Change orders are the formal procedure for charging for “extra” work – items not covered in the original fixed-price contract. Change orders are typically issued when work is added or changed in ways that add cost. In rare cases “deductive” change orders are used to reduce the amount of work and cost.
The charge order form describes the change in the Scope of Work, the price, and any adjustment in the completion date caused by the change. It may also make adjustments to the completion date caused by the change in the work, and may include other information such as markup, when payment is due (usually upon completion of the changed work), and adjustments to the full contract price.
If you have a written contract is probably contains language similar to this from our Model Construction Contract. Note that the owner has to agree to the extra work and price before starting the new work. The Model Construction Contract states that:
“Contractor and Subcontractors shall make no changes in the work without issuance of a written change order that is first executed by both Contractor and Owner’s Representative. Owner will not pay for verbal change orders…Contractor must obtain written change orders or, at minimum, email authorization of additional fixed-price change-order work BEFORE proceeding with any additional work or any variations in specified materials”
Owners. Many different conditions can give rise to a change order. Most commonly, the owner changes his or her mind. “I’d like you to move this window over two feet.” or “What would it cost to add built-in shelves to that wall?” or “Forget Formica, let’s go with granite!” These discretionary changes may also come from the designer, with the owner’s consent.
Builder or Designer. Other times, change orders are caused when the designer or builder discovers a problem with the plan. An extreme case might be that the stairs are not going to fit as drawn, so the room has to be modified.
Code Inspector. In some cases, the code inspector may find a problem with the plans and determine that the work must change. For example, an additional beam needs to be added, an electrical sub-panel may be required. In a remodel the inspector may require that you bring other parts of the house up to current code, for example, by adding new smoke and CO detectors.
Hidden Conditions. Sometimes hidden conditions, like ledge in the soil that requires blasting, will generate extra work and a change order. Or there is decayed wood in the wall that was not discovered until the job was underway.
Allowances. In a formal contract procedure, a change order is issued every time an allowance item exceeds the allowance price. Regardless, there should be some procedure for owners to agree in writing to cost increases for allowance items.
A written change order (form, at left) should be issued before the changed work is begun. This gives the owner the opportunity to discuss the work and price and to negotiate if he feels the change order is not justified or priced fairly.
Some contractors are meticulous about issuing a change order every time there is an extra charge. Others, however, are sloppy or inconsistent during the course of the job. In some cases, they deliver a list of extra costs at the end of the job, which is never happy news to the owner.
Under the terms of the model contract cited above, the owner is not responsible for any changes they did not approve beforehand in writing. The owner, in that case, would have a legal right to not pay for the changes. However, in most cases, owners pay the extra charges anyway, except for those that they feel are unjustified.
Disagreements often arise over what is and is not a legitimate extra. The legal question is whether the extra work was or should have been included in the original Scope of Work – that is, the plans and specs that describe the work.
For example, did the contract cover traditional window sills on the interior or did it include only “picture-frame” molding around four sides.
Did the contract include one or two coats of exterior paint? Standard asphalt shingles or architectural shingles? Tile or wood baseboard in the bathroom?
Often the plans and specifications do not specify this level of detail. And it is nearly impossible to specify every last detail down to the nail. So, inevitably, the parties are left to negotiate based on their assumptions and their understanding of standard practice. The phrase “Well I assumed…” is often heard, but rarely convincing.
Many contracts require (and all should) that work be done according to “manufacturers’ instructions,” “construction industry standards ,” and in a “workmanlike manner.” This provides some guidance as most construction product manufacturers do publish written instructions and their trade associations often publish extensive standards for proper procedures.
For example, if a wood window states in a label on the window that the wood must be finished with at least two coats of exterior paint or stain prior to installation, then it’s pretty clear that the contractor should do this and not charge extra. It’s part of the job of installing these windows.
Similarly, if the carpet contractor puts a seam in the middle of your doorway, you have the right to get this fixed, because the Carpet and Rug Institute (CRI) Standards for Installation of Residential Carpet states clearly in Section 5.1 that “ Seams are not perpendicular to doorway openings.” I used this standard to get a new bedroom carpet removed and replaced at no cost.
Where it is unclear what is a reasonable standard, then you will have to negotiate and hopefully reach a compromise.
A JUDGEMENT CALL
You should put a lot of effort into creating plans and specs that leave little to argue about, but it is impossible to nail down every last detail. Ultimately, you will need to rely on the integrity of the contractor, your own knowledge, and your own ability to negotiate as needed.
Exactly what is a normal expectation for the quality and scope of work is never 100% clear and may shift over time. The contractor knows more about these issues than you do, so you may need to study up on construction standards or call in a third-party expert (architect, engineer, contractor) for an outside opinion, which can bolster your case.
Similar questions arise in other purchases that you are more familiar with. For example, when you buy a new car, you probably assume that it will have a spare tire, but not all do nowadays. You might also assume that it comes with floor mats, until you find out that the dealer wants an extra $200 when you go to pick up the car. If you think the floor mats should be included, you will probably negotiate and maybe refuse to pay the extra charge. Or if you got a great price on the car, you may decide it’s not worth fighting about. It’s a judgement call based on the context of the overall deal.
Some unscrupulous contractors intentionally leave out necessary items so they can be the low bidder, and then make up the difference on the “extras”. This is a time-worn tradition in public works project. After all, the Big Dig in Boston started out with an estimate of just over 2 billion dollars and ended up costing over 15 billion dollars – over $24 billion with interest!
But just like the city of Boston needed to get the job completed, so do you. So, in most cases, do you. So you either pay the contractor for the extra work, hire someone else to finish the job, or do it yourself.
If all the extra charges show up as a surprise at the end, you have a strong case not to pay them — especially if the contract stipulates that all changes must be documented, priced, and agreed to in a change order before the work is done.
If, on the other hand, change orders keep piling up over the course of the job, and you suspect that the contractor is trying to take advantage of you, you may have a legitimate reason to terminate the contract. In that case, you would probably want to speak with a lawyer first.
But the best approach to construction disputes, always, is to avoid it. Start out with detailed plans and specs. Choose a contractor with integrity. And be suspicious if one bidder is far below all the others. He probably left something out, either intentionally or by accident. Sooner or later, you will have to pay for the extra work.
A simple change order form is reprinted below. The form is provided by construction attorney Gary Ransone. For further information on construction forms and contracts, visit Gary Ransone’s Contractor’s Legal Kit.
CHANGE ORDER FORM AND ACCOUNTING SUMMARY
CONSTRUCTION CHANGE ORDER # _____
I. GENERAL SCOPE OF WORK DESCRIPTION
Pursuant to the Construction Agreement between Contractor and Owner dated ______ , 20 ___ , Contractor agrees to perform the following additional work:
LUMP SUM PRICE FOR ALL WORK ABOVE: $__________
* Additional time needed to complete project as a result of this Change Order: ___ Days. (Add to completion date in Construction Agreement.)
II. GENERAL CONDITIONS
Payment for this Change Order is due upon completion of this Change Order work and submittal of invoice by Contractor.
This Change Order, by agreement of Owner and Contractor, is incorporated by reference into the Construction Agreement between Owner and Contractor. All terms and conditions in the “General Conditions” section of the Construction Agreement between Owner and Contractor apply to this Change Order. If this change order work is related to a residential Home Improvement Contract, the “Notice To Owner” form presented to the Owner with the original Construction Agreement is incorporated by reference herein.
I have read and understood the Change Order above, and I agree to all of its terms.
Date OWNER’S SIGNATURE
Date CONTRACTOR’S SIGNATURE