Construction projects rarely go according to plan; there are so many unpredictable factors that it’s impossible to create the perfect plan. There may be times when the owner wants to modify the project. This could change the scope of your work, the amount owed for the project, or the time needed to complete the project. This is where the change order comes into play. Let’s take a look at the basics of change orders in construction, and the common pitfalls contractors face.
What exactly is a change order in a contract?
Let’s look at some aspects of the change order definition. A change order is a written form that details the addition of work or the work that is removed from the scope of the original contract. Both parties must agree upon this change. The change order form then becomes an amendment to the original contract by which the owner and the contractor must legally abide. Although this sounds simple, change orders are the basis of many lawsuits and can become costly for contractors.
One of the most disputed aspects of change orders is determining whether the additional work is included in the original contract or if it is an addition to the scope of the original contract. Contractors must have a comprehensive understanding of the scope of work in the original contract and what could constitute an increase in that scope of work. If there is a possibility that it could be considered outside the original scope of work, contractors should inform the general contractor or owner that a change order is needed. It is always best to address this issue before performing additional work.
Common mistakes with construction change orders
One of the most common mistakes contractors make regarding change orders is not adhering to the change order provisions in the original contract. Almost every construction contract considers change orders and sets out rules to amend the original contract. Many times, these provisions must be strictly adhered to; otherwise, you run the risk of not getting paid. This is why it is essential to have a thorough understanding of these provisions before signing the original contract. This will help avoid any confusion or potential financial losses during the construction process.
Another common mistake is performing work on change orders without having it in writing. As previously stated, the written change order becomes an amendment to the original contract. But what can go wrong if the contractor did work without a change order? Without having the change order in writing, you run the risk of the owner contesting the validity of the change order and possible non-payment. It is extremely important for contractors to document everything in writing. Many times, the change orders are in the direction of the owner. Most contracts place the burden on the contractor to notify the owner that the extra work is required even if the work is at the direction of the owner. Therefore, contractors should always be overcautious, document all change orders, and always send notice to the owner.
What’s the best way to avoid a construction change order?
No matter the size or scope of the project, contractors must carefully read the original contract to protect themselves. Contractors should be aware of the change order provisions in the contract and know exactly what is included in the original contract’s scope of work. Contractors should always be cautious and document everything, better safe than sorry.
This blog is part of our 2020 Mastering the Subcontract series. Come back each week as we deep dive and pull apart everything you need to know about a subcontract.