CCA CCA Change Orders and Claims Management 1 — Questions and Answers
Question 1: Under a lump sum construction contract, which condition typically gives a contractor the right to submit a change order request?
- Owner-directed changes to the original project scope (Correct answer)
- Contractor's own inefficiency in executing the work
- Increases in the contractor's overhead costs
- Subcontractor defaults on their obligations
Correct answer: Owner-directed changes to the original project scope
Change orders under lump sum contracts are triggered by owner-directed scope changes, differing site conditions, or other contract-specified events beyond the contractor's control.
Question 2: Which document provides the auditor with the strongest evidence that a change order price was fair and reasonable?
- Independent cost estimate prepared before the change order was negotiated (Correct answer)
- Contractor's invoice for the change order work
- Owner's internal memorandum approving the change
- Subcontractor's verbal quote accepted by the contractor
Correct answer: Independent cost estimate prepared before the change order was negotiated
An independent cost estimate prepared prior to negotiation gives the auditor a benchmark against which to assess whether the final negotiated price was reasonable.
Question 3: A construction auditor reviewing change order patterns finds that 40% of all change orders involve work that was arguably within the original contract scope. This is called:
- Scope creep through change order misuse (Correct answer)
- Value engineering
- Constructive acceleration
- Differing site conditions claim
Correct answer: Scope creep through change order misuse
Submitting change orders for work already included in the original contract scope is a common contractor tactic to recover additional profit on work they are already obligated to perform.
Question 4: What is a constructive change in construction contract auditing?
- An owner action or inaction that forces the contractor to perform extra work without a formal change order (Correct answer)
- A value engineering proposal approved by the owner
- A contractor's voluntary improvement to the design
- A change order that reduces the contract price
Correct answer: An owner action or inaction that forces the contractor to perform extra work without a formal change order
Constructive changes occur when owner conduct such as over-inspection, changed interpretations, or access restrictions effectively orders extra work without issuing a formal change order.
Question 5: When auditing change order markups for overhead and profit, what should the auditor compare the contractor's claimed markup against?
- The markup rates specified in the original contract (Correct answer)
- Industry average markup rates from trade publications
- The subcontractor's markup on their portion of the work
- The architect's recommended markup schedule
Correct answer: The markup rates specified in the original contract
Most construction contracts specify allowable overhead and profit markup percentages for change orders; these contractual rates are the auditor's primary benchmark.
Question 6: An auditor reviewing a construction claim finds the contractor submitted a Total Cost claim. What is the primary weakness of this claim method?
- It assumes all cost overruns are the owner's responsibility without isolating specific causes (Correct answer)
- It understates the contractor's actual costs
- It excludes subcontractor costs from the claim
- It requires an independent auditor to certify the claim amount
Correct answer: It assumes all cost overruns are the owner's responsibility without isolating specific causes
Total Cost claims compare bid cost to actual cost and blame all overruns on the owner, ignoring the contractor's own inefficiencies, estimating errors, or subcontractor failures.
CCA CCA Change Orders and Claims Management 1
Under a lump sum construction contract, which condition typically gives a contractor the right to submit a change order request?