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Addressing change orders construction contract negotiations

Whether you recently started a construction company or already own an established business, you are probably already aware of the fact that property owners may want to make changes in the middle of the project. When this happens, you need to react quickly and efficiently in order to minimize the potential for litigation, time delays and budget concerns that accompany these requests.

Change orders are a fact of life in the construction business, but that doesn't mean that you shouldn't plan for them in order to protect yourself and your business. Addressing them in your construction contracts could prevent you from experiencing the adverse effects that often come with these requests.

Understanding the role of change orders in construction projects

Did you know that around 35% of all construction projects go through at least one change during the process? That's a little over one-third, which means that you will more than likely deal with this issue in one out of every three projects. That is significant enough to address ahead of time. When a property owner wants to add or remove something from the agreed-upon scope of your work, it constitutes a change order. They typically include the following:

  • A statement referencing the basis upon which the change can occur in accordance with the contract.
  • A detailed description of the change requested compared to the agreement in the contract.
  • An indication of how the change will affect the previously agreed-to completion date for the project.
  • A summary from you regarding how much the change will cost.
  • An itemized statement of the subcontractor costs associated with the change.

A change order actually amends the original construction contract. Before agreeing to any change order, it is vital to make sure that everyone understands the true impact of it. For this reason, you may want to address change orders in that original contract. The property owner needs to understand that fulfilling his or her request will increase the overall cost of the project and move the completion date further out than originally anticipated.

When it comes to spending more money and time on a project, an owner can get antsy and possibly litigious if he or she does not have a clear understanding ahead of time regarding how requesting a change will affect the bottom line. The fact is that change orders are the most common source of cost overruns on a construction project. If you already have a process for handling change orders outlined in your contract, you can move through the approval process more efficiently and quickly.

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