May 22, 2018
A charge order have long been the biggest disputes between construction contractors and their clients1. Filing change order in the construction industry will cost additional time and money and oftentimes can delay the timeline on a process on an already extensive project.
Change orders are identified as written contracts between the owner and their client2. These contracts cover modifications and alterations to any sort of contract that already exists between the client and establishes any sort of new basis of payment, time adjustments, etc. that are effected by the changes in the contract.
Change orders will have to go through all of the billing requirements that are required for the change orders before they are able to take legal precedence over the contract that was already in place before the change order was applied. These change orders can also only apply to lump sum contracts, not cost-plus or time and materials (T&M) contracts.
It's also worth noting that the change orders are not the same as either change directives or construction changes.
What Are The Reasons To Issue A Change Order?
There are a variety of reasons for charge orders but they are most often used when there are changes that are made to the design of the project after the work on the project has already begun. The following are some of the reasons that change issues are issued:
- parts not fitting together as planned
- if the drawings are ambiguous
- there are unforeseen conditions on the job site (within reasonable limits of course)
- workers or materials do not arrive or consistently are coming to the site late
These changes often come when something goes awry with the project such as it taking longer, costing more money, or going in a way that was not already planned. These change orders will need authorized by the local court before they are able to be implemented on the project they are supposed to be implemented to.
Unless all of the details of a project are planned out beforehand, you can be relatively sure that there will be change orders in the construction industry will likely be necessary at some point throughout the entire project. This means that when it's possible you should try to set all the details of a project up in advance including the material specifications, shop drawings, installation requirements, or other detailed plans that will need to be figured out in order to start the project.
How Do I Implement A Change Orders?
To be able to implement a change order you will have to record an amendment to the contract that was already in place. For example, change orders in construction have to be recorded so that the customer can be billed for both the original contract as well as any amendments that were added to the contract. This way, the customer is paying for all of the original agreements as well as any additional work done and has documented proof of what they are paying for. This prevents any questions of why the customer was charged what they were at a later time if they feel something was charged to them unfairly.
The following are some great steps to help you implement a change order in the construction industry with your client so that the businesses or the other business and client can end up on the same page:
- Establish the contract with a clear expectation of exactly what was to be done in the original contract, so the other business or client understands what the original deal was.
- Manage the expectations of other business or client and be very clear about exactly what the change order will entail as well as how you will be implementing it into the contract that already exists and was agreed to.
- If the customer requests further changes to the contract even after a change order is implemented to the further changes, determine the costs of the changes and provide all of the estimates to the client before writing the change order and making it official in the contract.
- Always be willing to comply with a request for any reasonable change that is made possible without going against your company's ethics, policies, or beliefs, this will satisfy clients and encourage them to do more business with your company, knowing they will always get a job done or a project completed the way they need it done or completed.
- Document all requested changes clearly including the times, dates, and reasons the requests were made, processed, and implemented into the contract that already existed.
Creating records of your change orders is important, no matter what industry you are in. Whether it's a change order between two businesses, between a business and a client, etc. you are saving yourself a headache later on in life by simply documenting the changes that are made to an already-standing contract. This helps also helps you show the client proof of what they paid for and helps keep your reputation as an honest contractor and business who only charges for services and goods that were delivered to the client. A simple recording mistake of this information can lead to a client that is overcharged and can turn a current client into a former client. Not charging enough costs your company profit and revenue and ultimately hurt your bottom line.
When Creating A Change Order Remember This:
Implementing change orders are important when you are changing the contract you already made in the construction industry. Moreover, the customer will need to know how much more they are being charged when a change order is implemented and something is added to an already-existing contract. Make it clear exactly what additional charges to the customer will be and how the additives will effect the timeline, scope, cost, and flow of the entire project. Being clear with your clients and their expectations can be set and they will know what to expect when the changes orders are implemented. Moreover, always be honest and forthcoming with customers to build a reputation for your company that customers and clients can trust, especially when change orders need to be implemented before completing a project.
For more information on implementing changing orders for your construction industry business please feel free to contact us.