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How To Manage Construction Claims and Change Orders

No matter how well-thought out a construction contract appears to be, change orders for construction projects are common.  There are an array of issues that may develop. For example, the site may present problems that could not be anticipated, owners may change their architectural plans and priorities or existing plans may turn out to be incomplete. Some change orders do not actually change the work required, but correct problems in the original plans.

Ideally, construction contracts will have a provision requiring change orders to be in writing and signed and dated by the involved parties. Some changes will cost the owner more money. Others may delay the completion time of the project. Change orders between owners and contractors generally require change orders between contractors and subcontractors.

There are several potential problems with change orders. A major one involves change orders between contractors and subcontractors. If change orders are not properly executed, subcontractors may not be paid for their extra work.

The pace of a construction project may be such that subcontractors are faced with a dilemma. They are often asked verbally to perform work they believe was not included in the original contract. Do they go ahead and do the work and risk not getting paid for it? Do they delay the project and take the time to get the change in writing signed by all parties? If they do this, they may risk being in breach of contract for not completing the project on time if a court later determines the the work requested was contemplated by the original contract and a change order was not required.

Here are some suggestions for subcontractors to help in managing change orders.

  • Have a provision in the original contract specifically stating that all change orders will be in writing.
  • Insist that the contract terms be followed and require all change orders to be in writing and signed and dated by the parties involved. The change orders should refer to the original contract terms and note what was included and why the newly requested work requires a change order.
  • The change order should spell out exactly what the new changes are and spell out how the work is changed from that originally requested. It should present an estimation of the costs that will be incurred based on the changes, establish a new deadline and the payment terms for the additional work and/or materials.
  • If working on an hourly rate, confirm the hourly rate for the additional work required under the change order.
  • Do not agree to a change order that is open-ended.

There are times when subcontractors believe they are being asked to do work not covered in the original contract, but the contractor or owner disagree and think the requested work was included in the original contract. This can be prevented if the original contract designates either the project engineer or architect as the decision maker in the event such an issue comes up.

Other things subcontractors can do to protect themselves legally and to minimize disputes over payment include:

  • Confirming in writing any conversations with contractors concerning matters subcontractors consider changes to the original contract.
  • Taking photos, preferably videotapes, of work at various s stages of the project.
  • Keeping all documents and receipts that support their claim that the work order was changed from the terms of the original contract.

Attorneys experienced in construction law and contracts can review the original contracts and work requested to assist in determining whether a change order is required and help with all related construction claims.

 

Sources

http://contractors.uslegal.com/frequently-asked-questions-faq/#sthash.mmeaobPY.dpuf

http://www.bluemarblerisk.com/pdfs/six-steps-change-management.pdf

http://www.fgould.com/americas/articles/managing-change-order-costs-construction-projects/

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1900 West Littleton Blvd. Littleton, Colorado 80120
Phone: 303-722-6500 Fax: 303-722-9270
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