How to Efficiently Manage Change Order Disputes in Construction
The expectation of change order submissions is expected to rise into 2024, according to the recent GCPay market study. This makes change order disputes a growing concern for general contractors as well.
A change order dispute refers to a disagreement or conflict between parties involved in a construction project regarding a change order. A change order dispute can occur when one party (usually the owner or contractor) believes that the changes made in the project were not authorized, are outside the scope of the original agreement, or were not adequately compensated for. This can lead to disagreements over additional costs, schedule delays, and the overall impact on the project.
Resolving a change order dispute typically involves a negotiation process between the parties involved, often requiring a careful examination of the contractual terms, specifications, and relevant project documentation. If the parties cannot resolve through negotiation, the dispute may escalate to mediation, arbitration, or even litigation.
When it comes to construction change order disputes, it is not uncommon for conflicts to arise between the parties involved. Change orders, which are modifications or additions to the original scope of work, can often become a source of disagreement in construction projects.
To avoid or mitigate change order disputes, it is essential to have a clear understanding and agreement on the scope of the project from the beginning. Defining the project scope in detail and documenting it in the design documents can help minimize disagreements later on. Additionally, all entities involved should agree on the process and procedures for change orders upfront. This can include steps such as documentation, approval, and communication protocols to ensure that changes are properly managed and agreed upon by all parties.
Typically most change order disputes in construction arise for the following reasons:
- Scope Creep: Disagreements about whether the requested changes fall within the agreed scope of work.
- Pricing and Payment Disputes: Conflicts over the pricing of change orders, including labor, materials, and profit margins, as well as delays or non-payment for approved changes.
- Schedule Disagreements: Differing assessments of how change orders will impact the project schedule, leading to conflicts over sequencing and timing.
- Communication and Documentation Issues: Problems arise from insufficient documentation of change orders, lack of formal written approval, and inadequate communication between parties.
- Quality Concerns: Disagreements over the expected quality of work for change order items, as well as differences in standards and specifications.
- Unforeseen Conditions: Disputes related to unexpected site conditions or circumstances, leading to disagreements over whether they warrant a change order and how associated costs and time impacts should be addressed.
- Contractual Discrepancies: Conflicts stemming from differences between the original contract terms and the interpretation of those terms in the context of change orders.
It is therefore important to have a mechanism in place to address and resolve any disputes that may arise. This can involve having a well-drafted contract that includes provisions for dispute resolution, such as mediation or arbitration. These alternative dispute resolution methods can provide a more efficient and cost-effective way to resolve change order disputes compared to litigation.
To mitigate risk during construction change order disputes, it is important to take certain steps to proactively address potential conflicts. Here are some strategies that can help mitigate risk:
- Clearly define the scope: Establishing a well-defined scope of work upfront can help minimize the occurrence of change orders and disputes. By clearly outlining the project requirements, specifications, quality of work, timelines and deliverables, all parties involved in the construction project can have a common understanding of what is expected.
- Document all changes: It is essential to maintain thorough documentation of all change orders, including the details of the change, the rationale behind it, and any associated costs or schedule impacts. This documentation can help clarify the intentions and responsibilities of each party involved, reducing the likelihood of disputes arising.
- Regular communication: Establishing robust communication channels can greatly mitigate the risk of disputes during change order negotiations. Maintaining open lines of communication between all relevant stakeholders, including owners, contractors, subcontractors, and designers, can facilitate early identification and resolution of potential issues.
- Adhere to contract terms: It is important for all parties to strictly adhere to the contract terms and follow the established change order procedures. By following the contractual protocols for initiating, approving, and documenting change orders, both parties can have clear guidance on how to handle changes, minimizing misunderstandings and disputes.
- Seek expert advice: In complex construction projects or situations where disputes are escalating, it may be beneficial to seek the guidance of construction professionals or legal experts. These experts can provide impartial analysis and advice to help resolve disputes fairly and efficiently.
Implementing proactive measures, such as clear project scope definition, documented procedures, and effective communication, can help minimize the likelihood and impact of change order disputes in construction projects.
GCPay offers change order processing, tracking, and management as part of its all-in-one product suite. Book a free custom demo today to learn how GCPay can help your business.
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