business development
Change Order Fairness Law for Maryland Subcontractors By Karen Barbour
T
he number one downfall for small and disadvantaged businesses is the inability to collect on change orders, especially at their full amount. For example, on a large project that can take upwards of three years, any subcontractor performing work early in the process may find the approval timeline for change orders unbearable; as a consequence of the change order, retention on the project is at a standstill – even after the work has been performed. The risk increases if the prime contractor or project owner declares bankruptcy and the job is not bonded. And even if it is a bonded project, the time frame for filing suit against the payment bond can expire due to the lengthy process. Until change orders are approved, they appear as stagnant underbillings on a company’s balance sheet. Once the surety gets wind that the change order costs are not billable, they become omitted assets that can directly impact bond capacity and banking ability. This example or similar
scenarios can quickly submerge a small business contractor that simply needs to get paid on time for work that is completed. In the State of Maryland, after two years of research and significant lobbying efforts funded by the Coalition for Contracting Fairness, the Change Order Fairness Act achieved final passage in 2016. Maryland Senate Bill 826 passed the Senate 46-0; and its counterpart, House Bill 403, passed the House 135-0. This was a big deal and not a happy moment for many of the Maryland state agencies that
fought against it, such as the transportation agencies. While a few agencies were exempted along with privatepublic partnerships, under the new guidelines, the State of Maryland can no longer issue unilateral change orders for state-directed changes. With a state-directed change order, the state and the prime contractor must first agree on price prior to commencement of work. The general contractor must flow down the provisions of the bill to its subcontractors and provide subcontractors a copy of the Winter 2019 //
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