Change Orders - Use Them, Understand Them, or Pay the Price (part 1)

Jeffrey W. King, Jones Walker, LLP Outside General Counsel for the WFCA

“The Only Constant in Life Is Change.”— Greek Philosopher Heraclitus

A certainty in selling flooring is that something will change. It may be unanticipated site conditions, the unavailability of products, a customer changing their mind and selecting a different flooring, an issue with another subcontractor, unforeseen delay, or other events. When changes are needed, it is key to document that the parties have agree on the changes, the price, and impact on the schedule. Equally important is to keep a record of these agreed upon changes. The most common process for documenting changes is to have written “change orders.”

Most standard form construction contracts have a “changes in the work” clause that establishes procedures for revising a contractor's scope of work. For instance, in the American Institute of Architects form AIA–A201 2017 change orders are addressed in Article 7, while in the Associated General Contractors of America’s ConsensusDocs 200, the change provisions are found in Article 8.

Custom contracts often state there can be no oral modification of the contract and only signed, written change orders will be binding on the parties. Whether signing a subcontract or selling directly to the consumer, flooring retailers and contractors should include a change order clause in their contracts to minimize future disputes.

Change orders represent some of the most contentious disputes between contractors, subcontractors, and property owners. Part I of this article will address the basics of change orders. Part II will review the issues raised when change orders are challenged..

Change In Work Clauses

A change order is a written amendment to an existing contract that alters the work, the amount of payment and/or the contract time. Change orders are by their nature for work and materials not included in the existing contract. Some will be obvious, such as changing the flooring products to be installed, or adding additional areas to replace or install flooring. Others changes may be less obvious to the buyer, including construction site conditions, the presence of mold or asbestos, or the need for new subflooring. Yet others may need to be specified in the contract, such as unanticipated material cost increases or additional expenses for delays.

The biggest problems occur when there is disagreement about whether the request constitutes a change from the original agreement or justifies additional payment. In order to avoid these types of issues, it is important to make sure that the scope of work is well defined in the original contract and what items are not covered, such as unforeseen site issues. Flooring retailers and contractors should consider the following:

In reality, changes can arise suddenly and there is pressure to keep to the schedule.

● Detailing the scope of work, including the materials and services to be provided, and specifying what is not covered, such as any remediation work;

● Attaching and incorporating into the contract any requests for proposal and the flooring retailer’s or contractor’s proposal, since they set out the scope of work and what the client requested;

● Specifying who is responsible for permits and fees and/or what fees are covered by the price;

● Excluding any undisclosed site conditions and preparations; and

● Addressing any increases in costs due to delays, new regulatory requirements, or supply price increases.

The more details provided, the less likely there will be disputes over what constitutes a change.

The Process for Change Orders

Many contracts include the process for change orders, and it is key that the flooring retailer or contractor strictly follow that procedure. The process for agreeing to a change order typically begins when one of the parties to a contract requests a change to that agreement. The contractor prepares a “change order proposal” that specifies the changes, and the price for the extra work. Once the owner and contractor have agreed on scope, price, and schedule, a formal, written change order is prepared and signed by all parties. Then, the contractor proceeds to perform the changed work.

At least that's how it's supposed to work. In reality, changes can arise suddenly, and there is pressure to keep to the schedule. The standard process is not always followed and change orders are often quickly drafted or not even reduced to writing. Moreover, in many circumstances, a contract will allow the owner to unilaterally change the work through a “construction change directive” when the parties cannot agree on how much will be paid for the extra work. The contractor will generally have to accept the additional compensation as determined by the architect, or file a lawsuit and have the courts decide the amount due.

Part II will address these issues, suggest alternatives to formal change orders, and provide tips for dealing with change order disputes. ■

The information contained in this article is abridged from legislation, court decisions, and administrative rulings, should not be construed as legal advice or opinion, and is not a substitute for the advice of counsel.