Change Orders

Since change orders are more the rule than the exception and increasingly amount to a substantial portion in relationship to the overall contract, it is very important that you be paid for them after the work is performed. One of the worse things that can happen is for a contractor to expedite an order, devote immediate labor and materials on a change that is eagerly awaited by the general contractor or owner, and then find out later in court or arbitration that it is being denied. No contractor can afford to do business in this manner.

It is too obvious to state that the best approach is to have a signed change order which outlines the scope of the work and the exact price. However, we all know that is many times not the case. On the other hand, change orders do not come in a vacuum and they are almost always the result of a directive from the owner, architect, or general contractor.

In my experience, one of the best pieces of evidence in a subsequent contested proceeding is to have a letter confirming that you were told to perform the change order. This is beneficial even if the amount is not predetermined since many times the threshold issue is whether or not there was authorization to perform the change order at all and whether it was beyond the scope of the original contract. Once you get over that hurdle, it is much easier to receive compensation. I would therefore suggest the following letter be sent out immediately after you have been told to perform the change order, in the absence of a written change order signed by all the parties:

Dear Mr. Smith:

On ____________, your authorized representative ________________

directed my firm to perform the following extras:

_______________________________________________________________

_______________________________________________________________

This will confirm that we will perform said extras as requested and that they are beyond the scope of the original contract entitling my firm to extra compensation. The agreed price for these extras was set at $_______________ (if there is no agreement on the lump sum price, state Acompensation will be based upon actual cost of labor and materials plus ___% profit and overhead.") A reasonable time/____days will be required because of this extra work and will correspondingly extend the time for performance under the overall contract.

It was additionally agreed that payment will be made at the next progress installment. Unless we hear from you otherwise, we will proceed as directed and will expect payment as herein stated.

Even if there is no agreement as to the exact amount to be paid, send the letter off anyway because it will at least confirm the authorization to proceed, and that it was beyond the scope of the contract.