Executive Summary: The purpose of a change order is to add work to an existing contract. Ideally, this work is added with mutually agreeable terms in scope, time, and cost. These terms often cannot be agreed upon and contractors feel coerced into signing the document.
Consider not signing the change order.
Origination of the change order: Whether you are a subcontractor or the prime contractor, it is inevitable on a job of almost any size that there will be a change in the work. This work is compensated via the change order.
Change orders are not bad and they’re not unethical, they’re a part of business. And, trust me, your client who is that general or prime contractor, or perhaps the owner of the facility you’re constructing, knows what they are and is expecting there to likely be a change order on your project.
Whoever designed the job is not perfect. He/she has made an error or omitted something from the contract documents. And if the condition arises where imperfections in the design occur or the addition of scope is desired, you must be compensated.
At this time, you either receive a change order from your client or you demand one without proceeding.
Terms of the change order: All change orders are a bit different, but they should all have the following components:
• Scope – a description of the work to be completed outside of the base contract
• Time – an adjustment, more days or less days, in the contract time
• Cost – an adjustment, an add or deduct, to the existing contract value
Some clients are easy and amenable and the parties quickly arrive at mutually agreeable terms.
Other clients are not as easy and will refuse to agree with your terms. Common reasons for the owner’s “inability” to come to terms include:
- Disagreement in the definition of the additional scope
- Refusal to grant additional time
- “I can’t change the boilerplate language, so I can’t give you time.”
- “This change order cannot address the added cost of your overhead and staff, that’s what the markups are for.”
- Change order must cover all changes to date
- “This change order must cover all changes to date, you can’t reserve your right for future claims.”
- Refusal to fund you – the coercion referenced above usually unfolds with the Contracting Officer’s claim that “we cannot pay you unless you sign this change order”. The result is cash-strapped contractors waive their rights for quick cash.
The solution: Don’t sign it.
A change order does not have to be signed by you in order to be paid. You may simply refuse to sign it and your client can issue this change order, and pay it, without your signature. This document is called a unilateral change order.
The change order is unilaterally (without your consent or mutual agreement) issued by your client, hence the name.
In my career, I’ve done this dozens of times. It’s not the most pleasant process and may require you educating your client, but it’s an option in the absence of a mutually negotiated agreement.