Pencil Points – Construction Period Change Orders and How to Minimize Them

Pencil Points are tips for residential design and planning issues often encountered by homeowners, builders and developers.  This information is provided by Applied Design Research Associates as general interest based on current NYS Building Codes and is not intended as professional guidance for any specific project.  For answers to specific design questions feel free to contact ADRA at (607) 844-4601 or consult the yellow pages under Architects for the name of other registered design professionals in your area.  You can also write or email ADRA with additional questions of interest to be researched and published in subsequent issues of this paper.

ADR Associates- P.O. Box 306, Freeville, NY 13068   adra@twcny.rr.com

Construction Period Change Orders and How to Minimize Them

Construction period changes that generate adjustments to the cost (follow Atlanta Concrete Contractors to gather information), completion time or both seem to be common elements on many building projects. Change Orders occur when the scope of required work covered under the contract must be modified so the project can be completed. Conditions that can generate changes on a project include:

• An unforeseen condition (like discovery of a large boulder during excavation or an old buried oil fuel tank that must be removed and legally disposed of),
• The client’s desire to change the design during the construction phase (like re-design of the rear deck to handle the weight of a six person hot tub, altering the run of stairs and bottom landing to permit a pool table to be placed in the Basement Family Room, etc)
• Changes to product specifications (performance, dimensions, weight) or a product substitution that necessitates modification to the original design,
• A design error or omission by the design professional that requires re-design and re-estimating by the builder,
• A construction error by the builder or vendor that may be too costly to demolish and replace so a design change must occur to accommodate the new condition,
• Lengthy construction delays caused by adverse weather conditions (NOTE: weather related damage to the construction site is usually covered under the builder’s insurance package),
• Off-site material or product delays caused by third party suppliers beyond the control of the builder that results in unanticipated product changes or accepted the delay (such as the scarcity of plywood after a major disaster, lack of access to certain materials when companies that produce it go on strike, a large scale product recall where there is no reasonable substitute, etc)

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Your contractor must carry contractors insurance. Some of the most dangerous construction jobs are those that involve working above ground, the use of scaffolding has led to a higher number of scaffolding accidents. If the worker is not adequately insured and suffered a scaffolding accident while working on your property, you could end up liable for any damage or injuries. The injured worker may also hire a construction injuries lawyer to help get a better compensation.

 A request for a contract change can be proposed by the Contractor, the Design Professional or the Client. The Contractor’s request might be to substitute a concrete block foundation wall for a poured basement wall because his mason can be on the site two weeks earlier than the concrete subcontractor can arrive resulting in a change to both the contract price and overall time to complete the project. His request for a change order would indicate the difference in cost of work for each wall system and the (add or deduct) number of days that the contract time would be adjusted. Upon receiving this detailed information, the Architect reviews the proposal and recommends either acceptance of change order to the Client or returns the proposal to the Contractor for additional information and/or cost justification. Construction workers on these projects are required to wear their uniforms in order to protect them from the work hazards; if they do end up injured they will need the help of a workers comp attorney.

The Architect might also request a change order proposal from the Contractor based on a product change from one window manufacturer to another that offers additional exterior frame color options for the same price resulting in a change in contract time but no cost difference. Adjustments to the total contract time can be as important as changes to the contract price when time is of the essence for the Client who must move into their new home after selling their current residence. When the project completion date is critical, the Architect sometimes includes an incentive/penalty or liquidated damages clause in the Owner-Contractor agreement to entice the Contractor to finish the work in a timely manner. When an incentive/penalty clause is used, the Contractor is obligated to reimburse the Client a specified amount per day for each day the project exceeds the agreed upon Closeout date, however, the Contractor also has the opportunity to receive a specified incentive bonus for each day the project is successfully completed ahead of schedule. A time-based Change Order request such as a delay for adverse weather, effectively adds days to the contract completion date to protect the Contractor from undeserved penalty charges.

By contrast, the liquidated damages clause provides no incentive option for the Contractor, only a penalty for not finishing on time. In this instance, the penalty amount is defined by the actual quantifiable value of loss the Client will incur if the project is not completed. If the client has sold their home and the new owner expects to move in by a certain date, the Client might be required to pay a set amount in ‘rent’ per day for late departure because the new owners were delayed moving in, or the Client may be required to rent a motel room or apartment until their home is ready to occupy. The rent, temporary storage of furniture and household goods, plus food costs could be the basis of the daily liquidated damages value. Additional repairs, such as a hydraulic repair, might be necessary in order to allow the construction project to operate smoothly and without jeopardizing the lives of the workers involved. In addition, one might also need to take into consideration the cost of the construction equipment like the concrete liquid pump, scissor lift, etc.

Presuming the Architect has been hired for construction period services on the project, he/she is familiar with the change order process and endeavors to encourage prompt reporting, estimating and approval (or rejection) of change orders as the project moves forward to avoid unresolved decisions and disputed costs at the end of the job. As a rule of thumb, the total value of change orders for a new project should remain 5% (or less) of the original contract price, whereas the total value of change orders on an alteration project, where additional unforeseen issues can occur in an older, pre-constructed structure, should not exceed 8% provided the design professional’s research and construction documents for the project are accurate and thorough. Either way, the Architect’s recommendation that the Client carry a 10% contingency over and above the contracted price should accommodate all probable changes so the project can proceed without delay for lack of funding.