Change orders on construction projects are usually perceived as negative changes. The client feels as though the contractor should have known all the challenges now popping up in the middle of the project. When I receive calls and complaints that involve allegations of fraudulent change orders, I must take a very deep look into the entire process that took place before the project started. I’ll simplify some of the main factors below:
What does the initial project evaluation involve from my consulting standpoint:
· How did the construction issue become known?
· Was there an engineer involved in drawing up specs?
· Were there multiple bids? Did the law require multiple bids?
· Is there an apparent conflict of interest in awarding the contract?
· Was the vendor vetting process proper and up to today’s standards?
· Did the contract have obvious exclusions that would have foreshadowed change orders?
· Did the association have the contract reviewed by the entire board or their attorney?
· Was there an established format for submitting and approving change orders?
As you can see, the evaluation above can help in awarding the contract to a qualified contractor. Interviews should be held, and a good relationship established. Even though you may do all the above correctly, change orders may and probably will arise. Why? Because contractors don’t have x-ray vision or crystal balls.
Here are some of the reasons why change orders are submitted:
· New and unknown conditions were discovered after construction or demolition began.
· The building department required additional specs, materials, or code upgrades.
· The engineering plans required changes from the city, county, or the client.
· Unknown updates to fire codes or building codes were determined.
· Utility lines, wells, irrigation, or subterranean discoveries were made, and major changes were mandatory.
· A new idea or design was initiated by the client (association) that triggered a change order.
Nearly all change orders will carry an additional expense. This is understandable because the initial contract would not allow for “change orders” unless specific terms and agreements were in place to describe how and when a change order was to be submitted. In my opinion, a quality change order will have some vital information that anyone can read and understand the “how and why” the change order was submitted. This takes us back to the top of this article and dealing with the paperwork for the project.
Here are some items to look for when reviewing the contractor’s agreement:
· Is the contractor licensed and insured in your state?
· Did you interview them in person and confirm their reputation?
· Does the contract spell out that all work will have proper permitting?
· Does the project have an engineer or project manager overseeing the work?
· Is there an agreed method of submitting change orders for approval?
· Does the agreement stipulate that copies of permits, releases of liens from subcontractors, and warranties will be submitted to the client as the project progresses?
· Again, look closely at the “exclusions” mentioned within the contract’s terms and conditions.
While this article certainly is not all inclusive or a complete how-to to protect your association, it’s a good starting point for your board when approaching a large project where change orders are probably going to be generated. A few other methods to keep in mind for protection during a construction project are:
Hire a project manager or owner’s rep to oversee the construction.
Specify during the bidding process that a performance bond will be required.
Have the project’s engineer confirm all progress, payment invoices, and need for change orders.
Feel free to reach out to me directly should you have any feedback or questions. Please go to my website www.CondoDetective.com for dozens of articles and educational videos.
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