We can all agree the construction change order process is very slow. When a change request comes in from an owner or general contractor, most times contractors start work and incur the costs and don’t receive revenue until much later during the project or sometimes not at all.

How do we fix this? It starts with a review of your contract. This is the Construction Change Order Manifesto.

change order

As a contractor, I should…

 

  • Check my contract provisions for the change request process including authorization and specific terms about timelines for responses to change requests.

If there is nothing in the contract about change requests, I should…

  • Set a goal to memorialize a process including timelines for response at the start of a project. The wording will include what all parties will work towards. This will get memorialized in minutes of meeting or correspondence.

Almost all construction contracts in Canada state that the contractor must have a signed change order before billing and commencing work. It’s extremely rare to bill for change order work prior to issuance of the change order.

As a contractor, I should…

 

  • Provide written notice upon the change arising.

In the written notice, I should…

  • Explain why the change was not part of my original contractual scope.
  • Refer to drawings, specifications or contract wordings. This is where clear scope is key.
  • Promptly provide detailed quotes for the work.

4 important items to include in the quote process

 

  1. An expiry date on all quotations.
  2. Use a standard corporate form and log to follow up if you hear nothing back.
  3. Include any extension of time required, if applicable.
  4. An agreement when the work is required and confirmation to proceed before you execute or warn parties when site conditions are changing and authority to proceed was not received.

As a contractor, I should…

 

  • Follow up on quotes before work commences in affected areas.
  • Follow up in monthly meetings, or during two-week look-ahead schedule meetings.
  • Respond promptly in writing to any comments received.
  • Include a log of pending items as an attachment to meeting minutes.
  • Raise past-due responses in monthly meetings or call a special meeting if a large number are outstanding or if it is impacting work progress.
  • Note any long-term lead items that will impact execution of work, such as delivery of materials after shop drawing approval or fabrication time.
  • Suggest to my subcontractors and suppliers they follow the same good practices with us.

The quote should refer to any change in contract time. If there is a disagreement about the changes, I will…

  • Include written agreement to reserve rights to claim extension of time later.

As a contractor, I should…

 

  • Keep track on the status of all changes by project.
  • Add any change order as an item on the agenda for site meetings or send the change order items to the architect or general contractor so that they can cover them during meetings with the owners.
  • Tie the change orders to a schedule, if possible, to understand when they are mission-critical to project execution

Serving Notice

 

If the contractual work cannot continue due to outstanding answers on changes, I should…

  • Consider serving notice that work will continue as per the contract without change.

Additional costs do not go on account. I should…

  • Document. Document.
  • Serve written notice if work is stopped or if someone directed work to stop in a particular area/room and document same in writing and take photos/videos of site conditions.
  • Ensure to write to parties if work cannot proceed due to lack of clarity.

In the notice, I should…

  • State specifically the workforce (trade, staff member/class of trade) impacted and the room or area of impact and reference the earlier change quotation and follow ups.
  • I will attempt to mitigate the loss of time or productivity but memorialize associated costs.

If the notice is not approved or denied, I should…

  • Consider pursuing and promptly follow the dispute resolution mechanism in my contract, especially if forced to work for no compensation.
  • Reserve my rights and state I am doing the work under protest.
  • Suggest that someone keep track of materials, quantities and time spent executing the disputed work. This will be important for future proceedings.
  • Consider holding off on completion of the work, or stop work altogether with regards to the proposed change order only after consideration of contract language and perhaps consultation with construction lawyer as could have significant impact.
  • Or, send a follow up notice that estimated costs have increased since the work status has changed since the change request has been priced.

Pictures are worth a thousand words but there should be a “what, where, when and taken by whom” description for them.

Disputes

 

Almost all contracts state that you must complete the work when there are disputes and the consultant has ordered same. This includes arguments about whether something is considered a change or not.  I should…

  • Reserve rights in writing about each issue and proceed.
  • Refer to the contract schedule provisions first.
  • Always talk with my construction lawyer, if necessary.
  • Keep track of the change work in schedule updates. The original planned schedule versus the actual schedule, aka “as built schedule” will be key.
  • Continue tracking through any disputes.

Don’t forget about asking for additional time to complete the contract.  Be careful when the owner’s change order forms ask you to waive rights including extensions of time. I should…

  • Always reserve rights, if possible.

It goes without saying, but if someone gives you verbal direction in the field, and they will not send direction in writing, I should…

  • As soon as possible confirm in writing to the individual whom directed work from the contracting party, especially if there is a change in the scope of work.
  • Promptly create a quote and log it.

Know who, what, when and where someone told you something if it is not already in writing.  For example, “On the phone, on this date, at this time and location, I was talking with this individual from the party you have contracted.”  Do not take direction from the consultant before confirming with your contracting party.  Without this, it is less convincing.

Keeping Records

 

It’s important in court and to a surety company that you keep timely records in a manner described in this article because if ever a dispute arises, your surety (or the surety you are claiming against) or the judge in future litigation or during a mediation or during an adjudication will More likely give you  credit for it.

A contractor should avoid the buildup of work-in-progress on projects due to unapproved change orders.  The backlog of unapproved change orders can lead to Work in Process or Unbillable costs on a contractor client’s balance sheet.  If the amount is large and therefore potentially not collectible (or without a good story), your Surety Underwriter or Bank might apply a reserve allowance which therefore might impact Tangible Net Worth and Working Capital. Both items effect the surety’s assessment of capacity or effect bank line covenants.

 

Contact the author:

Victor Bandiera | Vice President, Construction Services

416.607.2123