The Ins and Outs of Construction Contract Change Orders
March 29, 2009
Changes during a construction project are as certain as death and taxes. But often times, changes to a construction contract are not as thoroughly discussed nor as well documented as the original contract. Consequently, change orders that have been handled sloppily can often result in a construction dispute.
Why Changes Occur in Construction Contracts
The two primary reasons why changes to a construction contract become necessary are:
- Unforeseen conditions arise that were not included in the original contract.
- The owner wants to modify the specifications or add/remove items of work.
Unforeseen Conditions
Although owner-driven changes are more frequent, unforeseen conditions still often arise necessitating a change in plans that affect construction costs and schedule.
- During excavation for a new home’s foundation, soil conditions are discovered that require the foundation to be redesigned.
- During demolition for a remodeling job, termite damage is discovered requiring extra work to repair.
If the contractor did his job correctly in writing the original contract, it will be clear that unforeseen conditions such as these were not included in the original price. When these types of conditions are discovered, the options are to either fix the problem or cancel the job. In most cases, canceling the job is not practical and so the problem has to be fixed. And fixing it has a price.
Owner-Driven Changes
As the new home or the new addition starts taking shape, owners begin visualizing the finished space more clearly than ever before. They begin paying more attention to details the closer the job gets to being completed. And it almost always happens that the owners will see something that they really want to add or change, or possibly even leave out.
When these ideas arise, the owners ask the contractor, “Would it be possible to…” They’re hoping, of course, that the contractor says, “Sure. No problem.” More often however, the contractor says, “Sure. Let me see how much it’s going to cost and get back to you.”
Negotiating Change Orders
Many contractors will apply a higher markup to change orders than they did in the original contract. In a lot of cases, this can be justified because of the added cost of delays caused by unforeseen conditions or the extra work involved in negotiating and documenting owner-driven changes.
But a contractor who is already working on the project is in a better negotiating position, and can take advantage of that to obtain better margins on change orders.
In the case of unforeseen conditions, if the proposed extra cost is significant, about all you can do is to get estimates from other professionals as to whether the proposed cost is reasonable. If the contractor seems to be taking advantage of the situation, perhaps your best strategy is to appeal to his sense of fairness.
If you’re driving the need for a change order, however, you have the choice of accepting or rejecting the contractor’s quoted price for the change, or negotiating the specifics of the change to arrive at a mutually acceptable price.
Be aware, however, that the contractor assigns value to the time he has to spend estimating the price for different options you might be considering. The more times you put him through this kind of fire-drill without accepting any of the changes, the more strain you will be putting on your relationship, and the less likely he will be to give you a decent price on any future change you may really, really want.
Get It in Writing
The truly professional contractor will have a written form to document any changes you’ve agreed to. This form specifies exactly what is being changed, what the difference in cost is (plus or minus), and when the payment (or credit) is due to be settled.
In the case of a change in specifications that has no cost associated with it, the contractor will want to document the change as inexpensively as possible. Therefore, he may simply note the change on the plans or blueprints and have you initial it as a record of your agreement.
Discuss Change Orders Before the Job Starts
One of the things you should discuss before signing a construction contract is how the contractor handles change orders. A contractor who describes a formal process of written change orders is very likely to be more organized and professional than one who considers change orders an unimportant afterthought.
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- Questions to Ask Your Contractor Before You SIgn
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