Part of the Ontario construction contracts guide for owners.
Every construction project changes. The question is never whether the scope will move, but how the change gets priced, documented and paid for. Under CCDC 2, the stipulated price contract most Ontario owners use, there are two tools for that: the change order and the change directive. Most owners know the first one well. The second one gets far less attention, and it's where much of the money and many of the disputes end up.
This guide explains what a change directive is, how it differs from a change order, how directive work gets valued, and how owners can use directives without losing control of cost. Our guide to managing construction change orders covers the wider change process; this article focuses on the directive mechanism.
Two tools for one job
CCDC 2 lets the owner change the work without ending or renegotiating the contract. As a WeirFoulds summary of the contract puts it, the owner can only do so through a change order or a change directive. The two do the same thing, change the scope, but they deal with price and time differently.
- A change order records an agreement. The owner, through the consultant, describes the change, the contractor proposes the adjustment to price and time, the parties settle it, and everyone signs. The contract price and contract time are amended at that point.
- A change directive is an instruction to proceed before that agreement exists. The owner, through the consultant, directs the contractor to carry out the change, and the price and time adjustment are worked out afterwards. The contractor has to proceed promptly with the directed work.
In other words, a change order settles the money before the work. A change directive starts the work before the money is settled.
Why change directives exist
Without directives, every disagreement over price would stop the job. If the owner needs a revised duct route this week to keep the ceiling trades moving, but the contractor's quote is double what the consultant thinks is fair, someone has to blink. A directive lets the work continue while the parties argue about the number.
That's useful. It protects the schedule, which is usually worth more than the disputed amount. It also prevents a contractor from using the schedule as leverage to push an inflated quote through. The contractor can't refuse to proceed just because the price isn't agreed.
But a directive is a deliberate decision to carry an open number. Every directive issued is a liability the owner has accepted without knowing its final value.
How directive work is valued
When work proceeds under a directive, CCDC 2 moves the valuation onto a cost basis. The contractor is entitled to the actual costs it incurred to carry out the change, plus an allowance for overhead and profit, rather than a negotiated lump sum. The contract lists the categories of cost that can be charged.
The 2020 edition tightened that list. Several law-firm summaries of the update, including those by McInnes Cooper and MLT Aikins, note that costs can now be charged only if they contribute directly to the implementation of the change directive. The reimbursable categories are grouped around labour, products, construction equipment and temporary work, and subcontracts. Thompson Dorfman Sweatman's review of the changes notes that the contractor can no longer claim wages for staff reviewing shop drawings or processing changes to the work.
If the owner and contractor can't agree on the amount, the consultant makes a determination. That keeps the dispute inside the contract's process at first, though either party can still take it further through the dispute resolution provisions or, in Ontario, adjudication.
What this means in practice: once you issue a directive, the contractor's records become the basis of the price. If nobody on the owner's side is checking timesheets, deliveries and equipment logs as the work happens, you'll be reviewing a cost claim months later with no way to test it.
Where directives go wrong
The mechanism is sound. The problems come from how it's used.
Directives left open too long. A directive is supposed to be converted into a change order once the cost is known. On many projects that conversion slips to the end of the job. The WeirFoulds article makes the point that payment and time entitlement under directives are often addressed only once a change order is issued, and that late conversion creates financial strain and risk for whoever did the work. For the owner, it means the forecast final cost carries a block of unpriced liability that grows every month.
Directives used to defer payment. Some owners issue directives specifically to avoid paying for changes until the end. That's a short-term win and a long-term cost. Contractors carrying unpaid change work tend to price risk into the next job, chase the money through claims, and, in Ontario, can take a payment dispute to adjudication. The same WeirFoulds summary notes that the change process can be used to delay payment, leading to frustration and litigation.
No record of the work. Cost-based valuation depends on daily records: who worked, how many hours, what material arrived, what equipment ran. If the owner's team doesn't sign off records as the work happens, the contractor's version becomes the only version.
Scope changes slipped in as site instructions. A consultant's site instruction that changes the scope, issued without a directive, can still create an entitlement. Then the owner has the cost without any of the controls.
Time left unaddressed. A directive changes the work, and the work affects the schedule. If the time impact isn't assessed and recorded when the directive is issued, it tends to resurface later as part of a much larger delay claim.
Choosing between a change order and a directive
A simple rule works on most projects: price first wherever you can, direct only when you must.
Use a change order when there's time to get a quote, review it and agree it before the work needs to start. That's the normal case for scope additions identified early, design changes during shop drawing review and tenant requests with lead time.
Use a directive when the work has to start before a price can be agreed, because waiting would delay the critical path or create a safety or weather risk, or because the parties are far apart on the value. Common examples are concealed conditions found during demolition, urgent code-driven changes, and work where the extent isn't known until it's opened up.
When you do issue a directive, it should still say as much as possible. Describe the work clearly. State the valuation basis. Ask for a not-to-exceed estimate if the contractor can give one. Record whether the change is expected to affect the schedule. A directive that only says "proceed" leaves everything to be argued later.
View the data
| Change order | Change directive | |
|---|---|---|
| When it's used | Price and time agreed before work starts | Work must start before price is agreed |
| How price is set | Negotiated lump sum, unit rates or quote | Actual cost plus overhead and profit |
| Who sets the number | Owner and contractor sign together | Agreement, or the consultant determines |
| Owner's main risk | Paying a padded quote to keep work moving | Open liability; weak records inflate cost |
| What protects you | Independent estimate before signing | Daily records signed as the work happens |
Supplementary conditions worth considering
Clark Wilson's commentary on Part 6 of CCDC 2 points out that the standard form doesn't set a valuation method for change orders, and suggests agreeing one in the supplementary conditions before signing. The same logic applies to directives. Owners often consider adding:
- Agreed markups. Fixed percentages for overhead and profit on self-performed and subcontracted change work, so the fee isn't negotiated each time.
- Unit rates and labour rates. Pre-agreed rates for common items and for each trade, which make cost-based valuation much faster to check.
- Record requirements. Daily sheets for directive work, submitted within a set period and signed by the owner's representative or consultant.
- Conversion timing. A requirement that directive costs be submitted and the directive converted to a change order within a set number of days after the work is complete.
- Interim payment. A mechanism to pay undisputed directive costs as the work proceeds, which reduces the contractor's incentive to escalate.
Each of these needs careful drafting so it doesn't conflict with the general conditions. That's a job for your construction lawyer, not a template.
What owners should do
- Treat every directive as a cost commitment. Log it in the cost report the day it's issued, with your best estimate of its value. Don't wait for the change order to appear before forecasting it.
- Track records as the work happens. Assign someone to review and sign daily records for every open directive. Cost-based valuation is only as good as the records behind it.
- Set a conversion deadline and hold to it. Review open directives every month. Anything older than 60 days without a priced submission should be escalated.
- Assess time when you issue the directive. Ask the scheduler whether the change touches the critical path, and record the answer. It's cheaper to settle time now than in a claim later.
- Agree markups and rates before signing. Put the valuation rules in the supplementary conditions, with legal advice on the wording.
The bottom line
A change directive is a good tool used for the wrong reasons on too many projects. Used well, it keeps the job moving while a fair price is worked out from real costs. Used badly, it becomes a bin for unpriced work that turns into a claim at closeout. The difference is discipline: issue directives only when you must, record the work as it happens, and convert them quickly.
Carrying a stack of open change directives and not sure what they'll cost? Book a 30-minute call with Benjamin R. Consulting.
Sources: Clark Wilson LLP, Changes in the Contract Work: CCDC 2's General Condition 6; WeirFoulds LLP, Using change directives to delay compensation and adjustments to the project schedule; McInnes Cooper, CCDC 2 (2020): 8 Key Changes to the Stipulated Price Contract; MLT Aikins, The new CCDC 2 2020 contract: changes you need to know; Thompson Dorfman Sweatman LLP (via Mondaq), 10 Key Changes in the CCDC 2 2020; BLG, CCDC 2: Updates to the Stipulated Price Contract. This article is general information, not legal advice. Get legal advice on your contract and specific circumstances.