The Cure for Change Order Headaches

by | Dec 2, 2020 | Change Orders

A change order is a simple document that can modify three basic aspects of a construction project: scope, cost, and timeline. Whether the change order increases or decreases any or all of these, signing off on the specifics in writing is the safest way to go.

Time is the most valuable resource on a project, and you’ll have less as time goes on. Still, many if not most fail to add time to their change orders. Some leave this blank, while others add “0” additional time or write “not applicable.”  The need for more time is nearly always applicable!

Because it’s difficult to catch up once behind, always try to add time to every change order. A day here, three days there – it all adds up to relieve deadline pressure. The change order may not get accepted with exactly that timeline. But if you fail to try, there’s no chance of increasing time within your contract. Experience shows that when additional time is written into a change order early on, it’s often ignored or won’t be objected to. Even if things are running smoothly, it’s smart to bank time for later use on a project.

To effectively work with change orders, follow some best practices. First, it’s critical to review and negotiate the change order process outlined in your contract. You need to understand how the process works so you can follow it. A common, substantial problem is a subcontractor being instructed to do additional work and urged to move forward on that work before a change order is prepared and executed.

The change order represents real money. When you’ve already done the work and paid for the labor and materials, you can have potential problems when changes don’t get reconciled until the end of a project. Project leaders can forget there was a change at all. If so, you have no leverage to get paid because all the work is done.

Usually, a change order provision lays out that if you do work without a change order approved in advance, you don’t have to be paid for that work. So, having that change order submitted and approved first is important. Could that be a timing challenge for your work?  Yes. But it’s worth taking a time-out, reminding the contractor that the contract dictates a change order must be signed before you can work. If your contract says you can’t proceed, you have leverage. It’s not about whether there’s a will to perform the work, but a will to abide by the contract.

Note the difference between a change order and a change directive. While a change order is fully negotiated between the parties to change the scope, cost and/or timing of a project, a change directive is a demand to do extra work and deal with time and price later. It’s important to put your foot down at the beginning of a project. If you are forced to work under a change directive, and you follow the process, at least there’s no argument to be made about the change. It’s documented. The only thing left to negotiate is what the work is worth. Usually a change directive will spell out how you need to keep your records, in submit proper billing.

Be aware of who has the authority to sign a change order. Most contracts specify who, either by name or by title. If you are getting change orders signed by project superintendent, be concerned. There’s a good chance that’s not adequate and therefore not enforceable.

Also be aware work tickets are not change orders. If you are in the field and asked told to move a pipe from one location to another, someone should sign a work ticket. According to most contracts, this ticket alone isn’t a change order, just recognition you were there doing the work that day. Again, it’s important to carefully read your contract entirely.

Consider adding a “stop work” provision to your contract. This provision means if you aren’t paid within a specified time period, you can stop work. Many are surprised to learn that, without such a provision, they can’t stop work when they aren’t paid. Adding this language can close that loop: “Subcontractor may slow or stop work without liability or penalty if it has not been paid its draw request within 30 days of submission to the Contractor.” Maybe your contractor won’t agree to a 30-day stop-work provision, but perhaps something longer. The important thing is that it’s not never.

Also consider adding a cap on unexecuted change-order work. Consider adding: “Subcontractor shall not be obligated to provide, cumulatively, additional Change Order or Change Directive work, labor or materials in excess of $____________ without said amount first being paid in full.”

Think of this as a running tab. With this provision, if you are asked to do work and haven’t been paid for other work/labor/materials, you don’t have to continue until the balance – or tab – comes down. This keeps you from having to fund a job entirely without getting paid.

Even with these best practices, documentation is critical. Photograph everything happening on the job. If you claim that your work is being impacted by other work or conditions, you must prove it. Documentation is the best route. Take pictures several times a week, inside and out. Keep email, especially any message to the contractor or owner regarding issues in the field. When you attend meetings, are notes of what is discussed being formally kept? These “minutes,” as they are called, should accurately reflect what is discussed. If the minutes have gaps or holes, you should send an email objecting, clarifying or adding items, and keeping a record of those communications as well.

Signing a contract with certain terms and provisions means you’ll be bound by those terms and provisions. You can’t decide, after the fact, that you won’t work until paid. It’s key to understand and implement all terms, especially those change orders.

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