Changes during a construction project are one of the most litigated issues in all of construction law. No matter how well a project is designed, managed and administered, changes will occur. Most of the time, effective management of changes in a construction project will be a major factor in the success, or failure of a project.
When it comes to changes, the discussion must start with the construction contract. Every construction contract should have a clause that covers changes in the project. The best construction contract change clauses establish a procedure for issuing written modifications to the contract for new or different work to be performed, the cost of the changed work and any schedule change required for performing the work.
Most of the time, changes occur when some unanticipated condition occurs during the project. The source of this type of change can be changes in site conditions, mistakes in design documents or even changes in sequencing of project tasks. No matter what the source, the result is hopefully a formal written change order proposed by the contractor/remodeler and agreed to by the owner.
Every construction and remodeling contract should have a written change order form. Everyone is happier when changes in work accurately describe the new or different work to be performed, the cost of the change is clear, and the impact upon the schedule is clear. A written change order form can be attached to any construction contract as an exhibit. A change order form can be as simple as:
The changes clause of the contract should also include a provision about how the cost of a change will be calculated. Will the change be calculated by using actual cost, unit pricing or some other method? What are the overhead and profit percentage rates for each change? How will equipment costs be calculated? Generally, equipment cost for a change order is calculated using the same method as the original construction contract.
As a side note, contractors/remodelers often miss hidden equipment costs related to change orders. As discussed above, equipment costs are normally calculated for change orders using the same method as equipment cost was calculated for the construction contract; however, there are often additional costs associated with change orders. For example, when equipment that is already being used on the project, is also needed for the change order, there can be extra expense when equipment sits idle while waiting for the change order work to begin. Similarly, there can be additional mobilization costs associated with equipment being removed from the project site and then returned for the change order work.
Back to the construction contract, the change clause should also include time allowed for the owner to accept or reject the change order. At times, change orders can be delayed by engineering or architectural input. Other times, change orders may be delayed by required modifications in project financing. These delays can take time, and can have a significant impact on the project schedule. This, in turn, can compress the project schedule resulting in additional costs and expenses for acceleration of the schedule. Any contract change clause should describe what happens if such a delay occurs and when the contractor is entitled to stop work pending a decision on the change order.
Projects big and small will involve changes. Establishing a clear and effective procedure for managing costs and schedule changes related to those changes is critical to the success of any project. A contractor/remodeler must have a clear, thorough change clause in its construction contract that describes the change order procedure. A written change order form is also a must for every project. Everyone will be happier when the change process is straightforward and clear resulting in fewer disputes and quicker pay for the contractor.
About the Writer:
Patrick Noaker is an attorney with the Noaker Law Firm LLC who aggressively represents construction contractors in the courtroom and arbitration. Patrick can be reached at his office: 601 Carlson Pkwy, #1050, Minnetonka, MN 55305 (612) 839-1080.