Unsigned Change Orders

Nearly every significant construction project includes changes. Some required by the owner. Others demanded by the building inspector or due to site conditions. No matter. Every change in the job merits a change order – a new agreement. A written change order signed by both owner and contractor will make dispute unlikely. With nothing in writing or nothing signed, any change in the job, price or schedule has a chance to end up in court.

Some states and most construction contracts require written and signed change orders. That’s strict construction. Don’t try to collect on an oral agreement for extra work in strict construction states: Arizona, California, Massachusetts, Nevada, New York, Texas. This is especially true when trying to foreclose a mechanics lien. A lien claim on an oral change order could be treated as an exaggeration and qualify for an award of damages and attorney fees. 

Courts in other states are more flexible. Even if the original agreement required written change orders, you might collect if:

• Both owner and contractor ignore a clause requiring written change orders. (Virginia)
• A project manager has apparent authority to make oral changes. (federal court applying Maryland law)
• Both owner and contractor assume there was a valid change order. (Pennsylvania)

Best Practice

You’re going to have changes. Accept that as fact. Welcome an owner who asks, “Could you make a little change here?” Your answer is always, “Of course I can make that change. I’ll draft up a little agreement we both can sign.”

Changes can be either additive or deductive. Every written change order should identify the job, the work to be done, the added or deducted cost, the new contract price (including all approved change orders to date) and any change in the schedule. The change order should be signed by both the contractor and the owner.

If you work in a state that’s more flexible on oral changes:

• Be sure your contract requires written change orders.
• Accept that every oral directive entails high-risk.
• Caution tradespeople and subs to avoid taking instructions from an owner.
• Understand that any dispute about changes will be expensive.
• Recovery on an oral agreement requires credibility and documentation

If you start making changes on an oral agreement, keep detailed records. Who said what and when? When did that work start? Who did the extra work? When was work completed? Break out in your invoice the cost of changes: labor, material, equipment, overhead and profit. Identify each change with a change number and date of the change.

Changes should be done at your price. There won’t be any competitive bidding. Remember that overhead will nearly always be higher on changes. It takes time to negotiate a change and write up the change order. And full payment for any change should be due when the change is complete, not when the entire job is done.

There’s plenty more to know about change orders. Construction Contract Writer has all the details, including change order forms that resolve potential disputes. The trial version is free.