Change orders are among the thorniest problems in construction. They may involve added work resulting in claims for additional payment ("extras"), different work or deleted work.
Contractors usually agree to specific work detailed in their contracts and as reflected in plans and specifications. For a variety of reasons work not so detailed is either requested or required. Problems arise when there is either a dispute as to whether a particular item is an "extra" entitling the contractor to added payment and possibly a time extension. If work is reduced, a dispute over the amount of credit to which the owner is entitled may arise.
Most construction contracts permit the owner to order changes in work during the construction progress. The change must usually be within the scope of the original project or the contractor may decline, claiming that the scope of his work is being changed.
There is no precise test marking the point where the changed work is beyond the scope of the original contract. It becomes a question of magnitude and what the original expectations of the parties were in light of established industry standards or prior contract negotiations.
Certainly the contractor engaged to construct a single-story building could not be contractually obligated to add several more stories at the owner's request. However, if the ordered change is within the scope of the contract and the parties agree to the amount of additional compensation or credit, the contractor must comply with the owner's change request. For example, a contractor may be required to relocate partition walls, add doors or upgrade or downgrade fixtures to be installed.
The well-informed contractor (or subcontractor) faced with a change order situation must first carefully review relevant provisions of his contract. In that light, he must determine whether he is required or otherwise is willing to accept the change order.
Next, the contractor must consider the two important aspects of price (either increase or credit) and time. The price may have been predetermined by provisions in the contract which either fix prices or give a method for change order price determination. Many contractors, being dollar oriented, ignore the fact that extra work usually requires additional time which will cost additional money and therefore neglect to seek appropriate time extensions.
A careful study of the contract change order provisions is essential. Contractors who ignore or fail to comply with those provisions may find themselves performing additional work for nothing. This unhappy circumstance may result where the change is not specifically ordered but where the additional work is required because of differing site conditions; errors, omissions or ambiguities in the plans or specifications; directives of governmental authorities or other circumstances requiring the change. In such circumstances, the contractor is usually contractually obligated to give the owner notice of the required change within a certain period of time, failing which he may not be entitled to additional payment.
When a change in the work is required, the contractor usually need not perform that change until he has a written change order signed by an authorized representative of the owner which contains a detail of the work involved, the price to be paid (or credited) and any necessary time extension. A competent contractor generally knows that unless he obtains a written change order his chances of obtaining full payment (or any payment at all) for the change will be reduced. Such a contractor would likely have a pad of change order forms at the job site available to his supervisory or management personnel in case the owner or his representative (architect) casually remarks `'as long as you'll be wiring anyway, just add another convenience outlet on the south wall of every room"
That contractor would also be wise to (1) fix the time when he is to be paid his extra and (2) determine whether the owner has sufficient funds with FOR which to pay for the extra, particularly if the dollar amount might be large.
If the change order price cannot be agreed upon in advance, a method of calculation should nevertheless be fixed. In that event, the contractor must carefully document the actual cost of labor, material and time expended in connection with the changed work. This usually involves either detailed daily logs or time sheets.
Any circumstance which increases the contractor's cost of performance is a potential change order situation. A "constructive change" may exist if additional cost to the contractor can be attributed to the owner or his representative or for which the owner should, in fairness, be responsible.
Examples of constructive changes which may result in the contractor's entitlement to additional compensation include situations involving defective plans or specifications, differing or unforeseeable site conditions, mandated changes in the method or sequence of the contractor's work, changes ordered by governmental authorities and other instances where, without his fault, the contractor's costs are increased.
Where the contractor has carefully estimated and budgeted his costs and monitors his costs as construction progresses, he should be able to promptly detect problems. Upon analysis he may determine that the cause of increased costs has its source in a situation for which the owner should be responsible. In that event, timely notice and careful documentation may very well avoid the risk of a substantial loss to the contractor.
The alert owner or his representative, on the other hand, should carefully examine change order submittals received from the contractor to determine
(1) whether the change request 1S valid and
(2) whether the price REQUEST (increase or decrease) and time extension sought are reasonable.
With respect to subcontractors, the general contractor finds himself smack in the middle. Unless the situation giving rise to the change order resulted from fault on his part, the general contractor would certainly concur with his subcontractor's change order request only in the event that he could pass the cost on to the owner along with a markup (overhead in profit) to himself.
Subcontractors should be especially alert in examining their subcontracts to avoid such traps as those which prevent a subcontractor from recovering additional compensation for extra work unless the general contractor recovers such amounts from the owner. Such unscrupulous terms are found in many sub contract forms commonly in use. A subcontractor faced with such language should either
(1) insist BEFORE AND AFTER upon its amendment,
(2) not sign the subcontract,
(3) refuse to perform SIGNING any extra work without a properly signed change order or
(4) watch out!
My advice: First read the change order provisions of your contract. Then if a change order situation arises, act swiftly to assure that the price and time extension is agreed upon before the work is executed and, if necessary, fully document your claim and costs. Courts may sometimes relieve contractors of written notice obligations, but a smart contractor does not risk either a contrary result or the cost of litigation.