Even minor changes to original contracts and projects should be documented and retained – just in case.
By Bridget McCrea
When a customer requests a slight change to an original job contract, Sunny Semidei likes to get everything in writing, even if the documentation comprises a short email message. As manager at Puerto Rico Precast Concrete (an Atlantic Precast company) in Toa Baja, Puerto Rico, Semidei has heard the horror stories from contractors who were left holding the bag on projects that changed midstream without proper documentation and acknowledgement.
“I personally write everything down on the customer’s file,” says Semidei, “including date, time and exactly who ordered the change.” Having that information on hand works in Puerto Rico Precast’s favor when busy customers call a few weeks later claiming that the conversation never happened. “When you get it down in writing and then follow up with the customer immediately via email to confirm the conversation,” says Semidei, “you have solid proof that the change order or other communication took place.”
Semidei says that attention to detail begins when the order to “dig a hole this big” or “rotate a hole in this manner” comes in. She sends out an email to confirm the order and includes as much detail as possible. Change orders are handled in a similar fashion and usually involve the project’s owner or site engineer (and not the client’s accounts payable department, which ultimately has to cut the check to cover the additional work and/or changes).
Remember, she cautions, that the person who is on the job site expediting activities isn’t the same person who is handling the accounts payable process. “Sales reps and contractors on site try to resolve problems – such as replacing a broken piece that wasn’t due to precaster error – quickly in order keep the job moving,” says Semidei, “but without getting a commitment in writing from the contractor for payment. This usually is only beneficial for the contractor, not the precaster.”
The problem doesn’t end there. If the job is covered by a payment bond, says Semidei, then that bond should be amended to include the change order. “If not, claims for payment may not be accepted within the scope of the bond,” she says. As an added measure, Semidei always tries to get acknowledgement of the emails and/or paper communication that the company sends out. “Ask them to sign the paper or use a digital signature application to ensure they read it and acknowledged it.”
Taking that extra measure also helps when it comes to collections, says Semidei, who has used her written documentation to prove the existence of outstanding invoices and debts. A field engineer who asks for a change order and who doesn’t document the request, for example, can cause issues for precasters who want to get paid for the completed job. “If you can pull up documentation and prove that the request and the work took place,” says Semidei, “you’ll be in a much better position to get paid promptly.”
Working without a net
In today’s competitive and litigious business environment, there’s no excuse for “working without a net” by not properly documenting change orders and having customers sign off on them before performing the additional work. Defined as the addition or deletion of work from an original contract, a change order alters the original contract amount, completion date and scope of the work to be performed. Some are minor in scope, but others can significantly alter the construction process and project outcome.
Naturally, change orders are most prominent in larger projects that have many different moving parts and pieces. In some cases it can be nearly impossible to predict exactly how each of those pieces will be built – and how they will all work together – when the original plans are being laid. In many instances the work scope itself may have been improperly estimated, or perhaps the project team stumbled upon obstacles or other issues that have to be resolved “outside” of the original plans.
Budgetary issues also come into play and can force precasters to retrace their steps and come up with new alternatives that help customers meet their budgets. Regardless of the driving force behind the change order, in most cases the project owner or manager will call on the precaster to make the changes. Once that change order is submitted, it alters the original contract and becomes a part of it.
Due to the nature of the construction industry and its “let’s get it done yesterday” mentality, change orders are often issued under time-sensitive conditions. A site engineer could literally be standing on the job site in front of precast pieces that need to be altered on the spot as quickly as possible.
As Semidei points out, it’s too easy to get caught up in the “rush job” mentality of the typical job site and overlook the long-term consequences of not documenting change orders (namely the fact that you won’t get paid for the additional work performed).
“Always try to memorialize everything in writing,” advises Tyrus Cobb, general counsel for Jensen Precast in Sparks, Nev. The customer who needs five more manholes stacked out by Tuesday, for example, warrants at least an email or fax confirmation that recites exactly what was requested: “Per our discussion today via telephone, we will be providing five additional, stacked-out manholes on Tuesday, July 10, at a cost of $____.”
“That communicates to the customer your understanding of exactly what was ordered, at what cost, and for what delivery date,” says Cobb. “Once you hit Send on the document or email, it’s the customer’s responsibility to respond and let you know if the order is incorrect.”
The written confirmation process also helps when dealing with project bonds, which generally cover only the amount of the original order, unless otherwise specified and agreed upon in writing. “Bond companies only pay up to the amount of any documented agreement,” Cobb explains. “If you have signed agreements for $50,000, and if you wind up with $20,000 in undocumented change orders, the bond company won’t cover the additional amount.”
But if the additional $20,000 in work was properly documented in a three-line email message and – if possible – approved in writing by the client, the collections process will be infinitely easier. “A short email is just as admissible as any other type of written document,” says Cobb, who advises precasters to send out their emails or faxes before performing any work. “That shifts the burden to the customer to respond to you in some way, shape or form,” says Cobb, “and lets you know if they don’t want you to do exactly what is in that paper or digital document.”
It’s your right
Written change orders aren’t just a luxury – they are a necessity for precasters who want to get paid fairly and in a timely fashion for unexpected additions to jobs of all sizes. Because most contracts (and subcontracts) allow owners, site engineers and other approved parties to make changes in the work to be performed, today’s precast concrete manufacturers need a process for handling such revisions.
“Our industry traditionally has been pretty bad at documenting things, namely because projects are so fluid,” says Cobb. For example, the precaster who gets a frantic call from a customer at 8 p.m. on Friday night, asking for five more manholes to be stacked out and ready to install by the following Tuesday, isn’t necessarily inclined to write up a quote and the change order details and send them out for confirmation. “He’ll say, ‘Sure thing’ and get moving on the new order,” says Cobb.
Sometimes the very nature of the precast product lends itself to that lax approach, Cobb adds. “You assume that the customer won’t stiff you because there are going to be five manholes in the ground, but it can happen,” he says. “The best way to ward off those issues is by documenting the change ahead of time and having open lines of communication with your customer. That way there’s less likelihood that there will be a disagreement over what was done and whether you should get paid for it or not.”
John Greenhall, an attorney and shareholder at law firm Cohen Seglias Pallas Greenhall & Furman PC in Philadelphia, concurs. He says that disputes over construction claims and payouts often come down to “who plays the game better.” Smaller projects tend to be particularly onerous since they likely involve small change directives that don’t take much time to handle and don’t cost thousands of dollars. But those small amounts can add up to significant sales losses over time.
By getting everything in writing at the outset, Greenhall says precasters will come to the table in a much better position than the firm that works solely on verbal agreements and orders. “If you’re fighting for your money and relying on oral conversations that took place during the course of the project, you’ll lose, because no one on the other side will remember what was said,” Greenhall warns. “A more effective approach is to get all contract provisions and change directives down on paper.”
Sometimes it pays to take a defensive approach in business, says Greenhall, who has worked with numerous contractors in their quest to get paid for jobs completed. Expensive and time-consuming legal battles can surface when the precaster performs the work without solid proof that anyone asked for it.
“Look,” says Greenhall, “at the end of the day you just don’t have any friends in construction.” Even a $500 addition to a job should be documented via email or fax, he says, to ensure 100% payment by the owner, general contractor and/or bond company. “If you don’t get it in writing,” says Greenhall, “the chances that you’ll never see that compensation are pretty high.”
Covering Your Assets:
Tips for Change Order Success
• Make sure the owner’s representative who is working on site has the authority to execute change orders.
• If anything occurs during the course of the project that alters the scope, price and/or time of the project, prepare a change order and have the customer sign it.
• Always address the issue before starting on the work. Don’t ignore it until it’s too late to cover your assets.
• Shoot off an email or fax immediately after speaking to the site engineer or owner about the changes.
• Include in your correspondence the scope of the project, cost and delivery date.
• Remember whom you spoke with and make your own notes about the conversation for future reference.
• Be specific. Spell out in detail the additional work and – whenever possible – have the customer sign off on it.
• Include in your correspondence the necessary drawings, specifications, cost estimates, new deadlines and payment terms.
• If you’re subcontracting any work, you’ll want to reaffirm the hourly rate that those firms will charge for time and materials.
• Retain all written correspondence and handwritten notes to use in court, should they become necessary for collections.
• Dig deeper. Read “Construction Contractor’s Legal Toolbox” by Christopher L. Grant. This book is available from the Online Store at precast.org. To order, simply logon to the website, click the Members & Guests button, complete your login information and click the Online Store link. Questions may be directed to (800) 366-7731.
Bridget McCrea is a freelance writer who covers manufacturing, industry and technology. She is a winner of the Florida Magazine Association’s Gold Award for best trade-technical feature statewide.