GET YOUR CHANGE ORDERS IN WRITING
By Roger C. Justin

May 2007

Our law firm conducts a fair amount of seminars and/or speaking engagements with various builders’ groups throughout the state. Frequently, we have a question and answer session as part of those gatherings, and we often get the question “When do I need to get a change order in writing?” One of my partners has the flip answer to that question of “Whenever you want to be paid for it.” When I was a young attorney, I thought he was merely avoiding the question, but with the more experience I gained, the more correct he turned out to be.

Most contractors today take very seriously their responsibility to build based on written contracts which hopefully spell out in detail the responsibilities and requirements of the construction. Many of them will state that this written contract contains the entire agreement between the parties and specifically states that any changes to the contract must be pursuant to a written change order signed by both parties. Then, despite the fact that you took the time to spell out that change orders must be in writing, as the project moves forward you ignore your own requirements. This is bad on a number of levels. First of all, my partner is correct that payment may very well depend on having those change orders in writing. A Court or arbitrator will look at a dispute between a homeowner and contractor and start from the proposition that you are the one who required written change orders; you are the one who had the opportunity to prepare a written change order; and you chose not to do so. The assumption under those circumstances is that the homeowner, or anyone else, could assume that this is a “no cost” change. If in fact the contractor believed that this change would require an adjustment to the contract price or the time of completion, that was within the contractors power and you chose not to do so.

“Not so fast,” you say. “I know I did not put that change in writing, but we were in a hurry to get the change accomplished and anyone knows this change would require additional cost. Anyone knows that you cannot change from formica countertops to granite without an up charge.” While anyone in the business may know that, it is not correct to assume someone not familiar with construction is aware of the different values of material. You must remember that while you are in the business of building homes, for some people, this home may be the only one they have ever built in their life. They really do not have the experience with different options to know which ones cost more for the materials themselves. Similarly, they do not know which ones will require additional labor to install, even if the materials themselves are no different in price. You must assume that each homeowner is naive about your profession. It is your job to educate the homeowner about the cost implications of any changes that they request. It is easy for you to say “granite countertops would look really nice in here”, or, “you would really have a great view of the lake if this side of the home were all windows.” While these may be true, you must assume that if you say those things, and nothing more, a homeowner may legitimately believe that those options come at no additional cost. You must make sure they understand otherwise.

Even for those homeowners who understand that certain materials may increase the price of the home, it would be unfair for you to assume they would know exactly how much those particular changes will cost. Although they suspected it would be an upgrade, they do not know whether that means it will cost $300.00 or $3,000.00 more. Written change orders alleviate that uncertainty.

In addition to getting change orders in writing, I think it is a good practice to also have a running total of where the contract price sits after that change order. A listing at the bottom of the change order showing the original contract price, previous change order modifications to that price, and the price after the current change order let the home owner where the total cost of the project is going. It is not unusual for the buyer to build a home which stretches their financing or borrowing power to the maximum level. They may have room for a couple small additions in their overall budget, but change orders which balloon into the tens of thousands of dollars cannot be covered. To avoid those circumstances, even if there are written change order which, if the home owner took the time to add up, could come to the same number, it is easier for them to focus on one number if it is provided with them at the same time as the change order.

I have also had clients talk about their practice only of doing change orders if it will raise the overall cost of the project. For instance, if a large scale deletion was made at the start of the project, they would only begin the written change order process when the requested additions by the homeowner equaled or exceeded the large deletion. Again, this is bad practice. For the same reasons cited above, the homeowner does not really know where they are in the building process. It is easy for them to remember the first large deletion and think they are going to recognize a huge saving. They forget the numerous additions which have been made since then and should not have to suffer the surprise when ten change orders are presented to them at one time, showing that they are again over the original cost of the project. The way to avoid that scenario is to do contemporaneous written change orders.

I have represented many contractors who firmly believe that homeowners try to take advantage of them through the change order process. They believe homeowners are not really ignorant as to any additional cost or time crunches which flow as a result of the changes to the project. Similarly, I believe that many of the homeowners who are presented with a large number of change orders increasing the cost of the project only at the end of the project, believe that the contractors used that method to increase the amount of profit they will make on the job. They feel that the hidden charges are unfair or inflated and do not want to pay them. The way to avoid those suspicions on both sides and for both parties to know where they are on a particular project is to reduce any and all changes to writing before such changes are made so that both parties can make intelligent choices as the project moves forward and be happy with the results at the end.

Roger Justin practices in the areas of employment, business, and real estate/construction litigation.

© 2007 Rinke-Noonan.

This article is a general discussion of legal issues and is not intended to be legal advice. We would be pleased to review the specific facts and law regarding any given legal matter.