How to Handle Change Orders

​By Attorney Edward Jesson

You’ve spent weeks negotiating your scope of work with your client on a kitchen renovation, and everything is going smoothly. Then, one day out of the blue (likely after watching a little too much HGTV the night before), the homeowner decides that they would “just like you to take that wall out—it will feel so much more open!” 

This situation comes up all the time in construction projects, and, if you have a properly drafted construction contract, it should be covered by the “change order” section of that contract. At its most basic, a change order is exactly what it says: an order directing the contractor to change its work in some way. When a change order is entered into properly, it is a legally binding amendment to the original contract that changes the original scope of work or some other term in the contract. 

Most well drafted construction contracts will say that a change order has to be: (1) in writing; and, (2) signed by the parties to the construction contract (general contractor and homeowner in this example). It is certainly advisable to be as detailed as possible in the change order as to exactly what is being changed, the price of what is being changed (which could be an increase in the total contract price, or decrease, depending on the change), and the impact, if any, that the change will have on the project timeline.

We also believe that it is best practice to have the homeowner pay for 100% of the change order at the time the change order is executed, as opposed to tacking the price of the change onto the end of the contract. However, whether or not you are able to do that will depend on the language of your contract with the homeowner. 

Even if you don’t have a written change order signed as required by your contract, if the homeowner requested you do the work, and you did the work, it is likely that, under North Carolina law, you are still entitled to payment for that work. However, whether you are entitled to your usual profit markup on that change order depends on a lot of factors. Moreover, proving your entitlement to payment for an unwritten or unsigned change order can be costly if you have to go to court in an attempt to get payment at a later date.

When the relationship between contractor and homeowner deteriorates to the point that there are payment issues, all too often we see that the crux of those payment issues relates to change orders. It is far too easy (especially when the relationship is good and the project is running smoothly) to just say “yes” to a homeowner’s requested change and give them a rough cost, agreeing to settle up later. However, if the relationship sours, oftentimes people’s memories change with regards to the conversation regarding that change, and it becomes a “he said she said” argument.

Change orders do not have to be difficult, but managing them on a project with tight deadlines can be challenging—a well drafted construction contract can ease that administrative burden laying out, from the project’s start date, exactly what the contractor and the homeowner are responsible for. If you need assistance with your construction contract or need a new one drafted, the attorneys at Jesson & Rains are ready to help.