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State Procurement Contracts for Construction- Restrictions to Change Orders

                The Maryland General Assembly adopted new law, effective as of July 1, 2016, that places restrictions on the State’s ability to issue change orders on state procurement contracts.  The new law is codified in Maryland’s State Finance and Procurement Article, Section 15-112.  This section of the code applies to all State procurement contracts for construction, with the exception of public school construction or public school capital improvement contacts. Additional exceptions are provided for the State Highway Administration and the Maryland Aviation Administration.

                Before the State can require a prime contractor to begin performance of any change order work, the procurement officer must issue a written change order that specifies whether the work will proceed on (1) an agreed price; (2) a force account; (3) a construction change directive; or (4) a time and materials basis.  In addition to the State’s inability to require a prime contractor to begin change order work without this formal written change order, the law goes further by limiting the prime contractor from requiring its subcontractor to begin change order work without the written change order.

                If a dispute arises between the procurement office and the prime contractor, where the parties cannot agree that certain work is extra, requiring a change order, or falls within the scope of the original contract, the procurement officer may issue an order to the prime contractor to perform the work and the prime contractor cannot refuse to proceed. In these instances, the recourse to the prime contractor is found under section 15-112 (b)(2)(iii) of the law which provides the prime contractor may submit a claim or dispute to the procurement officer seeking additional compensation.  There is, however, no further guidelines set forth regarding this dispute process and the impacts this law will have on the contractor’s ability to receive payment.

                Within five (5) days from the date the prime receives the change order, the prime contractor is required to provide a subcontractor with a copy of the approved change order and notification of the amount that shall be paid to the subcontractor for its portion of the work.  Payment for work under an approved change order that does not exceed $50,000 shall be paid to the prime contractor within thirty (30) days after the invoice is received from the prime.

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