By Steve Rizer
One of the steps that can be taken to minimize claims and disputes in construction projects is to determine early on what the markup will be on all change orders, Bryan Jackson, a partner in the Los Angeles office of Allen Matkins Leck Gamble Mallory & Natsis LLC, told professionals attending a webinar that WPL Publishing held late last month. During the event, entitled “Change Orders: The Bane of All Construction Projects,” he addressed a target audience of public and private owners, construction managers, contractors, subcontractors, consultants, construction law attorneys, architects, and engineers.
“I think it’s really helpful to both parties during the honeymoon process of contract negotiations to decide what the markup will be on all change orders,” Jackson said. “If you’re doing an additive change order, it might be one percentage amount, and then a markup on a deductive change order, where you’re actually taking scope away from the project, may be a different amount. And the logic might be, ‘Gee, I’m giving you 4 percent for every change order that’s additive, but if I’m taking away, you’re never going to perform that work, so why should I be paying a fee for that?’ The contractor is going to say, ‘Hey, I need a fee for that because I already worked up all that scope of work. Now you’re taking it away from me, and I’m not going to make the money that I would have made to build that, but at least I want to recoup some of my work-up costs,’ so it might be that you negotiate 2 percent for a deductive change order,” allowing for compensation of work-up, subcontractor assistance, re-stocking fees, etc.
“The number one thing to avoid change orders and claims and disputes is to complete the design,” Jackson said. The clearer “your design is, the better the bidding will be, the better the pricing will be, and you can hopefully hold, then, your contractors and subcontractors to the pricing because they’re not going to say, ‘Hey, there’s an ambiguity in the design. I need a request for information to understand what that was meant to be. It’s not clear enough.’ And now, once I get the information from a request for information, I then, as a contractor, say, ‘I need a change order because that’s not what I bid on.’”
Jackson then directed his presentation to owners. “Minimize changes during construction…. Try to avoid that temptation of just reinventing your project over and over again. I know that in the residential realm, it’s really a big problem. The spouse comes in to where the kitchen space is being framed and says, ‘You know what, it’s too small. I can’t cook in this space. I need it bigger. Gee, as long as you’re here, why don’t you put in more can lights. You know, as long as we’re doing this, why don’t we add another wing to this….’ It gets out of control. Changes can really throw a monkey wrench into the budgeting of a project.”
During the webinar, Jackson and fellow Allen Matkins partner Robert (Mike) Cathcart additionally discussed the three axioms of construction change, contract provisions regarding change orders, the benefits of using change orders, the dangers of change orders, actual and constructive changes, cardinal change, changes without change orders, and other topics.
A recording of the 90-minute webinar can be purchased via the following link: http://constructionpronet.com/Products/1033.aspx.