Many of the costly owner/contractor disputes I see in my
legal practice involve change orders — or the lack
thereof. I know of innumerable residential contractors who,
having failed to obtain signed change orders, have eaten
hundreds or even thousands of dollars of legitimate extra work
at the end of a job just so they could get the homeowner to
release that final check.
Contractors who make this mistake end up providing lots of work
for attorneys. Or, to express it mathematically: (No change
orders) x (hundreds of thousands of contractors doing work
every year) = a full employment act for construction
A good change-order form includes an account summary
showing the impact of the change — and of all previous
changes — on the project's total cost and
It doesn't have to be that way. No matter how much you dislike
paperwork, it's crucial that you get in the habit of obtaining
signed, written change orders before you do any extra work.
That's the only way to make sure you get paid for those
Start With Good Forms
A good change-order form does more than authorize the extra
work — it updates the owner and your company on how the
change will affect the project budget and timetable. Nothing
shakes a homeowner's confidence — or your bottom line
— quite like not knowing the project's current total
cost, including change orders. That's why I strongly recommend
that contractors have a place to record this information on
their standard change-order form.
For example, the form at left includes an accounting summary
showing how this and all previous change orders have affected
the project's bottom line and project schedule. It provides
places to record the original contract amount, the total amount
of all change orders to date, and the adjusted gross contract
amount after all change orders are tallied. When filling out
the form, you should combine profit and overhead with the
direct costs to show just one total price for each change
order. If a change order has more than one item of extra work,
show a total price for each line item.
Including such an accounting summary ensures that you and the
owners always know how much work is currently under contract,
as well as how much the bottom line has been adjusted up or
down over the course of the project. Keeping this information
current will save you time, money, and aggravation. It will
also make you look more professional. The owners will have
greater confidence in your ability to run the project when they
see that you pay attention to basic accounting, and that you
properly — and fairly — execute change orders
before doing the work.
I recommend that each change order indicate the time that will
be required to complete it. If you fail to include the extra
time on the form, the owners may think you're behind when
you're actually right on schedule. Adjusting
contract-completion dates with each change order will alleviate
this problem and reduce your legal and financial
Having and using change orders won't do much good without an
organized system for identifying which one is for what work,
how many have been generated on a certain job, and whether
they're signed by the owner.
It's easy to track change orders with a change-order folder in
your computer. When a change comes up, just copy the blank
change order to a new file, using the owner's name plus the
date and number of the change order for the file name. For
example, "Smith1.415.07" would be the file name for the Smith
job's No. 1 change order, entered April 15, 2007.
Once you've created the new file, enter all the information.
(If you filled out a change order on the job site, transfer the
information to this file.) Then print two copies: one for the
homeowner to sign, and the other for your project file until
you receive the signed version.
If the change was authorized by phone and you can't get a
signature on the form before starting the work, keep a log of
the time and date of the conversation in which the owner
authorized it. Then follow up with a written change order as
soon as you can — preferably within a day or two —
noting that the owner verbally authorized the work to
Remember: It's very important that all change orders have dates
and numbers. And be sure to include some type of reference to
the original or primary contract between you and the owner. The
scope-of-work description should be fairly detailed so there's
no question about the exact nature of each additional work
To make a change-order system truly effective, you should keep
blank forms on the job site for cases where there's not time to
generate a change order on your computer before the work must
done. Have a printer make you up some three-part NCR forms and
keep them in the truck. Fill them out and submit one copy to
the owner for signature whenever extra work arises that has to
be done immediately.
Over the long run, following this system will bring you more
work. If a contractor's presentation looks professional and
it's clear that he or she is organized and on top of things,
homeowners will be more likely to approve additional work. And
the likelihood of being paid for those changes — often
the most contentious part of the project — will be much
Hence, you will be taking one giant step toward both increasing
your revenues and reducing the number of times you have to call
your lawyer — or eat unpaid extra work.
Gary Ransone is an attorney and contractor
based in Soquel, Calif. This column was adapted from his book
The Contractor's Legal Kit.