Conquer Change Orders With Resources From ASA
by American Subcontractors Association

In any construction project, large or small, changes and delays are inevitable. Even seemingly minor aberrations in project plans and schedules often require major adjustments in the time and cost of the project. Change orders themselves can cause further delays, miscommunication, and disputes, especially if numerous changes become necessary. Luckily for subcontractors, ASA has a variety of resources to assist in the negotiation of the best possible terms for conquering change orders.

A primary area of concern for subcontractors is change order procedures, as set forth in the subcontract and the general conditions. On public work, government regulations will apply as well. ASA's 2003 white paper, "Change Orders," provides a good overview of the different requirements and procedures subcontractors may encounter.

There are many types of contract forms, and the change order procedures among them vary considerably. Therefore, it is critical to review the specifications for change orders closely before work begins, as the specifications in the subcontract will become binding once the project has begun.

Another primary concern is the common practice of proceeding with out-of-scope work without written instructions. Subcontractors can negotiate the right to written authorization using documents such as the "Guideline on Procedures for Change Orders" in Guidelines for a Successful Construction Project, which states:

Change order work should not begin until after the owner or owner's agent issues a written authorization to proceed. Adherence to this precedence will promote smooth and efficient adjustments by all parties. This written authorization should reflect the variations in the work and the contract cost or time schedule. The authorization also should specify that variations are made in accordance with the terms of the original contract...

Obtaining the necessary authorization for a change request can sometimes result in delays. However, from the subcontractor's perspective, following the proper procedures for change order authorizations and claims is the best way to prevent change order disputes. And when contract documents indicate that no extra work should be performed without a written change order, subcontractors can refuse to perform any extra work until written authorization is given. If the contract permits it, the owner may issue a change directive, on which price can later be negotiated.

In negotiations, subcontractors can take a proactive stance in preserving their rights to be paid, and paid promptly, for extra work.

One way for a subcontractor to negotiate a comprehensive set of payment rights for itself is to attach ASA's Addendum to Subcontract to the proffered subcontract documents. The Addendum to Subcontract includes language concerning the modification of project schedules, subcontractor claims for time or price adjustments, entitlement to payment for "properly performed" work, and more.

Subcontractors can also turn to ASA's Mastering Subcontracts CD-ROM for advice. This resource describes, in detail, 13 critical elements that should be included in a subcontract to ensure prompt payment for changes. These elements include practical rules for reporting delays, procedures for timely change order processing, and safeguards against requirements to continue extra work in the absence of prompt payments. Mastering Subcontracts also includes a host of negotiating tips to ensure a fair project schedule as well as equitable claim notice terms.

Negotiating fair subcontract terms for change orders in the pre-construction stages of a project is extremely important. But so is continued diligence on the part of the subcontractor once construction has begun.

ASA's white paper titled "Scope Changes and Claims" offers several suggestions that can help subcontractors become more proactive in protecting their rights to make claims for extra work. For example, it warns subcontractors to be wary of changes that aren't truly extra, as when a subcontract includes broad language, or incorporates a broad performance specification. It also advises, "Proposed change orders should be submitted with a cover letter that includes both a deadline when the proposal must be accepted or rejected, and a warning that costs will increase due to delay and interference without timely action."

This brings us back to the topic of project documentation. Obtaining fair compensation for any costs related to extra work will be much easier with proper tracking and billing documentation to back up claims. ASA's 2003 "Change Orders" white paper states, "a subcontractor should always keep detailed cost accounting records, even if just to support a claim for time-and-materials plus mark-up, because various legal theories available to recover compensation for changes may force or permit a court to consider several different methods of calculating the proper payment."

Documentation is particularly important for keeping track of recorded minor change orders that can accumulate by the time the project is completed. Careful project documentation is especially critical given the tendency of change orders to lead to miscommunication and disputes, particularly as the number of change orders increases. And, should the situation surrounding requested changes go horribly awry, documentation is vital to making effective delay claims. See ASA's white paper, "Scheduling Changes and Claims," for tips on handling delay claims.

A 2004 survey revealed that 56.6 percent of ASA's members rank payment for change orders as a "very serious" issue. This number has increased since 2002, when just over half of ASA members (51.9 percent) responded in the same way.

Clearly, the issue of timely, appropriate payment for extra work performed under change orders remains a major problem for many subcontractors. But by becoming familiar with change order requirements, taking the initiative during contract negotiations, and remaining diligent once the job has begun, subcontractors can conquer change orders and receive appropriate payment for their work.

Find ASA Resources Online
Guidelines for a Successful Construction Project: see www.constructionguidelines.org.

Visit www.asaonline.com and click on the "Stand Up! For Subcontractors" logo to find:
"Play by the Rules to Get Paid for Extras"
"Scope Changes and Claims"
"Scheduling Changes and Claims"