The truths of construction:
1. Every set of plans is perfect.
2. Every project is over budget
3. Every project is too slow
4. No change orders are legitimate
5. The contractor is always wrong!
Right? No, but it often seems so. Nothing’s perfect out in the construction field. You can have a absolutely legitimate claim, but you must be able to prove it to collect. To insure you get paid for extra work, document situations as soon as the problem becomes known, or at least within the maximum number of days allowed by your contract.
I have served as an arbitrator for the American Arbitration Association on a number of construction lawsuits. In most contract disputes I’ve evaluated, problems could have been avoided if the subcontractor had notified the general contractor or owner in a timely manner. The majority of problems occur when contractors try to request money for extra work done weeks or months later, without timely documentation to back up their request. Some examples of situations needing documentation:
(1) A plumbing contractor proceeds and installs underground sewer using plans that don’t give exact dimensions of the pipe’s location. The plumber has now accepted the responsibility for poor plans by installing pipe in a wrong location. Proper documentation of this situation as it occurred, including specific references to the conflicts or omissions in the plans, will put this problem back on the project owner’s shoulders.
(2) A contractor digs a footing, discovers an unforeseen condition, fixes it, then several weeks later notifies the owner they hit an underground structure, spent additional money remedying the problem, and expects to get paid for additional work. The owner does not have any contractual liability to pay for extra work performed, installed or completed without proper notice, documentation, and authorization per the contract.
Your contract will specify how many days you have to notify the owner upon discovery of a differing condition on a job site. Document it, including written proof and photos, show how you mitigated or intend to mitigate the damages, and submit a claim and change order within the number of days specified by the contract!
Some Things Never Change . . .
. . . including the realities of change orders in construction. Change orders are not “extras”. They are additions, changes and deletions from the contract scope of work. Somebody changed the scope of work, not you! The project owner, architect or engineer didn’t prepare proper or complete plans or specifications. Never give your work away. Your company has a right to collect for additional work and extended time when somebody else changes or modifies your scope of work or schedule.
The typical scenario, however, goes like this: a subcontractor walks into the general contractor’s office with a list of change orders that occurred 2, 3, or even 4 months prior and asks to get paid for extra work. You can quote me here: “If it’s news, you lose!” Sometimes the general contractor or developer might be soft-hearted and approve some of the money requested. However, by contract, no monies are owed. Once in court, some judges or juries who might be soft hearted, but they shouldn’t count on that to win their case and get paid.
The Two Types of Changes
1) Wanted – requested changes – those requested by the owner, architect, or builder – such as upgrades and additions.
2) Unwanted – constructive changes – those caused by differing conditions, field problems, conflicts, poor plans and specifications, errors and omissions.
Needless to say, changes that are unwanted or unexpected tend to make people unhappy. These changes present more problems for budgeting, scheduling, and getting paid. Make sure your project manager keeps a log of potential or proposed change orders as well as executed change orders. Match each project’s monthly budget report to the executed change order log to insure accurate committed costs, estimated final costs, and anticipated profit.
On every project, review the general conditions, specifications, general contract or subcontract to look for the timeframe allowed to request additional monies and time extensions for change orders. These requirements may be different for owner-requested changes or constructive changes. While you are required to give proper notice for change orders, the work typically proceeds while final change order negotiations ensue. Follow procedures established in the contract, and establish your own management procedures to track these incidents carefully and completely.
Train your customers!
Meet with your customers at the beginning of every project and tell them exactly how you want to business with them. Tell them up front, in advance, you willrequire signatures in order to proceed with extra work, expect them to abide by the terms of the contract, and stick to it. Play hardball and be firm but fair. Your customers will respect you and treat you professionally. When you don’t require the customer to honor their contract, and go ahead and do work without signatures, the customer won’t respect you and will take advantage of your weakness.
George Hedley owns a $75 million construction and development company and Hardhat Presentations. He speaks to companies on building profitable businesses, leadership, and loyal customers. He holds 3-day in-depth “Profit-Builder Circles” open to construction company owners in an interactive roundtable format every 3 months. His “Profit-Builder System” includes proven tools to always make a profit, build equity, create wealth, win profitable jobs, motivate your people, and enjoy the benefits of owning a profitable company.