Change Orders-why home owners should scrutinize them

No matter how well you plan a remodeling project or new home construction, you may change your mind once you see how things really look. That’s when the change order provisions of most construction contracts kick in. It is also the time to be on guard against cheating and fraud in terms of outrageous prices, incorrect quantities of materials and added management fees that make no sense. We offer some guidelines and examples of how to keep more money in your pocket.

Typical Change Order- you want to change something

Changes orders are required when you decide to do something materially different from the approved construction drawing that are normally a part of the construction contract. For example, if you want foam insulation instead of fiberglass insulation in the external walls, you will have to pay for the difference in price. That seems easy enough. A written change order would specify the kind of foam insulation (closed cell or open cell), how thick it should be applied and where. Usually the work will not proceed until you sign off on the change order and you pay for it.

Unusual Change Order - the change is needed to correct the design flaw or incorrectly built structure

But what happens if the change is need ed to correct the architectural drawing? Or if the contractor didn't build somehting according to plan? The question of who should pay comes up. Some good examples of this are the 2nd story window doesn’t align with the windows on the first floor. Or the contractor did not construct the dormers accroding to the plan.

In the above two examples, a change order would still be required, but it is not the owner who has to pay. In the first situation, the architect would have to pay the contractor to make the change. In the second, example, the contractor would have to “eat” the cost. Some contractors will point things out to a home owner or the architect before they actually do the work. Other contractors don’t until it is too obvious. For this reason, we advise clients to look at the work as it is being constructed and to take pictures.

Change Order Chaos

Many contractors and subcontractors welcome change orders. How come you ask? That’s because the general bid pretty low to get the job and the change order gives them a chance to recoup costs. Of course, most home owners are busy and may not pay close attention to the details. That is a big mistake for several reasons besides price. Here’s why:

  • You may not get what you want unless the materials and work are clearly specified. Don’t be a generalist, instead be very specific. If you want certain material then specify exactly what it is. If you don’t you give the subcontractor or contractor total say and you will get the cheapest materials.
  • Look at the quantities of materials in the change order. If the break down of costs seems outrageous it could be a simple error or intentional. For example, a friend of mine received change order that specified 38 cartons of tile for a bathroom floor. I remarked to her that it must be huge bathroom and she said it was only 38 square feet. Had she not caught the error, she would have been out a few thousand dollars and stuck with a lot of tile.
  • Unusual management fees are another issue. Some contractors and subs add 20 percent just because it is a change order. They reason that they can do this because it requires additional work. That’s a lot of bologna. If the subcontractor is the same there is no reason to add a management fee. However, in some cases the management fee is justified (hardly) of the subcontractor is the owners.
  • Recognize that some contractors try to discourage changes by inflating prices altogether. These contractors don’t really want the additional work and try to discourage it.

 What you can do to prevent change order mischief 

1) Don’t be rushed into approving and paying for a change order. If the change order is for thousands of dollars take your time. Some contractors will deliberately send you a change order the night before work is to start. That is nothing but a pressure tactic.

2) If your contractor become angry or rude about a change order, it may be a sign that his estimates are out of line and incorrect. Don’t be bullied by take it or leave language. Instead, take a closer look for errors.

3) The best thing you can do is to get out your tape measure on simple things and measure for materials needed.  Don’t use the construction drawings for this. Actually measure the as built areas and you will get better measurement. For drywall calculations and tiling, measure the walls and do consider windows that will not have to be tiled, etc.\

4) Walk the job with the contractor and subcontractor show them your measurements. Don’t be timid. You may find that they just guess the quantity of materials or only looked at the drawings.

5) Always question high price materials. Maybe, the contractor thought you wanted the higher price materials when in fact a build grade is completely acceptable.

6) Propose revisions and make a reasonable counter offer.

7) “Just say No” to outrageous change order proposals. Then find someone else to do the work. This has two effects. It tells the contractor that you are not going to deal with them when their prices are unrealistic. It also forces you to think whether the change is really needed or not. In some cases it might be better to use the money elsewhere.

8) Don’t pay the contractor for his mistakes or those of the Architect. Look at it this way, you have already paid your architect to prepare detailed construction drawings and you expect them to be right. The contractor’s project supervisor has to be on top of things and actually supervise the work. That doesn’t mean having coffee with the subs in the morning and then disappearing until 4:30 p.m. only to find that the job was not done according to plan.

Conclusion

Many of you may think that these measures are really not needed. However, if you value your money and want to keep people honest it pays to review your change orders carefully. If not then prepare to be fleeced