Issues Related to Change Orders in Construction Contracts
Negotiating a construction contract should be done with a thorough analysis of all possible permutations, as well as the expected consequences. In cases in which construction contracts do not proceed as smoothly as expected, it is a welcome relief to have a plan for responding in the construction contract to avoid disagreement. Retaining the services of an experienced construction law attorney, especially one having expertise in drafting and negotiating construction contracts, is critical to ensuring that procedures for responding to as many deviations as possible are addressed. One aspect of construction which, if not planned for, can cause disagreement between the parties is change orders, i.e., requests a party change some aspect of the construction project. Recently, a subcontractor for a Miami condominium complex sued the property owner for mismanagement of the construction project, including setting unrealistic deadlines and submitting a multitude of change orders without allowing sufficient time to incorporate the orders into the construction. A discussion of change orders, generally, as well as common issues relating to change orders, will follow below.
Change orders represent some of the most contentious disputes between contractors and property owners. Legally, a change order is a written addendum to a construction contract, entered into between a property owner and a contractor, which covers a modification or alteration beyond the scope of the original construction contract. It also establishes any necessary new contractual items, any other basis of payment, and any time adjustments for work affected by the changes.
By their very nature, change orders represent added time, cost, and labor to an existing construction project. Nevertheless, change orders must adhere to the appropriate building codes, just like any other construction. In some cases, contractors may be required to provide a written notice to the property owner of an anticipated change in the scope of work to obtain an authorized change order. This documentation is separate from the change order itself, and is an instrument that allows the owner to investigate, correct, and accommodate a change effectively, thereby reducing the impact to costs and the project schedule.
Change orders typically contain the following elements:
- A description of the requested change, especially as it differs from the original construction contract;
- An itemized list of any costs;
- A statement of the contractual basis for the requested change; and
- Any impact on the current completion date of the project.
Problems Caused by Change Orders
Since change orders are directives for work outside the original scope of the construction contract, there can be wide-ranging issues that result from a change order. The most obvious involve the impact to the project timeline and the budget. Additionally, new permits may be required for the changes.
However, the biggest problems occur when there is a dispute over the change, often due to a disagreement about whether the request constitutes a change order, as well as the need for additional payment. In order to avoid these types of issues, when preparing a construct contract, it is important to make sure that the scope of work is well defined. If so, it is less likely there will be disagreement over what is included in the contract and what is an extra. Another way to avoid these issues is to be sure that the construction contract includes a provision specifying how change orders will be handled. For example, the contract should require any change order to be in writing, signed by both parties, as well as an indication that the contractor is not required to proceed until agreement has been reached on scope, price, and additional time.
Seek Legal Advice
If you are considering entering into a contract for the construction or improvement of real property, contact an attorney experienced in drafting and negotiating construction contracts. Since construction contracts do not always go as planned, explicitly addressing possible pitfalls in the contract will save a lot of angst and disagreement between the parties later. The attorneys at Linkhorst & Hockin, P.A. have years of experience in drafting and negotiating construction contracts. We will use this expertise to draft and negotiate a construction contract on your behalf to avoid issues later. Contact our Jupiter office today.