Change Orders Can Help Avoid Dreaded Lawsuits
Disputes can be avoided with change orders that provide accurate records of costs.
As an attorney practicing law in the construction arena for more years than I care to admit, I’ve learned that nothing can send lawyers scurrying away like a dispute between a homeowner and a contractor over changes. These lawsuits are expensive and emotionally charged for both parties. Despite the legal outcome, neither party ever really wins. A well-written change order, however, can benefit both the contractor and homeowner by ensuring they have a record of construction changes, how much they cost, and who pays for them.
Start with the written contract
No matter the size of the project, a contractor should always prepare a written general contract, which should be read, understood, and signed by all parties. The contract should outline the responsibilities of both the contractor and homeowner and spell out the basic terms of the project. The contract then becomes a rule book that can be relied on when a problem of procedure arises.
The general contract also should address the requirement and general form of any change order. The contract should state clearly that change orders must be in writing and be signed by all parties before the changeorder work is begun. Additionally, the general contract should mandate that any change order provide the basic terms of the changed work at issue, including a description of the work, the nature of the change, the extra cost and time involved, and the schedule of payment.
Communication is the key
Here’s a typical exchange:
Contractor: “Mrs. Smith, I reviewed each of these work items and their costs with your husband while you were on that business trip to Chicago. He told me the changes he wanted, I told him the price, and he told me to do the work.”
Mrs. Smith: “Well, I don’t buy it. I asked you to review these things with me! By the way, did my husband sign anything agreeing to the price increase, which I think is outrageous? How can you justify such an increase in cost just by changing the decking to this stuff called ipé, adding a few cabinets, and reframing the bedroom doors?” Contractor: (in the voice of the great Homer Simpson) “Doooohhhhhhoooo.”
“Change orders should be seen as opportunities to communicate rather than as a hindrance to the business relationship.”
That dialogue illustrates there is no quicker way to ruin a working relationship than a failure to communicate. Change orders should be seen as opportunities to communicate rather than as a hindrance to the business relationship. Think of the change order as a contract within the general contract, providing the homeowner with necessary information to decide whether to move forward with a change. If you’re a contractor, don’t wait until after you’ve invested time and energy in completing a change to see if a problem arises.
The dialogue also demonstrates the importance of obtaining the approval of both homeowners, particularly if they both signed the general contract. More important, all concerned parties should sign the change order. This sometimes-difficult step is the contractor’s proof that the change order was communicated to the homeowner.
For the homeowner, it’s proof the contractor had promised a specific change to be completed at a specific date.
Many contractors mistakenly believe that their client under stands the nature and complexity of the change, the cost of the change (including the reason for any increased costs), how the change will extend the duration of the project, and the contractor’s expectation of timely payment. In the vast majority of lawsuits, at least one of these assumptions is in error.
The days of conducting business on a handshake are gone. If the homeowner objects to the formality of the change order or presents the Mr. Nice Guy syndrome indicating that “We’ll work out all the details later,” alarms should go off. A response like this should be met with increased diligence and effort toward getting the change order signed. A detailed change order also can protect the homeowner from a contractor who may be better at promising than delivering.
“Never assume that the homeowner understands construction or the pricing of construction. . .”
The language in the change order must be as specific as possible concerning each of these elements: description, cost, duration, and payment. Never assume that the homeowner understands construction or the pricing of construction, even if you’re a contractor dealing with a weekend warrior who spends most of the time trying to convince you how much he or she knows about construction.
It’s much better to be safe and extremely detailed than to find yourself in court with a scant paper trail. When the change order lacks basic information, the order must fully identify the missing elements, state why those elements are missing, and detail a plan for providing the missing information.
I also recommend that all parties keep copies of the change orders in chronological order, identifying the parties, the date, and the name of the project.
Keep it professional
A well-written change order not only clearly communicates all the basic terms of the changed work, but it also reminds the homeowner, in a professional and nonconfrontational manner, of the nature of the relationship.
A residential contractor works in a unique arena. The construction or renovation of a person’s home is a highly personal and emotional endeavor. In the eyes of the homeowner, the contractor often takes on a bigger role than just builder or craftsman; the contractor is seen as a friend and confidant to guide the homeowner through this endeavor.
“Strict adherence to the rules of change orders provides a reminder to both parties that home construction is business. . .”
From the perspective of both the contractor and the homeowner, the primary focus of the relationship should be business. A friendship can blossom, but the business nature of the relationship must be maintained throughout the project.
While taking emotionally charged depositions from both homeowners and contractors, I’ve often heard the dreaded line, “You don’t understand; we were good friends, and then he turns around and does this to me.” Maintaining a business relationship prevents the homeowner from placing unfair responsibility on the contractor, and it helps prevent a feeling of betrayal if things go wrong. Strict adherence to the rules of change orders provides a periodic reminder to both parties that home construction is business and that discipline by all parties is required to conduct the business successfully.
Keeping honest people honest
An older attorney once told me, “A thief is a thief.” Even though many problems I deal with relate to a lack of communication, I have seen people who are flat-out dishonest. The best intentions and the best-written change orders will not avoid a dispute with an ill-intentioned party. But equipping yourself with good intentions and wellwritten change orders can give you some of the tools for a satisfying outcome, regardless of the intentions of the other parties.