Generate, Authenticate, Substantiate: Winning the Change Order Game

Target Audience: Construction Industry Professionals, Contractors, Construction Business Owners, Construction Accountant Interest, Construction Management, Architects, Change Order Contacts Interest, Stakeholders, Planners, Accounting Consulting Firm Interest

It’s a rare, if nonexistent, construction project that goes exactly as planned. That’s why savvy contractors know how to play the change order game. What are the keys to victory? In short, you’ve got to generate, authenticate and substantiate.

Generate: Where it All Begins

Where does the change order game begin? In the contract. You and your attorney need to generate language that clearly defines compensable changes and assigns financial responsibility for them, or at least make sure you understand how the contract treats changes.

For example, changes arising from unforeseen site conditions, such as soil problems, are typically the owner’s responsibility. Conversely, you’ll likely be accountable for changes caused by work-related problems, such as delays in material deliveries that force schedule changes.

To straighten out all the specifics, sit down with the owner, architect and any other stakeholders and thoroughly review the bid documents, contract, plans and specifications before you begin work. Naturally, you won’t be able to predict all of the change orders that will be needed, but holding such a meeting will help everyone recognize that it’s in their own best interest to work together to minimize problems.

Authenticate: Get it in Writing

In an ideal world, you would clarify the scope of every possible change and get orders for them in writing — with pricing — before you begin work. In reality, you can’t stop work in the middle of a job to bicker over the cost of a change.

You can, however, get acknowledgment in writing that the work isn’t a part of the contract. If an owner won’t provide such acknowledgment, go on record — in writing — that you’re doing the work even though it’s outside the scope of the contract.

In this age of e-mail, there’s really no excuse for not having a written record of your change-related communications. Plus, it’s important to bear in mind that change orders often aren’t settled until months after work has been completed — and your memory won’t qualify as an expert witness.

For instance, say bad weather makes it impossible for you to work for an extended period and, initially, the owner agrees to shut down the job site until conditions improve. Sounds fair enough, right?

But what if, when the delay lingers on longer than either of you had expected, the owner suddenly asserts that he’d never agreed to such a lengthy extension? Without any documentation to prove otherwise, you could very well end up paying a penalty for missing the contractual deadline.

You can avoid such situations with good day-to-day procedures. Require project managers to keep daily logs of job progress — particularly noting any occurrences that may lead to the need for a change order. And when things aren’t consistent with the work stipulated under the contract, contact the owner immediately.

Substantiate: Document Everything

If everyone agrees a change is necessary, document it. Be comprehensive: Again, you probably won’t remember every detail six months down the road. Correct errors or omissions in writing.

Update your schedules regularly, too. If a change affects the job schedule, you’ll need documented evidence of how and when it occurred and what resulted.

One frequent weakness in change resolution involves contractors who can’t prove there was a link between a change request and increased costs. To create such a link, keep a detailed history using your own project documents and logs and any correspondence.
 
Meticulous record keeping not only helps ensure that disputes are settled in your favor, but it also can help speed the dispute resolution process. It’s a rare owner who will insist on litigation or arbitration when faced with a stack of documentary evidence in your favor.

Worth the Effort

Change orders can easily make or break a project — or even a construction business in the long term. That’s why putting forth the effort to prepare for and diligently carry out a winning change order process is so important.

To contact Feeley & Driscoll, please click here or call us at 1 (800) 392-6192.