Changes during a construction project are often inevitable. It is often impossible to predict at the outset of a project every issue, variable, or complication that may arise. As a result, parties may need to agree to changes to the scope of work, the price, or deadlines agreed to in their original construction contract. Change orders help document changes that arise and ensure that all parties are aware and in agreement on how to proceed.
What is a Change Order?
A change order is simply an industry term referring to a written amendment to the parties’ original construction contract. Change orders may take a variety of forms, but the goal is always the same – to document significant or material changes to the parties’ original agreement.
Change orders typically:
- Identify the original contract;
- Include a change order number (to help keep track of various changes);
- Identify the contractor;
- Identify the owner;
- Identify the project address;
- Include the original contract amount;
- Include the amount of all past change orders (if any);
- Include the new contract amount (accounting for the new changes);
- Include a precise description of the agreed-upon change(s); and
- Include the signature of the parties.
Why use a Change Order?
On a project, the parties’ payment rights and obligations are primarily governed by their contract. If there is not a clear agreement on changes to the contract, problems can easily arise.
A common example occurs when additional work is required to complete a project. In this situation, a contractor may decide to perform the additional work with the (reasonable) expectation of a further payment from the owner. The owner, however, may understand that the contractor is obligated to perform all work necessary to complete the project for the original contract price. Without a change order documenting the newly expanded scope of work and the impact on the price of the contract, it is easy to see where problems can occur.
By documenting changes and their impact on the original contract (e.g., price, scope of work, deadlines, schedule, etc.), unnecessary disputes can be eliminated. It is absolutely essential to ensure that all parties understand and agree to any changes to their agreement.
Moreover, for contractors performing residential construction in the State of Maine, change order are required under Maine’s Home Construction Contract Act. The Act requires that all changes be documented in writing, detail the changes to the original contract, include the previous contract price and the revised price (if applicable), and be signed by all of the parties. A failure to comply with these requirements may result in civil penalties and potential liability under Maine’s Unfair Trade Practices Act.
In short, the use of change orders is a best practice in that it can reduce disputes and make collecting payment easier, but also may be required under Maine law depending on the type of work performed.
Perkins Thompson regularly helps owners, contractors, and subcontractors with drafting, negotiating, and enforcing change orders, and related issues. If you would like to speak with the firm about these issues, you can send an email to Joe Talbot or call him directly at 207-774-2635.