Syllabus / Legal & Finance 101
The complete guide to change orders
If you’re embarking on a home remodel, there’s no information more important than the rules of change orders. They are the keys to making down-the-road changes that you didn’t/couldn’t have known about in advance. Maybe you didn’t make up your mind, or you changed your mind, or maybe the building has a hidden defect that no one could see until you knocked down a wall. Whatever the reason, you’re going to have to deviate from your original plan – meaning more time, and, most likely, more money.
Here are the guidelines for making change orders as painless as possible – and for knowing the difference between change orders and changing the deal:
Meet frequently with qualified professionals
Meeting with a qualified architects and contractor is a good way to get as much insight into the details of your project as possible. Each professional will bring his/her knowledge, perspective, and experience to the table. Multiple meetings means varied opinions and knowledge bases – you can learn from each one and compound the information into a comprehensive plan. Then, when you finally choose your team, you’ll be in a good position to point out details she may have missed (plus you’ll look well informed) – meaning you’re less likely to end up with changes later on.
Consider bringing in an engineer
If you’re doing a project that involves structural changes – say, moving a roof or adding an addition – an engineer will pick up on potential problems that you and your contractor will miss. Their expertise can be invaluable – they’ll be the ones who can determine exactly how you can get the project done.
Do your diligence
Unfortunately, you can’t X-ray a house to determine what’s behind the walls or under the floors. But you can drill some trial holes. It’s typically carried out by surveyors and will help you figure out whether a wall can in fact be moved, or a floor opened, without bringing down your house. Granted, it may cost you – but consider how much it will cost if you commence building an addition only to discover poor soil conditions and have to rethink your plans mid-construction.
Plan the details in advance
The biggest rule of change orders is: when possible, it’s best to avoid them. As we said above, they cost time and money, and create a likely source of conflict between you and your contractor (it’s easy to get into fights over whether a change order comes as a result of you changing your mind, or the contractor having a different understanding of your project). The best way to avoid this situation is to plan, plan, plan.
Understand the causes of change orders
Latent defects are problems in the condition of the property – they can be identified by surveys. Errors/omissions, meanwhile, are things your contractor could have told you in advance, but didn’t. And design changes are when you’ve simply changed your mind.
These are three separate buckets, and knowing the difference between them is crucial for 1) avoiding them, and 2) resolving disputes if they do happen. For example, halfway through the project you could tell your contractor, “I didn’t want the windows you’ve installed, I wanted these other windows.” The contractor replies, “No, these are the windows you said you wanted.” The first step is to go back to your scope of work and material specification sheet.
Several things could be happening. Perhaps the windows aren’t the ones you’d specified, but your apartment building requires the ones installed. If you’d known this, you’d have specified the right windows in the first place. But if you didn’t read your building’s alteration agreement beforehand, it constitutes a design change, and you’ll have to pay for it. If the contractor simply installed different windows than the ones specified in the material specification sheet, it’s an error/omission.
Note: If your contractor failed to estimate a correct price, the situation falls under errors/omissions – but if the contractor stated that price and you agreed to it, then you’re responsible for paying it. If, after the contract is signed, the contractor wants to renegotiate the price due to an underestimation, he’ll have to swallow the cost – and if he refuses to, you have your scope of work and your contract as evidence in a dispute.
Beware of contractor underperformance
Alas, this is another reason for change orders. If contractors aren’t optimizing resources (which is, to be fair, a complex task) then there’s a chance they aren’t allocating those resources in a cost-effective way. So to meet the specifications/quality of your scope of work, they may need to throw in a change order. If you hear something like, “In order for me to finish the job, I need an additional $10,000” then you know what you’re dealing with. If this happens, you have two options: pay them and feel you’ve been taken for a ride, or not pay them and jeopardize your entire project.