July 17, 2015
This article is the eighth in a series on new construction. The contents of this series of articles apply to commercial as well as residential projects.
This blog entry addresses documenting change orders in new construction projects, commercial and residential. But before we get there, let’s re-visit the fundamentals of new construction contracting.
As is set forth in this prior blog entry:
the starting point is a clear starting point. At the time of the signing of the contract, it is important to know what the builder has committed to build — and what he has not committed to — and what the buyer has agreed to pay for that product. Once we have that foundation, we can address the construction changes and price changes from that point.
As a bad foundation of a house will undermine the entire project, a poor starting point for a new construction contract is not a good foundation for the construction process.
Then, once the initial scope, price and timing are clear, as change orders become necessary or appropriate, every single time a change order is agreed upon in a construction project, that change order should be crisply documented. That documentation should be a written change order signed by both parties to the contract, which includes, in each instance, all of the following:
1) The change to the scope of the project. The parties should detail what is being eliminated from the construction and what is being added.
2) The change in the price as a result of the change order.
3) The change in the construction schedule as a result of the change order.
Even if one or more of the foregoing are not changing at all, that should be detailed and documented as well.
I tell clients that the point of a contract is twofold: (i) to flesh out the issues between the parties and eliminate confusion as to what is being agreed upon and (ii) to create a document of the commitment of each party to the other that, yes, can be enforced in a court of law.
What happens when one or more of these issues are left unaddressed is that both issues are at play: (i) the parties may have a misunderstanding of the impact of the change order on timing or price, and (ii) it creates a murky situation when it comes time to enforce that contract.