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Managing – Or Limiting – Dreaded Change Orders

Legal27

There are two words that are pretty much guaranteed to send a construction project into a tailspin: Change Orders (CO). A CO can be an addition, subtraction or modification to a project, after the project has started, and after the contracts have been negotiated.

Why So Problematic?

Change orders are fraught with problems. They can alter the cost of the project, expected profits, and timelines for completion. In most cases, either the owner or the construction company can initiate a CO, meaning that COs can come from both sides.

Often, COs are seen as aesthetic, or superficial, and there is a dispute whether the CO need even be complied with. Other times, external circumstances outside of the parties’ control necessitate COs. From a builder’s perspective, the availability of materials, finding things on the property that impact what can and cannot be built there, or government or legal code requirements all can lead to a CO being requested by the construction company.

Dispute Resolution and COs

Certainly, a disputed CO can be the subject of mediation or arbitration, but the cost—not to mention the time needed for the dispute resolution process—can be worse than just complying with the CO in the first place.

A builder faced with an owner-requested change order can face a tough choice: Go to mediation or arbitration, and thus spend the time and money on these avenues before the construction companies are even paid, or else, just comply with the CO, knowing that profits will be eaten into by the costs associated with the CO.

That’s not to mention the threat of continued additional COs, even after the initial CO is agreed to by the builder.

Limiting COs in Construction Contracts

It is unlikely that COs will disappear from construction contracts completely in the future. In fact, because COs are often requested by both owners and builders, many want the flexibility of a change order, and would be hesitant to eliminate them completely.

There is always the option of limiting change orders to only be requested by one side. If, for example, the builder cannot request a change order, the builder is incentivized to do its due diligence—to make sure materials are available, surveying is correct, and that the plans for the project are doable, and doable in the stated amount of time–before the contract is agreed to.

Limiting owner-requested change orders can avoid owners from making frivolous CO requests, or requests that are for aesthetic or immaterial reasons.

There is certainly the option for payment in the event of a CO—in other words, an agreed upon amount that is added (or subtracted, depending on who is requesting the CO) to the contract, if a CO is requested. Or, the payment will kick in if more than a given number of COs are requested by the owner or the builder.

Other options, like capping the costs of COs with a hard cap, or making one party or the other pay the costs of dispute resolution in the event a CO needs these services can also help allocate the costs of COs fairly between the parties.

Our Fort Lauderdale construction attorneys at Sweeney Law P.A. at 954 440-3993 can help if you have problems on your construction job site. Call us today for construction law help.

Resource:

americanbar.org/groups/construction_industry/publications/under_construction/2018/fall/construction-101/

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