The five truths of building construction projects are:
- Every set of plans is not perfect.
- Every project finishes over budget.
- Every project completed is behind schedule.
- The contractor is always the problem.
- Change orders are never legitimate.
Right?
No, but it often seems so. Nothing is perfect on a construction project, as there are too many moving parts and lots of things can go wrong. And when you perform extra or additional work plus you have a rock-solid claim, you must be able to prove it was legitimate to collect a payment in full. To ensure you get paid for extra work, contracts require you get approval prior to starting the added work, or as soon as the problem becomes known, or within the maximum number of days allowed by your contract.
CHANGE ORDERS ARE NOT EXTRAS
Change orders are additions, modifications, and deletions from the contract scope of work. Somebody or some unknown issue, problem, omission, or conflict required changing the scope of work—not you! The project owner, architect, or engineer didn’t prepare a perfect and complete conflict-free set of plans or specifications, which increased the scope of work. Or maybe the site plans and reports didn’t reveal all the potential unknown problems or conditions. Never give your work away or do added work for free. Your company has a right to collect for additional work and extended time when somebody or something adds, changes, or delays your scope of work and schedule.
I have served as an arbitrator for the American Arbitration Association on multiple construction lawsuits involving unpaid change orders. In most disputes, problems could have been avoided if the subcontractor or general contractor had notified their customer or project owner in a timely manner. Problems occur when contractors request additional money for extra work they completed weeks or months later, without timely documentation to back up their request.
An example of a situation requiring documentation: A contractor digs a footing, discovers an unforeseen large underground vault, removes it, hauls it to the dump, and backfills the hole. The contractor, relying on his experience with the customer, doesn’t ask for approval and assumes he will get paid. Then several weeks later, the contractor notifies the owner they hit the underground structure, spent money remedying the problem, and expects to get paid for additional work. By contract, the owner does not have any contractual liability to pay for extra work performed, installed, or completed without proper timely prior notice, documentation, and written authorization per the contract.
W.I.N. … WRITE IT NOW
The general contract and subcontracts will specify how you must get extra work approved and then paid. It will specify how many days you have to notify the owner upon discovering a jobsite-differing condition, or a plan omission, conflict issue, or delay. To win the change-order game, you must follow the contract without exception. This includes documenting changes immediately with written proof and photos showing the problem and how you intend to mitigate the problem or perform the additional work. Subcontractors must conform to the general contractor’s contract, which defines the overhead and profit markup allowed, as well as the items which can or can’t be included in the cost of work, such as project managers, administrators, supervisors, and insurance. Submit your request by submitting a detailed proposed change order claim or directive within the number of days specified by contract per the pre-approved change order rates and mark-up allowed.
For your information, lump-sum change order requests are not the best method to convince customers to approve your price. Detailed line-item requests are much easier to get approved.
IF IT’S NEWS, YOU LOSE!
A common scenario I’ve repeatedly seen goes like this: A subcontractor walks into the general contractor’s (GC) office with a list of change orders that occurred two or three months earlier and boldly asks to get paid for them. The subcontractor claims the field superintendent told him to proceed with the work. Generally, these requests were not expected, approved in writing, or known until this meeting. Next, the GC shows the subcontractor their subcontract clearly states no change order requests will be approved or paid if they are performed without prior written approval by the project manager (not field supervisor). It also states change order requests and invoices submitted more than 10 days after the work is completed will not be approved or paid. The GC also explains the project is closed out and the owner has already paid in full for the complete contract and can’t be invoiced for more costs at this late date.
Then, the subcontractor gets mad and accuses the GC of being unethical, which starts a screaming match that doesn’t end well. Sometimes the GC or project owner may be soft-hearted and approve of some of the money requested. However, by contract, no money is owed. Once in court, some judges might also be kind-hearted, but you shouldn’t count on it to win your case and get paid in full.
On every project, review your contract, general conditions, and specifications to look for timeframes allowed to request additional money and time extensions for change orders. These requirements may be different for owner-requested changes or field problem changes. Follow the procedures established in the contract and establish your own management procedures to track these incidents carefully and completely. Don’t submit change requests without every cost required to perform the work, including labor, equipment, material, subcontracted work, supervisors and foremen, crew truck, small tools, bonding, and liability insurance. Also include extra costs for the time and delays to perform added work, including temporary facilities, utilities, fencing, additional phases, overtime, and extra move-ins.
TRAIN YOUR CUSTOMERS BEFORE IT’S TOO LATE!
Meet with your customers at the beginning of every project and tell them exactly how you will do business with them, and how change orders will be handled per the contract you and they signed. Tell them up front, before problems occur, that you will require written approval to proceed with extra work. Then follow the contract and stick to it. When you play hardball and are firm but fair, customers will respect and treat you professionally. When you don’t require customers to honor their contract and go ahead and do extra work without signatures, customers won’t respect you and will take advantage of your weakness.
Remember, don’t rely on hope or your trusted customer relationship to get paid for your work. Be proactive and professional to win the change-order game.
about the author
George Hedley CPBC is a certified professional construction business coach, consultant, and speaker. He shows contractors how to double their profits, grow, get organized, and get their company to work like a machine! He is the author of Get Your Construction Business To Always Make A Profit! available on Amazon.com. To talk, start a personalized BIZ-BUILDER program, or get his free e-newsletter, email gh@hardhatbizcoach.com. Visit his YouTube channel to watch his videos. To download online courses or get his contractor templates, visit: www.constructionbusinesscoaching.com.