Subcontractor Change Order: Fill & Download for Free

It is my job to look at the contract to verify if what the contractor is asking for as a change is really a change. If so, then I write change orders. I’ve written hundreds upon hundreds.A lot of change orders are caused by unforeseen circumstances. For example, I am working on a project right now where we are hitting underground utilities that were not located by the underground utility locate companies nor did they show on the plans. The poor electrical subcontractor is hitting something unforeseen about every time they dig a hole for a pole foundation.The only way that these changes could have been avoided were for the utility companies to know where their utilities are located and to locate them in the field when it is requested. It seems that they come out of the woodwork when it is their utility that is about to be damaged. Fiber companies can be the worst.They could have potholed every location, but this project is too complex and the potholes would have been everywhere.Another common reason for change orders is that the designer failed to turn all of the levels on in the computerized drafting program. If they had done so, in many cases, we would have seen that there were conflicts. Typically, the conflicts are electrical, but they vary. Electrical seems to be an afterthought, but it is one of the first things that gets built. If the designer would do this, many change orders could be avoided. I recently had some plans that showed a sewer manhole within the footing for a concrete wall. This is something that should obviously had been picked up.Designers need to go out to the site. What works on paper doesn’t always work in the field. Had they gone out to the site, they might have noticed that there is a rock wall where they want us to excavate, for example. They might have noticed the utilities in the field. So many changes can be prevented just by visiting the site and designing to the appropriate circumstances.Designers need to take into account what is required to build something. They need to be aware that trucks need to access a location, rollers cannot compact an area smaller than their drum, etc. These changes are preventable. You need to design to the most standard piece of equipment if you want a quality product.Projects should have a constructability review prior to going out for contract. Someone should be able to look at how they would build the project and determine if there are any conflicts or things that are not constructable as shown on the plans.Another common reason for change orders is that the designer forgot to include a bid item for the work. The work is shown in the plans, but the Contractor didn’t have an item to bid upon. If this is the case, we need to do a change order to add items.Some change orders are unavoidable. It is extremely rare to have a project without any change orders. We tend to use a metric of 5% as an acceptable amount for change orders. We usually are well below this, but some change orders are very large when working on multimillion dollar projects.The best thing that can be done to avoid changes is to check the design thoroughly before sending it out to bid.

I am an attorney and a principal of a small construction company. I also clerked for a construction firm, which is where I learned a lot about various clauses common in construction contracts, several of which impose a lot of risk. One such provision is referred to as a “pay-if-paid” clause. This is a very risky clause for any subcontractor because it shifts the risk of owner non-payment from the general contractor to the sub. In other words, if the owner doesn’t pay, the general’s obligation to pay the sub is discharged. Since the sub is hired by the general, the sub usually doesn’t know anything about the owner, such as its business practices or financial condition. The other thing that makes it very risky is the fact that most contractors don’t fully understand the implications of such a clause, leaving them open to big trouble if a dispute over payment does arise. Although this isn’t “fine print,” it’s one of those clauses that many industry people just don’t know about or consider.To give a real-world example, my company was bidding on a hotel project. We were selected for the job, which was really big for us. In fact, at the time, it was the largest contract we had ever performed. When it came time to sign contracts I noticed there was a pay-if-paid clause. We negotiated for weeks over various clauses, but the general refused to remove the pay-if-paid provision. I finally put my foot down and refused to sign with that clause included and gave notice that they would need to find another contractor. I’m the owner of the subcontracting business, but this deal was found and bid on by one of my reps, whose compensation is based on the profits of his projects. You can imagine how the rep, along with the labor crews, really wanted to get the job. They lobbied me throughout negotiations and there were those types of pressures from a myriad of sources trying to induce me to just sign it and get the work. I’ve been a sales rep in various fields and I completely understand how frustrating it can be to have the legal or compliance departments screw up your deal over things that seem silly. Needless to say, when I threatened to walk if that clause wasn’t removed it was not a popular decision around the office.The general finally did take it out, we signed, and we started working. Over the course of nearly a year a number of change orders were executed, which doubled the size of the original contract value. When we finally finished, there was about 1/4 of the total contract value left to be paid, which included a couple progress payments and all the retainage on the project.Shocker…we stopped getting paid! When we started pressing, the general told us that the owner had stopped paying the month prior. Long story short, many people got stiffed, and we would have been one of them if that provision had not been removed. I don’t know about the other subs, but the debt owed to us was in the 6 figures - an amount high enough to put a company our size out of business. Luckily, we could assert pressure and had recourse against the general, which allowed us the leverage needed to eventually get paid.Again, these aren’t typically “fine print” clauses, but they are generally not understood and often not given the scrutiny they deserve.

Most people tend to think of ERP as a management and control tool; I am in that camp too. Construction ERP software helps us manage subcontractor payments. It helps keep the project moving toward on-time completion. It allows good control over accepted and pending change orders. We can also use the same ERP to grow our construction business.Best modules of Construction ERP:Supplier relationship managementCustomer relationship managementProject management