in plans and
specifications
Changes instituted by regulatory
agencies
Design changes
Pverruns/underruns in quantities
Factors* affecting time of completion
It is possible that some change order
proposals may fall outside of these cate-
gories. However, others commonly have
characteristics similar to the categories
mentioned. Therefore, they can be related
to the reasoning process developed in one
or more of these six mentioned categories.
To make the decision as to whether a
change order is warranted, the Grantee
should first determine if there is any basis
for questioning the existing plans and spe-
cifications. If there is, then it should be
decided whether any action is needed to
insure that the work will be completed to
meet the intent of the project. The next
step is to determine whether the situation
can be resolved by clarifying the part of
the plans and specifications over which
there is disagreement, rather than au-
thorizing a change. If it is then mutually
agreed between the Grantee and Construc-
tion Contractor that a change order is
needed, it should be expeditiously pre-
' pared.
In contrast to the mutually recognized
need for a change, certain acts or failure to
act by the Grantee which increase the
Construction Contractor's costs and/or
time of performance may also be consid-
ered grounds for a change order. This is
termed a constructive change and must be
claimed in writing by the Construction
Contractor within the time limit specified
in the contract documents in order to be
considered. The Grantee should evaluate a
change order proposal based on such a
claim fairly and can use the same
reasoning process as any other proposal.
Differing
Site Conditions
A "differing site conditions clause" or its
equivalent in an EPA grant-assisted con-
struction contract will describe differing
site conditions as:
Subsurface or latent physical conditions
at the site differing materially from those
indicated in the contract, or
Unknown physical conditions at the
site, of an unusual nature, differing mater-
ially from those ordinarily encountered
and generally recognized as inherent in
work of the character provided for in the
contract.
The premises on which a differing site
conditions clause in an EPA grant-assisted
construction contract rests may be de-
scribed as follows:
Each bidder is not expected to perform
an independent subsurface site investiga-
tion prior to submission of bid. However,
bidders are generally advised by the con-
tract documents to make a site inspection.
The contract bid price is proportional to
the degree of risk the Construction Con-
tractor must provide for in its competitive
bid.
The most cost effective construction is
obtained by accepting certain risks for la-
tent or subsurface site conditions.
It should be noted that other clauses of
the contract documents may impact upon
the resolution of a change order which
was originally initiated under a "differing
site conditions" clause, such as. for ex-
ample: a requirement to make a site in-
spection prior to bidding.
Considerations for Evaluating
Need for a Change
Contract Documents
What is the differing site condition?
What is the site condition shown on
the plans?
What sections of the specifications are
applicable?
Do the parties have the latest revised
issue of plans and specifications?
Have the parties checked all the plan
references? Plans are usually segre-
gated by specialty: architectural, site,
plumbing, mechanical, structural,
electrical, special and standard de-
tails. A critical note or dimension on
one of the specialty drawings may
solve the whole puzzle of need and
responsibility.
Does the Grantee have all the avail-
able data describing actual field con-
ditions: Inspector reports, sketches,
dimensions, photographs (before and
after construction)? Even, if the Gran-
tee went into the field to see the prob-
lem, it may riot be possible to observe
critical differences in conditions.
Has the inspection staff provided
adequate data? If not, correct that
situation immediately. The next
"claim" could be much larger.
Why was the condition shown dif-
ferently in the design?
Was provision made for this situation
in the contract documents?
Did the Construction Contractor
encounter unstable soils, rock excava-
tion, or subsurface structures where
no careful prebid site inspection and
contract documents could have pre-
dicted their existence?
Was the Construction Contractor
forced to employ unusual construc-
tion techniques and equipment to
overcome the obstacles encountered?
Can the Construction Contractor's per-
formance, selection of construction
procedures, and response to site con-
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ditions be evaluated by the Engineer
(or possibly a third party) experienced
in modern construction techniques?
Construction Contractor Compliance
.Did the Construction Contractor prom-
'* ptly and before such conditions
were disturbed comply with Grantee
notification requirements?
,. Does tthe Construction Contractor have
appropriately trained and experienced
personnel; have adequate modern
equipment where needed; use
methods and techniques consistent
with accepted practice?
.Did the Construction Contractor make
a site inspection'and evaluation of,-
conditions prior to bidding?
-Is the construction layout correct?
Who made the stake-out;1 who checked
the stake-out?
Did utility companies respond and lo-
cate their facilities? Did the Construc-
tion Contractor protect or obliterate
utility mark-outs and use suitable con-
struction techniques to protect struc-
tures and utilities?
Subsurface Investigation -.
Were borings made or test holes dug;
displayed correctly; available to all
bidders; of proper kind and depth;
spaced at reasonable intervals?
Contract documents often have dis-
claimers regarding differing sub-
surface conditions, but these are not
always as enforceable as they appear.
Was the overall subsurface investiga-
tion in proportion to the type'and
magnitude of the project?
Was the geologic history of the site in-
corporated into the subsurface in-
vestigation data displayed in the con-
tract documents?
Although not part of the evaluation,
the Grantee should consider whether
additional subsurface investigation
,,, should be initiated immediately to '
. minimize future claims and delays.
Once the information on differing site
conditions is assembled, the Grantee
should be in a position to determine if the
site conditions differ materially from those
indicated in the contract or those ordinari-
ly encountered and whether this will
cause an increase in the Construction Con-
, tractor's cost or the time to complete the
work. If the, Grantee determines that a
change order is needed, it should provide
supporting documentation including re-
ports, pictures, plans and whatever is
appropriate to demonstrate where and
how actual conditions deviated from the
plan or from conditions that should have
been anticipated. .
(40 CFR 33.1030..Clauses 3 and 4: Part 35, Subpart E.
App. C-2, Clauses 2 and 3) . ' '..
Errors and Omissions
in Plans and
Specifications
Errors and omissions are- usually design of
drafting deficiencies in the plans and spe-
cifications. Errors on plans and specifica-
tions are items which are sriown in-'
correctly, while omissions are items which
are not shown at all. , ''
Errors and omissions in plans and speci-
fications may be expected on. any large
complex project and are" usually brought
to the attention of the Grantee through the
Engineer, Construction Contractor or sup-
plier. Many errors are corrected by .alert
inspectors before incurring unnecessary
additional costs. However, some errors
may lead to disputes between the Engineer
and Construction Contractor. The Grantee
is responsible for resolving the dispute
and may have difficulty in assessing the
situation, since the Engineer may have
also been the designer and may strongly .
feel that the design was adequate. Moreov-
er, there may be no clearly discernible line
between design errors and faulty materials
or installation by the Construction Con-,
tractor. The Grantee may seek opinions
from independent third.parties ex-
perienced in modern design practices to
aid in the more complex decision making]
but should request prior approval from the
reviewing agency before contracting with a
third party.
The terms of an EPA-grant assisted de-
signer's contract require the correction of
errors/omissions in the drawings or speci-
fications without additional compensation.
s
Time spent negotiating an Engineer/
Construction Contractor dispute'should
not extend the time of completion. ,,
However, a finding of design deficiency
may be grounds for time extension equal
to that delay caused by the error itself.
Considerations for Evaluating
Need for a Change ,
What is the error or omission?
Where are.all the pertinent references
in plans and specifications?
Is the intention of the pertinent refer-
ences obvious .and will they result in
meeting project objectives? '
-=- Did the error/omission lead to in-
creased Construction Contractor costs?
Essentially, a change order in this cate-
gory is necessary when some part of the
project will hot operate properly without
that change to the extent intended if the
error or omission had not occurred.
The Grantee should evaluate these re-
quests carefully, since not all errors or om-
. issions necessitate a change to the contract
price and/or time. While the Construction
Contractor is entitled to ah equitable
adjustment, it may have incurred no addi-.
tional expense and may have no right to a
claim even though an error or omission
has occurred. If expense was decreased, a
credit could be due the Grantee. The Gran-
tee should pursue the available remedies
against all parties who are responsible for
the added costs of a change to protect it-
self against vicarious liability for the im-
proper actions of others. : ~
(40 CFR, 33.1030, Clause 13: Part 35, Subpart E. App.
C-l, Clause 2) >
Changes Instituted
by Changes in .
Regulatory Requirements
Compliance to changes in the law or in
the requirements of government agencies
may necessitate a change order. Typical
examples are: changed requirements for
protecting historical or archaeological ob-
jects, revisions to building codes, or re-
vised road construction plans. The need
for .this type of change should be .well
documented with sources and dates. Jus-
tification for change should include cor-
respondence, records and notes demon-
strating that the requirements could not
have been incorporated into the contract
documents prior to bid 'date.
Considerations for Evaluating
Need for a Change
Is this a change or more stringent en-
forcement of an existing law or regula-
tion? ,
r Should the Construction Contractor
have provided for this in its' bid: "e.g.,
maintenance of traffic, providing fill
materials, waste disposal, environ-
' mental protection, construction safety,
etc.?
Is the proposed modification actually
a change in the work or does it actual-
ly fall into the category of accepted
minimum standards of workmanship
implied if not defined jn any contract
work?
Grantee should review the
documentation for this kind of request
carefully to demonstrate that this is in-
deed a change. .
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Design
Changes
A design change is a modification to an
existing design which can be constructed
arid will operate properly without mod-
ification. In order to warrant considera-
tion, it should meet one or more of the
following conditions:
Be cost-effective. That is, offer a savings-
in excess of all costs associated with the
change order including future operation
and maintenance costs.
* Respond to a proposal based on a con-
sujictiqn incentive contract clause.
Design changes usually originate as
proposals volunteered by the Construction
Contractor, recommended by the Engineer
or requested by the Grantee. The Grantee
may see certain benefits such as reduced
operating costs or improved operating
efficiency. However, any such proposal
deserves particularly careful analysis be-
cause the plans and specifications have
already been determined to be adequate
for project purposes by the reviewing
agency.
The Grantee must receive prior written
approval from the reviewing agency before
authorizing changes which substantially
alter the design, scope, type of treatment,
location, size, capacity, quality of any
major item of equipment or time of project
completion. This category of change is *
likely to require prior approval because it
often changes project scope or performance
standards, so that the Grantee may wish to
consider submitting all proposed changes
under this category for prior approval by
the reviewing agency.
Considerations for Evaluating
' ! Need for a Change
Considerations relating to design changes
fall into five categories: general, substitu-
tion, revised site location, additions and
deletions.
Genera/
> Who originated the proposal?
How will it differ from the original
contract?
Whesn will an answer be needed?
(Some design changes require prior
approval.)
Why was the alternative not consid-
ered during design? Is this the most
cost effective alternative? Are there
others? "_ . ' ,.~\
Who will guarantee the design
change? (A Construction Contractor
normally guarantees its work for a
period of one year after it is accepted
by the Grantee. The designer may be
held liable for its own design for
many years by state statute.)
Does the change affect the timing or
cost of other contracts?
Will the change affect operation and
maintenance?
What are the secondary effects?
Substitution
Substitution is the exchange of specified
equipment, material, or construction tech-
nique for another of equal, better, or lesser
quality. The substitution may require a
different installation technique from the
design, with a resulting change in installa-
tion costs which far outweighs differences
in material costs.
Why can't the specified equipment or
materials be supplied? On time?
. Is there a purchase contract? If so,
when was it authorized? What written
guarantees did the supplier make con-
cerning performance? How does the
supplier respond to charges of non-
performance? Will the supplier be li-
able for liquidated damages assessed
by the Construction Contractor? Has
the Construction Contractor expedited
delivery? Who assumed risk for timely
delivery or performance?
Will the specified item be available
from other suppliers? Within the time
limitations.? Who checked availability?
What other suppliers were contacted?
Give firm, date, and telephone num-
ber, name and title of persons con-
tacted. Can the non-availability of an
item be fully documented?
Do the contract documents specify
something impossible or a sole
source?
Why was this not questioned prior to
bid and award? A responsible bidder
would be expected to check availabil-
ity of major materials and equipment
when preparing a bid submittal.
Will the proposed substitute be equal
in all salient respects and compatible
with other equipment and facilities?
The Engineer should give a written
opinion on this.
Was the substitution proposal pro-
moted as a result of some design,
fabrication, or construction failure?
Which?
Does the proposed substitute circum-
vent the grant and statutory restric-
tions concerning non-restrictive speci-
fications?
Will the change relax the specification
to permit use of less expensive mate-
rials and methods? How will EPA and
the Grantee benefit? Will there be a
fair credit? Will the relative order of
bidders be changed?
Will the proposal violate EPA's "Buy
American" clause?
Relocation of
Site
Relocation of site is" a highly undesirable
circumstance, since it opens Pandora's box
to Construction Contractor claims, es-
pecially when done hastily in response to
some unforeseen conflict. The Grantee
should consider all secondary effects and
be assured that a site relocation is the only
feasible alternative.
Why change the location? Was there a
design error? Will it ease the Con-
struction Contractor's task? Is the
Grantee unwilling or unable to ex-
ercise eminent domain? Is there some
benefit to the property owner?
Are there environmental con-
siderations? Does the change necessi-
tate additional environmental and
archeological review by municipal,
state or federal agencies?
Additions
The Grantee should insure that proposed
additions are within contract scope and
project scope.
Will the proposed item improve main-
tainability of the new grant-funded
facility or existing facility? If both, in
what proportion?
For existing waste treatment facilities,
will the change constitute normal
maintenance for which the Grantee is
solely responsible? Improvements to
existing facilities to make the total
system work are limited to those out-
lined in the Grant Agreement.
For collector and transportation pipe-
lines, will the proposed redesign con-
form to the Grant Agreement? Is there .
any public funding restriction (private
connections, location, size and depth
to serve future development)?
Is this work considered restoration
and is it outside the Construction
Contractor's designated "work area"?
Deletions
Major deletions should not be accepted at
face value. Often a careful review will re-
veal very extensive costs and secondary
effects.
Why was it initially in the design?
Will the quality of the work be low-
ered by deleting the item?
Is another item necessary to replace
this one? Will the deleted work need
to be done in the future, possibly at a
higher cost than the proposed credit?
What is the impact to the contract?
Deleting an item which was priced
too low may be of substantial benefit
to the Construction Contractor.
Thus, the Grantee should evaluate the
request for design changes to determine
whether the, proposed change will be cost
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effective or respond to a proposal based
on a construction incentive contract
clause. It should be emphasized that con-
, siderable effort was expended in prepara-
tion and. review of the existing adequate
plan and there must be good reason to
'3 duplicate this effort.
(40 CFR 33.255; 33.710; 35.935-11; 35.936-13: 35.2204)
i Overruns/Underruns
in Quantities
Overruns/underruns occur whence differ-
ence develops between the quantity es-
timated in the bid schedule and the quant-
ity actually required to complete the bid
item. These differences occur only in con-
tracts which are formulated as a series of .
bid unit prices for each unit (cubic yard,
linear foot, etc.) .of that item installe.d.
They do not affect lump sum firm fixed
price bids. When the differences are con-
siderable, it can result in an unreasonable
loss to either the Grantee or the Construc-
tion Contractor. The Grantee and Engineer
should be alert to identify significant
overrun/underrun trends as early as possi-
ble and avoid obligating funds which are
not available.
When change orders increase or de-
crease the quantity of original contract
items, the Grantee may need to review the
unit price to allow for reasonable adjust-
ment if there is a contractual "variations"
clause where:
. The Grantee incurs unreasonable ex-
pense when an-itern priced too high has
heavy overruns.
The Construction Contractor sustains
loss due to heavy overruns in an item
priced too'low.
The Construction Contractor must
absorb expenditures of general overhead
costs which were included in the unit
price for an item that was only partially
used.
Most contracts contain provisions for
significant differences in the "as built"
quantities when compared with the es-
timated quantities. A provision required
by EPA until May 12, 1982, states that
should the final quantity differ from the
original bid quantity by 15 percent or
more-, (less than 85 percent - more than
115 percent) the Grantee should consider
negotiating new unit prices. The Grantee
may negotiate an equitable adjustment in
« the unit price for that differential which
exceeds the 15 percent margin.
Engineers are not always able to predict
contract quantities to plus or minus 15
9 percent in advance. Realizing this, Con-
struction Contractors sometimes speculate
by entering high unit prices on those
items they expect will overrun and low
unit prices on those items which may un-
derrun significantly. The technique is re-
ferred to as an unbalanced bid. The result
may be unbalanced unit prices or prices
which are not proportional to the es-
timated construction costs. However,
where the Construction Contractor has
large overruns in units where unit prices
were underbid and there is no variations
clause in the contract, a proposal to mod-
ify those unit prices may be developed. It
should be evaluated on the basis of the
foregoing discussion.
Additional clauses may have been in- '
eluded in the contract to minimize in-
centive for speculative bid unit prices
such as'to: '"'.'
Consider overruns/underruns for
renegotiation only on major items (e.g.,
unit price multiplied by quantity equals or
exceeds 10 percent of contract dollar
amount) or high risk items (foundation ex-
cavation). The\Construction Contractor's "
competitively bid unit prices are pre-
sumed sufficiently balanced that only
large changes to major items will create an
unfair hardship to either Construction
Contractor or Grantee. From another point
of view, the increased cost (or savings)
resulting from an unbalanced unit price
may be presumed distributed over the
other contract items. ,
Place a ceiling or maximum permissible
change allowable in the unit price, e.g., 25
percent.
Establish a minimum amount payable
under the jtem to cover fixed costs.
Considerations for Evaluating
Need for a Change
Where did the difference in' quantity
occur when compared to the design
estimate? Why did it vary?
' Does the "as built" quantity use the
same method of measurement as spe-
cified quantity? Are there differing
payment limits? Which method is spe-
cified?,
What documentation is available (e.g.,
field measurements, survey data, load
slips, measurements of carrier, weight
checks)?
Is the variation in quantity caused by
a different use of materials? Is this dif-
ferent use more a design change than
an overrun?
Is this excess included in the cost of
some other item of construction in the
specifications?
Were quantity measurements made
under conditions described in the
specification? The density, and thus .
the volume, of soils depends on
whether they are measured in the na-
tive; loose, or compacted states.
Was the design estimate reasonable?
- Should more effective monitoring and
measurement of quantities be in- /
stituted immediately?
A summary change order to establish
the final quantities ori a unit price con-
tract is accepted practice. However, the
Grantee should recognize the purpose and
application of contract clauses which 'were
intended to minimize unfair advantage
and expense to the Grantee or the Con-
struction Contractor caused by' significant
differences. These clauses are not neces-
sarily justification for a change in price.
(40 CFR 35.938-5) ',
Factors Affecting
Time of Completion
Six conditions impact time of completion,
which is equally as important as costs: ter-
mination for convenience, termination for
default, suspension of work, directed
acceleration, time extensions and con-
structive acceleration. It should be pointed
out that termination and suspension are
not common actions on public sector con-
struction.
Termination
for Convenience
A clause of this type reserves the Gran-
tee's right to terminate any or all portions
of the contract work at any time during
the course of the project, even though
neither party has violated the contract or
failed to perform. The Grantee must follow
a prescribed course of notification and
assumes control and ownership of facili-
ties constructed to date. The Construction
Contractor is entitled to an equitable
adjustment. EPA-required contract pro-
visions or model subagreement clauses re-
serve this right to the Grantee and provide
a detailed procedure for evaluating the
equitable adjustment when preparing the
change order.
Termination . - . .
for Default
If the Construction Contractor fails to per-
form all or portions of the work with suf-.
ficient diligence to ensure completion of
the contract within the allotted contract
time plus time extensions, the Grantee
may terminate the Construction Con-
tractor's right to procee'd. The Grantee
assumes ownership, of facilities con-
structed to date, and can complete the
project with its own forces or by using an-
other contractor. The Construction Con-
tractor is entitled to an equitable adjust-
ment which includes: payment for work
done and materials supplied to date, de-
duction of any additional cost over and
above the contract amount which the
Grantee incurs to complete the project,
and deduction for damages sustained by
the Grantee due to the Construction Con-
tractor's default. EPA-required contract
provisions or model subagreement clauses
provide details for calculating this adjust-
ment when preparing the change order.
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Grantee must observe the contractual
rights of the Construction Contractor's
bonding company or other surety to pro-
tect its right to have the project com-
pleted.
Suspension of Work
EPA-required contract provisions or model
subagreement clauses contain a clause
which reserves the Grantee's right to
temporarily suspend or interrupt portions
or all of the work for an appropriate per-
iod of time at the convenience of the
Grantee. In a few cases, the Construction
Contractor may be entitled to an equitable
adjustment for any additional costs caused
by this suspension particularly if the sus-
pended work is on the critical path of the
project schedule.
Directed
Acceleration
The Grantee may determine that portions
of the work or the entire contract must be
accelerated from the original contract
schedule. While directing acceleration of
the work may be procedurally similar to
ordering a temporary suspension, the Con-
struction Contractor is less able to change
the work schedule without additional cost.
Time
Extensions
The Grantee, after determining the facts,
may grant a time extension to the Con-
struction Contractor for good cause. Other-
wise, the Construction Contractor could be
, liable for contractual penalties, if any,
resulting from failure to perform within
the allotted time. A commonly used mech-
anism for controlling unjustified delays in
contract completion is a liquidated dam-
ages clause in the contract. The clause
generally assesses a dollar amount to be
paid to the Grantee from the Construction
Contractor for each day that the time re-
quired to complete the project exceeds the
contract time. The amount is based on es-
timated damages which would be sus-
tained by the Grantee. This clause is in-
voked only if the Construction Contractor
has failed to complete the work by the de-
signated time or fails to justify and obtain
approval of time extensions. Since the
Construction Contractor will generally
provide a justification, the Grantee should
keep complete time-related records in
order to enforce this clause.
Constructive
Acceleration /
The Grantee should not ignore a justifiable
request for a time extension since this can
result in a Construction Contractor claim
for constructive acceleration. This occurs
when a Construction Contractor sustains
additional costs by increasing forces or
otherwise incurring added expense to
overcome lost time which occurred
through no fault of its own in order to
avoid assessment of liquidated damages.
Considerations for Evaluating
Need for a Change
Was the cause of the delay beyond the
Construction Contractor's control? Did
the Construction Contractor fail to
take normal precautions?
Was the Construction Contractor
ready and able to work?
Did the Construction Contractor sub-
mit a detailed schedule projecting
completion within the allotted time?
Updated regularly? Did the updated
schedule justify an extension?
Did this schedule contain a "critical
path analysis" or equivalent?
-J- Has the Construction Contractor main-
tained sufficient forces in those op-
erations along the critical path where
needed to meet target dates?
How have causes other than normal
, weather beyond the control and with-
out the fault or negligence of the Con-
struction Contractor affected target
dates along the critical path? Ex-
amples of these include acts of God,
acts of the public enemy, acts of the
Grantee, acts of another contractor in
the performance of a contract with the
Grantee, fires, floods, strikes, or un-
usually severe weather (e.g., A carpen-
ters' strike lasting ten days may have
only delayed the total project three
days).
Has the Construction Contractor pro-
ven "unusually severe weather" with
such information as climatological
data, return probability of severe
storms, or flood depth data? Did the
weather phenomenon actually delay
operations along the critical path or
secondary operations? Was the Con-
struction Contractor shut down for
other reasons?
Terminations, suspensions and ex-
tensions of time will necessitate pro-
cessing a change order. Terminations for
convenience or default are usually very
complex and may require evaluation of
the entire project. Other contract pro-
visions in addition to EPA-required con-
tract provisions or model subagreement
clauses can affect the outcome. Extensions
of time should be fully evaluated and jus-
tified. The Grantee is cautioned against
awarding unwarranted time extensions, so
that liquidated damages may not be un- v
necessarily forfeited.
Whenever time factors are part of a
change order, they should be negotiated
together with the other factors, not de-
ferred or separately negotiated. In this
way, claims for associated costs such as
additional overhead during time ex-
tensions can be largely avoided.
(40 CFR 33.1030, Clauses 5 and 6; Part 35, Subpart E,
App. C-2, Clauses 4, 5 and 6) -
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Preparation of
the Change Order
The preparation of the change order by the'
Grantee requires familiarity with .contract
documents, assembling of pertinent in-
formation, negotiation, and careful
documentation of the proceedings. The
change order may be initiated by a request
for proposal from the Grantee or as a
claim or recommendation for change from
the Construction Contractor. A claim is
basically a request for relief because some
action or inaction by the Grantee or a mis-
representation in the contract documents
is alleged to have caused an involuntary
change in the cost or time of performing
the contract. It differs from the other
methods of initiating the change order
process, since the circumstances already
exist and the Construction Contractor has
announced the intention of pursuing an
increase in the contract price or time.
While a request for proposal or a claim
are general in nature, the change order
proposal sets forth a full development of
costs and work. It is a written offer by the
Construction Contraqtor to perform or de-
lete stated work in return for ah adjust-
ment for a certain amount of money or
contract time (if needed).
The Grantee should examine a proposal
very carefully to determine by reference to
the appropriate section in the specification
those items which are included, and those
which are omitted. However, timely action
on the proposal is equally important, since
delays could increase the Construction
Contractor's costs and possibly lead to
. secondary effects on project cost and com-
pletion time. . -
Before entering negotiations, the Grantee
should be totally familiar with the options
and incentives provided by the contract
documents. Application of these tools can
'encourage the Construction Contractor to
negotiate meaningfully.
The bilateral change order is the more,
s common type, it is one agreed to by both ,
parties, and it minimizes cause for dis-
putes and claims at a later date. Should
meaningful negotiations fail, the Grantee
may issue a unilateral change based on the
authority provided it by the EPA-required
contract provisions or model subagree-
ment clauses. For a unilateral change, the
Construction Contractor, whose con-
currence is not required, is entitled to an
"equitable adjustment" for any difference
in cost resulting from, that change. Many
contracts provide a formula for computing
the adjustment. The threat of the use 'of
the unilateral change plus other options
provided for by contract can expedite
meaningful negotiations.
' Other options include deletion of the
work covered by the change and perform-
ance of that work fay the Grantee's own
forces (which should be approved by the
reviewing agency before starting work), or
performance under a separate contract
awarded to another construction con-
tractor. However, a proposal deleting ,the
changed work may entitle the Construc-
tion Contractor to an equitable adjustment
for partt but not necessarily a prbrata
share, of the overhead and profit allocable
to the changed work and not recovered
elsewhere. The unilateral change should
be invoked with caution since control over
costs and time may be lost, the quality of
the work may suffer and control of the
contract may suffer.
Contract documents .generally provide
time limitations which the Construction
Contractor must satisfy in order to be enti-
tled to an adjustment. Likewise, the Gran-
tee should respond in a timely manner,
particularly in the case of a claim for ex-
tension of time. Failure to respond may be
construed as a denial and, if the Construc-
tion Contractor fulfills the conditions for
constructive acceleration, may recover
damages from the Grantee..
Convinced of the need for a change
order, the Grantee's next step is to negoti-
ate the conditions of that change with the
Construction Contractor and prepare the
change order. Effective negotiation is a'vi-
tal function of contracts administration.
The Grantee should, as good business
practice, prepare for negotiations with the
same thoroughness as the Construction
Contractor. There should be an exchange
of background information, clarification of
. the scope-of change, consultations with
regulatory agencies where necessary, ex-
ploration of alternatives and secondary
effects and cost and time considerations.
Each party should formulate certain
negotiable objectives of performance,
price, and time.
(40 CFR 33.1030 Clause 3; Part 35, Subpart'E, App. C-
2, Clause 2)
Preparation For
Negotiations
The Grantee is responsible for negotiating
fair and reasonable cost and time for a
necessary change order. Preparation for
negotiations should include consideration
of quality control, cost, alternative
methods, secondary effects, and time. The
Engineer's advice is normally sufficient for
this preparation.
However, where the.Grantee is faced
with an unusually substantial and com-
plex claim, it may wish to use an in-
dependent third party to prepare an
assessment. This third party should pro-
vide .whatever engineering and construc-
tion, financial, and legal expertise is
needed to clarify the Grantee's position
regarding costs, share of liability and
amount at risk. By comparing the assess-
ment to litigation/arbitration cost estimates
'and the Construction Contractor's poten- .
tiaLsettlement offer, the Grantee may find
the claim close to resolution. It should be
noted that written prior approval by the
reviewing agency should be obtained be-
fore contracting with a third party if the
Grantee wants this assistance added to the
scope of the grant-eligible project.
Quality
Control
Quality of materials and workmanship
may be a negotiable item in some mod-
ifications. The corresponding price can
vary over a considerable range. Any pro-
posal for change should include a detailed
description of work, plus a specification
clearly defining quality of materials and
workmanship.
Cost
Most changes clauses specify that an
equitable:adjustment should be agreed up-
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on, The goal of an equitable adjustment is
tq leave the Construction Contractor in the
same relative profit or loss position on the
basic contract after the change order as if
there had been no need to change the con-
tract.
The Grantee should establish the cost of
the change. Insofar as possible, before the
start of work. Pricing of the work after its
completion is undesirable since it:
Compromises the Grantee's ability to
control project costs.
« Gives the Construction Contractor a dis-
tinct advantage in negotiations for ex-
tensions of time.
Fosters a condition where the price
agreement may be based upon cost plus a
percentage of cost basis which is not
allowed under EPA regulations.
Fosters a pattern of overpriced pro-
posals which delay agreement until after
the work is completed.
I ' ti'i,:T *
At this stage, the Grantee should have
the CQnstruqJion Contractor's price pro-
posal, the Engineer's independent cost es-
timate and possibly an independent third
party's assessment if necessary for com-
parison. The Grantee should be prepared
to negotiate cost plus a fair profit, in-
cluding reductions in overhead and profit
for deleted work. Under grants awarded
before May 12, 1982, the Construction
Contractor is required by EPA regulations
to submit sufficient cost and pricing data
to the Grantee to enable the Grantee to de-
termine the necessity and reasonableness
of costs. Under grants awarded on or after
May 12,1932, the Grantee is required by
EPA regulations to conduct a cost or price
analysis for all negotiated change orders
estimated to exceed $10,000.
HO CFR 33.290, 33.1030, Clause 8; 35.938-5)
Alternative
Methods
There are generally a number of alterna-
tive methods of meeting the objective of
the proposed change. The Construction
Contractor, being the most knowledgeable
about its operating costs, can often suggest
economies in construction methods or
materials not apparent to a Grantee. The
Cost effectiveness of the alternatives pre-
sented should be compared after a tech-
nical analysis, taking into account future
operation and maintenance costs. Whether
the change is needed to complete the proj-
ect should also be considered, since the
"no change" alternative may in fact be the
most cost effective choice over the design
life of the project. '
Secondary
Effects
A seemingly minor contract change may
have secondary impacts which are many
times more costly than the original change
order amount. Assessment of secondary
effects presupposes a thorough un-
derstanding of the project design, contract
documents, and the Construction Con-
tractor's schedule and construction tech-
niques. Failure to properly assess secon-
dary effects may undermine the cost
effectiveness justification supporting the
proposed change's.
The following example will illustrate
secondary effects:
A change is proposed to increase the
size and capacity of a pump. The pro-
posed pump may no longer be compatible
with intake or discharge piping, power
source, housing, mounting hangers, or
electrical controls.
'Some of the conflicting parts may
already be ordered or installed. Many of
the costs may be duplicated, plus, should
any portion of the duplicated work or de-
livery time impact the critical path sche-
dule, the contract completion date may be
delayed.
The prime Construction Contractor may
guarantee and absorb any unforeseen sub-
contractor costs; however, any portion of
the work or related work constructed by
another prime contractor should be as-
sessed for costs and time impacts. On pro-
jects with multiple prime Construction
Contractors and on fast-track projects, the
Grantee generally has assumed the
responsibility for coordination and may be
liable for the secondary impacts on related
prime Construction Contractors.
The designer may be entitled to addi-
tional fees for design (if not to correct an
error or omission); plus, if the change re-
sults in an extension of time, there may be
additional inspection costs.
If the electrical controls are provided by
another prime contractor and need mod-
ification, another contract change may be
generated.
Time
Time affects price. It is unlikely that a
realistic price can be negotiated without
the parties agreeing pr being close to
agreement on the time adjustment re-
quired. Deferral of time negotiations to a
later date suffers from the same criticisms
as after-the-fact pricing, since it:
Relieves the Construction Contractor of
pressure to complete the work in a timely
manner. However, if time negotiations are
deferred, the Construction Contractor must
still prove the basis for delays.
Places the Construction Contractor in
the advantageous position of negotiating
from actual time, This can be countered
by keeping construction schedules up to
date.
Creates a danger of constructive
acceleration die to failure to issue jus-
tified time extensions promptly.
Approval of a change order for time ex-
tension may extend the amount of \
engineering and inspection needed on the
project.
Approval of a time extension will not
relieve the Grantee from anv obligations »
that the state or EPA may have imposed
upon the project.
In addition to the Construction Con-
tractor's proposal for time extension, the
Grantee should make its own independent
estimate (normally prepared by the En-
gineer).
Memorandum
of Negotiation
It is good construction management prac-
tice to keep a memorandum of the negotia-
tions pertaining to a change order. The
amount of detail and formality involved in
the memorandum should definitely be not
more than is justified by the complexity of
the work and cost involved.
A record of these negotiations docu-
ments that the parties have a clear un-
derstanding of the proposed changes and
jointly evaluated the reasonableness of the
proposal. These should include con-
siderations of quality, cost, alternative
methods, secondary effects, and time. The
memorandum should be prepared at the
negotiating table and signed by all
attending. Immediate documentation mini-
mizes misinterpretation and memory fail-
ure.
The parties may not reach agreement on
some or all of the items discussed. The
disagreements are often more significant ~
than the items resolved. Those items
which are not resolved or are not negoti-
able should also be recorded, stating the
position of each side and whatever
reservation of rights is necessary. The
reasons for disagreement must be clearly
documented. A multipart bilateral change
order can then be executed for the re-
solved items and one or more unilateral
change orders issued for those unresolved
items which must proceed. The Construc-
tion Contractor may then seek a remedy
through renewed negotiation, arbitration
or litigation.
A number of unrelated items may be
discussed at the same session and in- ;
eluded in one memorandum. The Memor-
andum of Negotiation should contain the
following information:
Project name and number, location, '
date. '
Contract name and number.
10
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Names of persons representing Con-
struction Contractor, Grantee, Engineer.
Description of proposed change'(Attach
revised specification, plan, sketches, shop
drawings, etc.) station location, plan sheet
j number.
Discussion of alternative methods of
meeting objective and quality con-
siderations.
* Construction Contractor's price pro-
posal.
Engineer's independent estimate of cost
and time changes.
Explanation for recalculation or dis-
agreement.
Statement of total cost changes in-
cluding secondary costs.
Statement of total,time changes.
Assurance that complete cost of secon-
dary effects has been included.
Dated signatures of persons attending.
The Memorandum is not a notice to pro-
ceed, nor is it a change order. It should be
used in the preparation of the change
order and retained in the Grantee's files
for possible later use by the reviewing
agency.
Change
Order
The change order is the formal doeument
which alters some condition of the con-
tract documents. The change order may
alter the contract price, schedule of pay-
ments, completion date, plans and speci-
fications.
It specifies the agreed upon change to
the contract and should include the
following information:
Identification of the change order
'Description of change ' ;
Reason for change ;
Change in contract price
Change in unit prices (if applicable)
Change to contract time
Statement that secondary impacts are
included ' ,
Approvals by Grantee's and Construc-
tion Contractor's authorized representa-
tives
1 The Grantee may require the Engineer's
signature for internal control, but this is
not a substitute for the Grantee's signature.
Notice .'.'-
to Proceed
Before proceeding with the work, the,Con-
struction Contractor may require a
"Change Order Notice to Proceed" (stan-
dard forms available from professional and
trade associations) from the Grantee. If
needed, the Grantee can provide notice to
proceed immediately unless prior approv-
al from the reviewing agency is required.
The notice to proceed may be made a part
of the change order, allowing the Con-
struction Contractor to proceed upon ex-
ecution of the change order by both par~
ties.
Submitting
a Change Order
to the Reviewing Agency
EPA regulations intend that the level of
detail required in a change order and
attachments depends on the dollar amount
and complexity of the change. For changes
with a price of $10,000 or less, abbrevi-
ated documentation should be used such
as, for example, a telephone memorandum
to serve as a Memorandum of Negotiation.
As another example, sales slips, quota-
tions, catalogs and price lists can be used
to support the price paid. By using short-
ened procedures and by grouping changes
to be administered in one change order,,
preparation costs should be kept reason-
able in relation to the dollar value of the
.change. However, related work should not
be separated into several change orders
just to take advantage of shortened pro-
cedures.
Submittal requirements also depend on
the date upon which the grant was
awarded. For grants awarded before May
'12, 1.982, the change order approval
request and attachments should be sub-
mitted to the reviewing agency as soon as
a change order has been signed unless the
Grantee self-certifies its procurement sys-
tem. Allowable cdsts can,then'be included
in the next payment request.
For grants awarded on or after May 12,
1982, change orders would not need to be
submitted to the reviewing agency, unless
the Grantee self-certifies that its own pro-
curement system does not meet the intent
of EPA regulations. However, these change
orders will be subject to audit by the
reviewing agency at the completion of the
project. Documentation should therefore
be completed, except the approval request,
,. and filed by the Grantee.
In order to assist the Grantee in prepara-
tion of the change order approval request,
the information typically required by the
reviewer has been listed under Screening
Process on page 12. This request formally
notifies the reviewing agency that a
change has been made to the contract
documents and asks for change order
approval and determination of allowability
of any additional costs or time for federal
participation. Since .the memorandum of
negotiation, change order and notice to
proceed (if,any) will be included with the
request, it is suggested that information -
given on .them not be duplicated on the
request itself.
The request must be signed by the Gran-
tee prior to submission to the reviewing
agency. As with the change order, the En-
gineer's and Construction. Contractor's
signatures may be required as a part of the
Grantee's internal control procedures, but
this is not a substitute for the Grantee's
signature. Supporting documentation
should be referenced and then attached to
the change order request.
The Grantee is expected to keep all
change order documentation on file for 3
years following final grant payment. If a
change order is the subject of a con-
troversy (such as a claim) or audit within
the 3 years, the period shall be extended -
until resolution of the controversy or au-
dit.
The Grantee should also check with its
State agency which has reviewed the con-
struction drawings and specifications to
determine if there are any additional
change reporting requirements, such as
modifications to a State-issued building
permit.
('(I CFR 33.001: 33.110)'
11
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Reviewing Agency
Proce3ures
The reviewing agency's responsibility is to
determine if a change order request com-
plies with and satisfies the requirements
of the U.S. Environmental Protection
Agency's (EPA) construction grants pro-
gram" on two points. The first is whether
me work would be considered a major
change and therefore, in many cases, a sig-
nificant alteration of the previously
approved plans and specifications. The
second is whether the reviewing agency
should commit additional federal and/or
state funds to the project. To do this, the
reviewer should be thoroughly familiar
with the program, the specific grant con-
ditions, the contract documents and the
following procedure for consideration of a
change order.
Each reviewing agency has developed
Us own checklists for review of change
Orders, which may be more or less de-
tailed than what is provided here, so that
the Grantee should discuss those pro-
cedures with the particular reviewer who
is involved^ The procedure that follows is
organized so that the more detailed an-
alysis required in the succeeding steps
need only be performed if each earlier
step is already satisfied. Thus, the change
proposal need not be thoroughly analyzed
if the request is deferred or rejected at an
earlier stage. A point which needs to be
re-emphasized here is that the detail re-
quired by the reviewer should not be more
man is justified by the complexity of the
change and cost involved.
Even though each reviewing agency's re-
quirements will differ, the process should
he generally the same and in the following
sequence:
Screening of change order materials.
Verification of prior approval require-
ments. " " _ ^
Determination of federal and/or state
funding participation, based upon:
j Need for change.
r- Reasonableness of the method of
accomplishing the objective.
TT- Eligibility of the change.
Allowability of the costsl
Documentation of the review pro-
cedures.
Notification to the Grantee.
Screening
Process
The change order approval request should
first be screened to determine whether the
information and documentation provided
are sufficient for the subsequent more de-
tailed review. Checklists are a common,
effective technique used to insure that
each item is verified. Later, they document
the following: who reviewed which items,
when, and what the results were. Also,
where two or more agencies check por-
tions of the same request, the checklist
clearly states which items Were reviewed
and by whom. A schedule of important
items to be included in a reviewing agen-
cy's checklist for the screening of change
order requests is provided below.
Identification of
change order request.
Project name.
Contract name and number.
EPA Project number.
State Project number.
Grantee nanie.
Change Order number.
Date.
Names, addresses and telephone num-
bers of Grantee, Construction Contractor
and Engineer representatives.
State approval, name, title, date.
Prior
Approval.
Required from reviewing agency?
« Obtained from reviewing agency?
Need
for change. ,
Clear understandable statement.
Cause and remedial change.
Reason why not in original contract.
References and attached substantiating
documentation.
Applicable contract provisions cited
and compliance.
Description
of change.
Clear statement, not ambiguous.
Revised plan and specification sheets
referenced and attached.
Design data and calculations attached.
Scope of change is clear.
Change is within project scope.
Design is adequate.
Revised material or construction
method is (equal to) (less than) (better
than) specified construction.
Will revision increase/reduce time and/
or cost of construction?
How are operation and maintenance
costs affected?
Is arithmetic correct?
Does agency inspection report verify
accuracy of statements?
Does other substantiation verify accura-
cy? Grantee inspector reports, laboratory
tests, pictures, others.
Change to
contract price
Dollar amount of change shown (zero
for no change).
Construction Contractor's cost break-
down.
Profit entered separately.
Engineer's independent estimate in-
cluding verification of costs for new item;
Documentation referenced, attached.
Are unit prices in accordance with con
tract documents and regulatory require- ' .
ments?
Change to
contract tune. '
Statement of number of days or zero
days.
Documentation referenced and attachec
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Non-federal funding is properly
certified and authorized.
Approvals.
Signature(s) entered and dated.
J Execution of signature(s) agrees with
prior approval requirement.
Change'order signature(s) entered and
j dated.
Execution of change order signature(s)
. agrees with prior approval requirement.
Attachments are listed
and attached.
Memorandum of Negotiations.
Cost and pricing data attached and cer-
tified by Construction Contractor (if in ex-
cess of regulatory limit).
Change Order and Notice to Proceed (if
required).
If it has been determined that the
change order approval request has ade- ,
quately met the screening criteria, then the
reviewer can proceed to a determination
of whether, the prior approval require-
ments have been met. If the request has
failed to meet the screening criteria, then
further information should be requested.
Prior Approval
Requirements
Written approval from the reviewing agen-
cy prior to the start of ,work associated
with the change is often required. The
conditions which require prior approval
were previously discussed in Prior
Approval Requirements on page 3. After
the change order approval request has
been screened, the reviewer must de-
termine whether the scope and conditions
of the change would have required prior
approval. If so, a check must be made
whether the approval had been given prior
to the start of the change-related work.
The actual work done must be reviewed to
see whether it conforms fairly closely with
the terms of the prior approval. If there is
a substantial difference, the work would
have to be considered done without prior
approval.
When the work would have required
prior approval and it was not given, the
reviewer must then decide whether to
seek a deviation from the pertinent regula-
4 tion, (see Prior Approval Requirements on
page 3) or to disapprove the cost of the
change. On the other hand, when the
change had received prior approval or did
» not require, it, the reviewer can then pro-
ceed to the determination whether federal
and/or state participation in the funding of
the change should be approved.
This is an appropriate point to remind ,
the reviewer of the need to act as ex-
peditiously as possible on prior approval
requests. Delays could increase the Con-
struction Contractor's costs and possibly
lead to secondary effects on both project
cost and completion time. ,
Determination of Federal
and/or State Funding
Participation
The reviewer's determination on whether
to approve additional federal and/or state
funding for a change would be based on
the Grantee's analysis of the need and
demonstration of the reasonableness of the
means for accomplishing the changed
work. Following that, the reviewer must
determine that the change consists of elig-
ible work and that its costs are allowable.
Review of
the Need for Change
Expeditious processing of the change
order is necessary in order to deal with
the inevitable changes in circumstances or '
conditions which arise duririg the .course
of construction and require increases or
decreases to the work, cost and time for
completion. These changes can generally
be classified into the following six categor-
ies: differing site conditions, errors or om-
issions in plans and specifications,
changes instituted by the regulatory agen-
cies, design changes, overruns/underruns
in quantities, and factors affecting time of
completion.
It is possible that some change order
request submissions may fall outside of
these categories. However, those requests
would have sufficiently similar character-
istics that the reasoning process developed
in one or more of these six, categories
could be used.
The reviewer must determine that suf-
ficient evidence has been provided to
demonstrate the need for a change. While
this is largely a subjective judgment, it
should avoid being a second-guess of
whether there is a need. It .should instead
be a determination whether the Grantee'
made a reasonable analysis, using a ration-
al basis such as in the chapter entitled
Conditions that May Warrant a Change
. Order on page 4. If the,evidence of need
has not been affirmed, the request should
be returned to the Grantee for further jus-
tification.
The reviewer should give particular
attention to the regulatory prohibition
against funding change orders resulting
from Grantee mismanagement or the Gran-
tee's vicarious liability for the improper
actions of others.
(40 CFR 30.600)
Reasonableness of the Method
of Accomplishing The Objective ,
This evaluation is based on consideration
of the quality, cost, alternate methods^
secondary effects of the change and the
impact on completion time. The following
items should assist in the evaluation of
the change order for reasonableness: >
Quality considerations.
Js quality of change equal to, less
,than, or greater than original work?
, If greater, is it justified?
If less, is a credit offered?
Does it equal or exceed minimum .
technical standards?
Does it require additional review un-
der the National Environmental Policy
Act?
Cost review.
Have cost and/of price analyses been
performed? , .
Do cost and quality match up?
Is the cost fair and reasonable?
Is a cost-effectiveness analysis
needed? What is its conclusion?
The reviewer may evaluate the cost of
proposals by either or a combination of
two methods: cost and price analysis.
Using the cost analysis method to evalr
uate proposals involves a detailed review
of the cost components plus profit. Cost
components include direct and indirect
' items of cost. Direct costs include labor,
fringe benefits, equipment and material
costs directly attributable to the perform-
ance of the changed work. Indirect costs
include insurance, bonding, overhead, and
other similar costs which may be allocated
and represented as a percentage of direct
costs.
Using price analysis, the Grantee com-
pares the price of an item with other es-
timates, bids, or 'quotations for similar
items. Individual components of the price
are not evaluated separately. Care must be
exercised when.comparing prices to de-
termine the similarities and differences be-
tween the items. . ,
Alternate methods.
What other alternatives were consid-
ered to accomplish the objective?
Is the evaluation of alternatives (in-
cluding no change) adequate con-
sidering the scope of complexity of
the change? .
Is this alternative cost-effective?
How does it affect future maintenance
cost's?
Is the change necessary, to complete
the project?
Secondary effects of the change.
' Are there secondary effects?
Are the secondary effects evaluated?
Is this change order the unforeseen or
miscalculated result of a previous
contract change? .
Are the cost analyses for secondary
effects complete and reasonable?
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Impact on time of completion.
How does the change impact on the
time of completion?
Is the Grantee legally obligated to
grant extension of time?
Is the Grantee obligated to pay for the
additional costs incurred by the time
extensions?
!' L ' ' "! 1
If the method for accomplishing the
change has been determined to be reason-
able, then the reviewer must proceed to
determine the eligibility of the change
order request. If the reasonableness has
hot been affirmed, the request may either
be referred to the Grantee for further
clarification or may be denied partial or
complete Federal funding participation.
(40 CFR 30.700)
Eligibility of
the Change
Eligible costs are those costs in which
federal participation is authorized by the
particular statutes which govern that
grant. A finding of eligibility for a particu-
lar item of work means that the descrip-
tion pf this work fits, within the limita-
tions set forth by applicable statutes.
Sources of authority for funding eligibility
Include those shown below and the re-
viewer must determine which statute is
applicable to the specific project.
* Public Law 84-660 (enacted July 9, 1956
and amended through November 3, 1966):
authorized publicly owned wastewater
treatment plants, intercepting and outfall
sewers, and waste water pumping facili-
ties.
Public Law 92-500 (enacted October 18,
1972): added collector sewers and land
integral to the treatment process.
Public Law 95-217 (enacted December
27,1977): added privately owned treat-
ment works if overseen by a public agen-
cy.
Public Law 97-117 (enacted December
29,1981): restricted new grants for sewer
replacement/rehabilitation, new collector
sewers and combined sewer overflow
correction after September 30, 1984.
Eligibility determinations are made
When the construction grant is approved.
Additional screening for eligibility of each
change order must be made on the basis of
the following limitations which are com-
mon to all the foregoing statutes:
Is the change related to the construction
of publicly owned treatment works?
Is the request related to approved plans,
specifications and cost estimates?
* Js it not included in any work previ-
ously determined to be ineligible (unless
eligibility criteria changes)?
Is the change related to that which is
necessary to maintain effluent limitations
and schedules of compliance?
Are EPA funds available from the cur-
rent State allotment?
Is there assurance of the availability of
additional non-federal share funds, if
necessary? -
Are the size and capacity, including re-
serve capacity, related to needs?
Are there any proprietary, exclusionary
or discriminatory requirements other than
those based on performance?
Is the change cost effective?
If the reviewer determines that the
change order request is eligible, and that
cost can be allocated to the extent of bene-
fit properly attributable to the project, the
request must then be reviewed for
allowability. Should the request be de-
termined to be ineligible, the request must
be denied grant funding.
HO CFR 30.705)
Allowability
of the Costs
Project costs are allowable if the project is
authorized by applicable statutory pro-
visions, as previously discussed under
Eligibility of the Change, and payment is
allowed under applicable regulatory pro-
visions. These provisions also apply to an
allowability determination for a change
order and are as follows:
The costs must be reasonable and with-
in the scope of the project (reasonableness
has been analyzed under Reasonableness
of the Method of Accomplishing the
Objective on page 13).
The cost is allocable to the extent of
benefit properly attributable to the project
(appropriate allocation of costs has been
analyzed previously under Eligibility of
the Change).
Such costs must be accorded consistent
treatment through application of generally
accepted accounting principles.
The cost must not be allocable to or in-
cluded as a cost of any other federally
assisted program in any accounting period
(either current or prior).
The cost must be in conformity with
any limitations, conditions, or exclusions
set forth in:
the grant agreement.
40 CFR, Parts 30 and 35. Particular
attention should be paid to:
40 CFR 30.710(a), referencing OMB
Circular A-87 Rev., which provides
principles for determining allowable
costs for all grants awarded to state
and local governments.
40 CFR 35.940 "Determination of
Allowable Costs" for grants awarded
before May 12,1982, or Appendix A
of. Part 35, Subpart I for those
awarded on or after that date.
, 41 CFR 1-15.2 and, if appropriate, 1-
15.4 which provide comparable prin-
ciples for determining allowable cos1;
for contracts between the Grantee an
the Construction Contractor.
Chapter VII, Section B, Allowable as
Unallowable Costs in the Handbook
of Procedures for the Construction
Grants Program for Municipal
Wastewater Treatment Works for
grants awarded before May 12, 1982.
Program Requirements Memoranda
and policy memoranda published am
adopted by the Office of Water Pro-
gram Operations, U.S. EPA, as applic
able based on the date of grant award
Grantee
Management
Review
The reviewer may notice that one or a
group of change orders indicate that sig-
nificant Grantee project management im-
provements are needed to insure that proj
ect objectives will be met. In this situa-
tion, the reviewer should recommend to
his or her supervisor that particular atten-
tion be given to the project. One option
available to reviewing agency is a
recommendation to the Grantee that an ex
perienced construction manager be re-
tained. Another option is for the reviewinj
agency to request that an evaluation of the
Grantee's construction management organ-
ization be performed. This type of review
would be requested from and coordinated
by EPA headquarters.
Grantee
Notification
The Grantee must be formally notified of
the action taken on the completed change
order request. This notification informs
the Grantee of one of the following actions
as applicable:
If prior approval is required:
costs of change order are allowable (01
partially allowable as stipulated).
costs of change order are riot allow-
able,
If prior approval not required:
change order is approved and costs *
are allowable (or partially allowable
as stipulated).
change order is approved, but costs *
are not allowable.
change order is not approved and the
reason.
In all cases, that approval of a project
change does not obligate EPA to any in-
-------
crease in the amount of the grant or grant
payments unless an amendment to in-
crease the grant is also approved. This
limitation should-be stated in the approval
and appropriate action taken toward
amending the grant if necessary. The
j Grantee should also be informed of any
; restrictions on grant amendments, such as
the State agency denying certification of a
grant increase or any regulation which
^limits grant increases.
Appeal of
Allowability Determination
The Grantee may appeal a determination
of allowability to the Regional Administra-,
tor within 30 days of its receipt. This ap-
plies to determinations by the state agency
or EPA project officer. Details and appeals
procedure are explained in 40CFR 30.1100
and 35.960, plus 35:1030-9 for de-
terminations by delegated state agencies.
Documenting
the Project File
for Change Orders
The reviewer must maintain in the project
file a list of the allowable and unallowable
dollar amounts of each change request,
. plus the cumulative dollar amounts to
date. Allowable time extensions and cur-
rent time of completion should also be
.listed.
Interim reimbursement payments to the
Grantee may include the value of
approved change orders if requested. The
reviewer w_ill determine that a reimburse-
ment request is based upon the sum of ori-
ginal contract amount, plus only allowable
costs for contract changes, not to exceed
the grant amount as amended.
Each change order should be shown
separately, in numerical order, with its in-
dividual tabulation of quantity and pay-
ment. If the change, affects an original con-
tract quantity, the change will still appear
separately, since there may be a time lapse
between Grantee processing and EPA
approval. A change which alters ,an origin-
al contract quantity or price will reference
that original item.
The reviewer will file the following
documents, as applicable, with the con-
tract changes:
Request for change order approval -
signed and dated copy - with attachments
as follows:
Memorandum of negotiation including
the Engineer's independent estimate
(if requested by the reviewing agency).
Change order.
Notice to proceed (if prior approval is
required, notice will be furnished sep-
arately).
Reviewer's checklist - signed and dated
copy. ,
Notification of approval or disapproval.
Request for additional information or
clarification.
Memoranda of meetings.
Telephone conversations - notes of the
reviewer.
Inspection Reports - review agency in-
spector.
Project cost summary - updated.
Acknowledgements
The contribution of the following partici-
pants in the development of this guidance
is gratefully acknowledged:
Contractor ,
Burns and Roe Industrial Services
Corporation
EPA Project Officer
Eliot, Tucker - Municipal Construction Di-
vision ,
Peer Reviewers
Robert Gervais - EPA Region 9
George Gunn - CH2M-HU1, Reston, Vir-
ginia
i -
Technical Reviewers
Michael Sloss - California State Water Re-
sources Control Board
'Ta-Shon Yu - Maryland Environmental
Health Administration
George Goldy - New Jersey Department of
Environmental Protection
Conrad Simon - EPA Region 2
Charges Strubbe - EPA Region 5
Evan Revelle - U.S. Navy, Naval Facilities
Engineering Command
R.P. Young - U.S. Army Corps of En-
gineers, Los Angeles District
Jack Farless - U.S. Army Corps of En-
gineers, San Francisco District
Thomas Gower, Jr. - EPA Office of In-
spector General
Allan Abramson - EPA Region 7 ,
Todd Gayer - EPA Region 5
David Fulton - U.S. Army Corps of En-
gineers, South Pacific Division
Seymour Lubetkin - Roy F. Weston, Inc.,
West Chester, Pennsylvania
Thomas Wolf - Milwaukee Metropolitan
Sewerage District, Wisconsin '
James Borberg - Hampton Roads Sanitation
District, Virginia
Ron Bond - City of Knoxville, Tennessee
Wayne Bruce - East Bay Dischargers Au-
thority, San Lorenzo, California
Hugh McMillan - Metropolitan Sanitary
District of Greater Chicago, Illinois
Orlando Dalke - Idaho Department of
Health and Welfare
Paul Kuhn - Greeley and Hansen En-
gineers, Chicago, Illinois
David Achorn - Maine Department of En-
vironmental Protection
Gordon Wegwart - Minnesota Pollution
Control Agency
Al Stewart Rosin - Lockwood, Andrews &
Newnam, Inc., Houston, Texas
O.S. Hiestand - Section of Public Contract
Law, American Bar Association
Tom Stire - EMA, Inc., St. Paul, Minnesota
Harold Gray - H.R. Gray & Associates, Co-
lumbus, Ohio '
John Foster - Malcolm Pirnie, Inc., White
Plains, New York
Allan Smirni - Envirotech, Menlo Park,
California
Charles Parthum - Camp, Dresser &
McKee, Inc., Boston, Massachusetts
Ernest Trad - New York State Department
of Environmental Conservation
15
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