Change Orders In The Construction Contract
CHANGE ORDER ISSUES IN THE CONSTRUCTION CONTRACT
By: Harry Malka, Esquire
As anyone in the construction industry knows, construction contracts are often modified during performance of the project. Often times, this is because something is left out of the design documents, a specified material is not available, or the owner simply changed its mind during construction and wants to add or subtract items to the scope of work. This leads to the dreaded “Change Order”. Owners dislike Change Orders because they add to the cost of the Project. On the other hand, contractors generally enjoy Change Orders because they add to the cost of the Project. Of course, this love-hate relationship inevitably leads to disputes.
Time and time again we meet with clients who are involved in a dispute because of a disagreement regarding change orders. We often find that when a construction contract is not prepared or reviewed by an experienced construction mediation/arbitration, the contract may be unclear or totally silent on these very important issues. These types of disputes can be avoided by having a well-drafted construction contract.
Most often, disputes relating to change orders are about whether an item is in fact a change order or is it something that was already included in the scope, whether the owner approved the change, or whether the parties agreed on the price of the additional work.
In order to avoid these types of issues, when preparing a construct contract, it is important to make sure that the scope of work is well defined. If the scope of work is well defined, such as by incorporation of the plans and specifications into the contract, it is less likely that there will be disagreement over what is included in the contract and what is an extra to the contract. Our rule of thumb is to always avoid a vague or ambiguous description of the work in the contract.
Another way to avoid these issues is to be sure that your construction contract includes a provision specifying how change orders will be handled. For example, the contract should include provisions such as : (a) authorization for extra work must be in writing, signed by both parties, (b) the contractor is not required to proceed with the work until there is an agreement on the scope, price, and additional time; and (c) identity of persons authorized to approve change orders on behalf of both parties.
It is important for the parties to abide by the terms of the contract during performance of the work. Florida Courts have held that, under certain circumstances, an owner may be found to have “waived” a contract provision requiring that all change orders be in writing, especially when the owner has paid for verbal change orders throughout the course of the project.
As Your Construction Law Firmtm, we cannot emphasize enough the importance of understanding your contract before you sign it. Our philosophy is that preventative legal services in the form of careful contract preparation, review, and negotiation is the most economical and effective use of legal services.