Negotiating a Change Order

In many cases (and for a variety of reasons) an owner or contractor may want to deviate from the architectural drawings. Some common reasons include discovery of an unforeseen condition, availability of certain products or materials, design changes, and feasibility. In some cases this deviation will cost additional money due to increased time or materials cost to the contractor. It is also possible that the change will result in a savings to the owner.

Whatever the case, when changes to the contract amount need to be negotiated there is potential for disagreements to arise between the contractor and owner. As with any interaction where both sides have legitimate claim to some portion of the truth, a peaceful resolution is all in the approach.

Keep the following things in mind as you seek a positive resolution:

1. Be Fair - As the owner, you have to approach the issue with the honest willingness to pay for reasonable work outside the scope of the existing contract. The contractor should approach the negotiation with the honest understanding that the client is entitled to ask for reasonable backup to support any additional cost. Make sure you are negotiating in good faith.

2. Know Your LimitsYou have to decide how far you want to push the issue if it looks like it will get nasty. Either party could end up in small claims court and the contractor could potentially place a lien on the property, wasting everyone's time, money, and sanity. Figure out what your threshold is before you start - you don't want to get dragged into something serious by accident.
3. Maintain LeverageAssuming that the owner has not yet paid for the full contract (keeping some sort of retainage), each party has some leverage over the other - the owner wants the project done for a reasonable amount and the contractor wants to get paid. Both partis have significant incentive to work together towards a mutually acceptable solution.

The Official Request

It is reasonable for the owner to ask (nicely) for a written description of any change to the architectural drawings and a written summary of how the contractor arrived at the additional amount. In contractor-speak, this is a "Change Order Request", or COR. The COR should include a description of the discovered conditions, proposed remedy, and the proposed cost including overhead and profit. The owner may want to ask for a breakdown of time and materials for the proposed remedy. He or she can then sit down with the original contract, the architectural drawings, and of course the existing work to decide whether the proposed work should be covered under the contract or is truly above and beyond. The architect may also be of some assistance in evaluating the validity of the COR (perhaps an hour of time would be worth the expense).

Asking for an explanation of the costs in writing will often inspire a contractor to be reasonable in his or her requests. There is obviously a gray area when it comes to interpreting the results of this query. You can run to Lowes to check the proce of a 2x10, but who determines whether a time estimate is "reasonable"?

Some things to look for:

1. Is the proposed work obviously covered in the contract in the drawings? If so, the owner is in a good position to (nicely) reject the request for additional payment. Do so in a personal conversation with a set of the construction documents. Be prepared to throw the contractor a bone in order to facilitate moving beyond the conflict - for example, offer to split the materials cost but not labor, offer to extend the length of the contract for a reasonable amount of time to complete the unanticipated work, etc...

2. Are the materials in the proposed work obviously inflated? If in doubt, call up suppliers to verify big ticket item prices quoted by contractors.
3. If materials are vastly inflated, take the labor estimate with a grain of salt.
4. If the proposal is within reasonable bounds and supported by the drawings and the conditions, accept it and move on.

The owner don't want the contractor to walk off the job or to cut corners because he or she is angry and/or losing money on the job. The contractor doesn't want the owner telling 1000 other renovators about his or her bad experience. The key will be open communication and the impression that both sides are honestly working towards an agreeable solution.

Neither side wants to end up in court, but that could be a potential last resort if an agreement can't be reached. Litigation will likely extend the project timeline.