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Change Order Nightmare

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August 13, 2013

Are you expecting to get paid for changes you submitted and received approval for?

For most contractors a change order is a positive arrangement for additional work or a change to the scope. You are doing everything above board and never suspecting the general contractor or owner could potentially be manipulating the situation in their favor.

Did you read your contract? Did you have your attorney read your contact?

Enlightenment Companies can review sub-contractor contracts and give you a simplified report of one to two pages, on the average, indicating important dates, clauses issues, problems, etc. including actions you should take to avoid issues like being paid on time.

Below is a clause that may not readily stand out in your contact.  Reading the contract is highly recommended on every project!  You may find yourself not getting paid for any extras should the GC or owner exercise these clauses.

A common clause can read as follows:

  1. ”All change orders must be approved in writing before contractor installs or changes any work.” We have all read this.
  2. ”Sub-Contractor is responsible for obtaining approval in writing for all changes.”  This is easy right? However, there is missing information or at least the information is not readily interpreted or is it?

These examples and similar clauses are very dangerous clauses in your contract. To properly interpret this clause one must look at the words “approved” or “approval in writing.”  Who must approve? You, the project manager, the owner, YOU had better know!

A local electrical contractor (EC) was contracted by a general contractor (GC) on a Baillie’s Fitness project. About one third into the project a scope change occurred adding a pool and locker-room to the overall project. The EC provided several change orders that the GC’s project manager signed. The EC was delighted and proceeded with the work. When it came time to be paid the GC called a meeting. The EC was told at this meeting that the changes totaling over $140,000 we’re not going to be paid. The GC cited the cause to be improper authorization by the GC. They also terminated the construction manager that was running the project, indicating that he was not the authorized signer. The attorney for the EC concurred with the GC as the contract stated  ”electrical sub shall obtain written approval with authorized signature for all changes prior to starting or installing any such changes.”  In this case the Authorized signer was only the president of the general contractor company. This was a very unscrupulous contractor and owner (yes, the owner was aware of this issue.)  The result was the EC was not paid and suffered a substantial financial loss.

The person who signs your change order may not be the person that can approve changes and that can even include the project owner!

To remedy this situation make a request in writing to your contracting party requesting the name of the person, title and contact information that is approved to sign and authorize change orders. There shall be no other person until you have the information in writing. The letter must be on the contracting company letterhead and signed by a principal of the company, i.e. president, vice president, owner.

Do not let your change orders hang you out to dry.  Call 440-236-3024 ask for Ron for more information.

Happy CO's!!


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