Change orders, when handled properly, can increase project profitability, reduce the likelihood of disputes, and protect the reputation of your business. However, change orders are one of the most common disputes for construction projects and are usually the cause of construction litigation. Not only do they modify the original contract, but they can also change the scope of work, contract time, contract sum, and/or completion date. The best practices to follow to avoid disputes include having a standard change order process in place, discussing the associated costs as soon as possible, submitting change orders in writing, and making sure all parties, specifically your billing department, are up-to-date on all change orders.
A good change order will describe the changes in specific terms, include a provision about calculating the cost of changes (including schedule and equipment adjustments), and identify how much time should be allowed for the owner to accept or reject the change order. Change orders should always include signature lines and ensure the authorized party signs. Always put change orders in an addendum that outlines the changes outside of the initial scope, material cost, payments, time, changes to the timeframe, and any other pertinent details. Provide this to your client and do not initiate work until a signed copy is received from an authorized party. If you do the work first and then create the contract and expect payments, the possibility of a dispute will increase significantly.
Author’s note: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.