Getting Paid: Checklist for Mitigating Change Order Risk Jan 04, 2017
by Reed F. Morris:
The parties are in a standoff over whether the change is necessary, allowable, proper, or fairly priced. Change order risk and bargaining position come into play and the Colorado contractor is guided by its past experience, judgment, and gut. At this point in the project you are dealing with the contract that you have, not the one that you want. Protecting your ultimate position down the road is critical.
Change Order Risk Triggers:
If the following occur or you hear the faintest whisper of any of them of on the job site, consider the change order process triggered. The management team should proceed to the checklist if:
1) You hear that the owner or the design team wants to delete or add certain items,
2) You believe the site conditions are different,
3) The plan sheets are inconsistent or flawed making production or sequence unworkable, or
Change Order Risk Navigation Checklist:
□ Initiation: Does the contract contemplate a contractor-initiated change order or only unilateral, top-down, change orders?
□ Does the change order clause describe how the price for change order work is determined such as unit price?
□ Are there procedures when disagreements as to price remain?
□ Are all costs taken into account including overhead, profit, and delay?
□ What is the relationship or impact of a “no damages for delay” clause?
□ Must the change order be submitted before work is commenced (or before materials are ordered)?
□ Who has the authority to authorize the change order and in what form (written, signed, etc.)?
□ Do provisions address timing, delivery, or substance of the change notice or change order request?
□ Have the timing, substance, delivery or signature requirements been met?
□ Does any change affect schedule or critical path?
□ Is there external support for the price requested?
□ Are the bid materials consistent with the current contract plans and specifications?
□ If the change order is directed by the owner or upper-tier contractor, what does the contract say about the owner’s or general’s ability to direct the work until the payment/price is resolved?
□ Are there any dispute resolution provisions of the contract that are applicable if the parties are in dispute as to the price and change work is necessary to proceed or is directed?
□ Are there any process oriented claims provisions in the contract that are applicable if the contractor’s change order is denied?
□ How is an upper-tier contractor compelled to take a lower-tier contractor’s changes up the chain or to the owner?
□ Is there a “pay if paid” clause or a “pay when paid” clause, and how is the term of payment defined?
□ Do flow-down provisions from the prime contract or government procurement regulations/policies (FAR) control changes, claims, or disputes?
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Reed F. Morris is a Denver-based attorney who regularly represents owners, contractors and sureties in payment and performance related construction litigation including private and public jobs, bond claims, mechanic’s liens and related disputes. He is a partner at MLMW and represents parties to construction disputes in state and federal courts and all alternative dispute venues including mediations and arbitrations (AAA). Reed can be reached for questions at email@example.com or by phone at (303) 927-0011 (direct).