It’s always a good idea to use a written contract. It should include two key elements (among others): the scope of work and the price.
However, on any given project, there are almost always things that need to be changed or modified to meet the customer’s needs. That means that just about every construction contract will need to be changed at some point as the project proceeds.
But how do you change a written, already-signed contract? Enter the change order.
Change Order Form — Free Template Download
Given the importance of change orders, we created this free and easy to use change order form template for contractors. It’s simply written, as most things should be! Plus, the form is an MS Word Doc so it can be filled out, edited, or customized to meet your needs. To download your free copy, just click the button below.
Using a Written Change Order Form Can Improve Business & Customer Relationships
So what happens if the customer wants more work than you’d initially agreed to or was spelled out in the original contract? What if the customer wants to change some major project details? Anyone who’s dealt with needy property owners knows that they’re not always willing to cough up the extra dough.
From the customer’s or project owner’s perspective: they’ve paid for work and want it done to their liking. They might not realize that even small changes result in more labor, materials, and money. The tendency might be to just informally ask the contractor to make the change, as in, “hey, when you’re doing that, can you also do this?”
From the contractor’s perspective: any contractor knows one thing — changes cost money. What might seem like a minor, easily solvable issue to the property owner can, in fact, be a complicated, expensive issue to solve at the jobsite.
A proper change order procedure can help alleviate a lot of these issues. Change orders create a record of any additional services requested by the customer, along with the relevant pricing. It’s always best practice to get everything in writing, and, in some jurisdictions, getting a change order in writing might be legally required! Further, if there’s any confusion concerning the work or pricing, a properly executed change order becomes part of the contract.
In fact, a construction contract will, more often than not, set out a method for making change orders. Usually they must be in writing and signed by both parties. Sometimes, other parties’ signatures might be required too – like the architect’s.
Unapproved Change Orders Are Profit Killers (or Worse)
According to Marc Hendrikson, CPA, CCIFP, a Denver-based commercial banker who specializes in lending to the construction industry, unapproved change orders are one of the top 3 causes of contractor financial losses.
When work is performed on an unapproved change order, extra expenses will probably be incurred that were not accounted for in the original contract. If the legitimacy of that change order is called into question by the owner and the resulting invoice or pay app is disputed or declined, the contractor will likely be out of luck when it comes to collecting.
So it’s actually not enough to get the change order in writing — it needs to be in writing, AND it needs to be signed!
Change Orders and Mechanics Lien Rights
If a change order has validly made and performed, it will become a part of the original contract and it will qualify for mechanics lien rights. If the change order is agreed upon verbally but is then immediately documented for both party’s records it might still constitute a valid change order as well. However, why take this chance? Insist on a written change order and explain to your customer that verbal change orders are not allowed. Bottom line? Get the change orders done correctly and your lien rights should remain intact.
On the other hand, while an approved change order likely always qualifies for lien rights, an unauthorized change order may not qualify. If extra work is requested informally, it will likely not constitute an actual change order, and those amounts might not qualify for lien rights.
When change orders are supposed to be made according to a specific process as demonstrated by the contract, the non-paying party could dispute any work done pursuant to a change order as unauthorized work.
It’s easy to see why it’s very important to make sure you are following the methods laid out in the original contract. So next time a GC or homeowner says “Can you do this extra work?” make sure you get it in writing before completing that work.
What If There’s a Dispute as to Whether the Change Order Was Approved?
When there’s a dispute as to whether the change order was approved or not, the best thing you can do is have proof of the approval. Even in a situation where the change order wasn’t made exactly as required by contract, showing clear proof that it was requested and completed should go a long way (even though it may not be sufficient).
However, nothing will ever replace the simplicity and safety of making sure that you get every single change order in writing, approved, and signed.