How to Make your Construction Change Order Claims Successful
On almost every one of the 120 plus construction projects I’ve been involved in we have encountered variations which have resulted in us submitting change order claims. Some were for extension of time due to delays caused by our client. Other claims were for increased scope of work, changes in the scope, new specifications or altered project conditions. Many of these claims were for millions of dollars and some projects almost doubled in value. Yet, in most cases we received the full value of our claim or the full extension of time requested. Furthermore we resolved 99% of the claims amicably without resorting to arbitration or legal processes, and we maintained a good relationship with our customers, almost always going on to complete other projects with them.
So why were we so successful submitting construction change order claims and why do so many contractors’ change order claims end up not being accepted, or if they are it’s only after an expensive and time consuming legal process?
The ease of settling a construction change order claim starts with your customer, your relationship with your customer and sometimes relates to their budget. Some customers are adversarial with their contractors and will dispute every change order submitted. Do you really want to work for these customers? It’s essential you understand your customer when bidding for a construction project. Don’t work for those who have a reputation for frequent legal disputes with their contractors.
Having a good relationship with your customer is essential. If you are adversarial they will take the same approach. Continually talking to your customer keeps them informed so when change orders are submitted they aren’t taken by surprise. If customers think they can trust you and that generally you’re honest with them they’ll often be more receptive to your claim. However, if you have a habit of submitting spurious or inflated claims they’re likely to oppose your claims immediately.
It helps if your customer has money in their budget to pay for change orders. Some clients have no funds to pay change orders and will do everything possible not to pay extra to their contractors. Try and ensure your customer remains within their budget and resist pricing projects where you know their budget is too tight.
The contract document
Contractors often get into trouble because they sign and agree to contract conditions which offer them little protection. Before pricing a project ensure the terms and conditions of the contract are equitable and that the risks you have to take on are reasonable and manageable. The terms of some contracts may make it very difficult to submit a claim or the contract may confer the risk of many variations on the contractor, even when they have little control of these risks.
It’s essential you understand the contract document, that you are familiar with the scope, and know both your obligations and your customer’s. Claims need to be submitted in the time frames in the contract and risk being refused if they aren’t.
Presenting your construction change order claim
I’ve seen many poorly put together change order requests. Some for millions of dollars, yet construction companies often apply minimal time and effort to formulating their claims. Some even delegate their claim preparation to junior inexperienced quantity surveyors or contract administrators. Sometimes the construction project manager isn’t even aware a claim has been submitted and is blindsided when their client takes offence to a spurious or unsupported claim.
I’ve seen claims with math errors, spelling mistakes (even incorrectly spelling the client’s name), factual errors, contradictory information, confusing language and unsupported evidence.
Construction companies should ensure that a knowledgeable and experienced person is allocated to draft the claim (familiar with the contract, the client and the work that’s been done) and that it’s reviewed and checked by the project manager before it’s submitted.
It’s preferable to keep claims separate unless they are linked and one impacts another. Combining different claims in the same submission can be confusing for the customer. Rejection of one claim could delay approval of the others.
What should be included?
A properly drafted and well thought out construction change order claim will be hard for your client to refute and it’s likely to be successful. Claims should be clear, concise and logical.
Successful change order claims should have:
- A description of the event
- The cause of the event
- The date of the event, where relevant
- The impact of the event
- Steps taken to mitigate the impact
- The cost and time impacts of the event
- All supporting documentation attached, or should refer to supporting documentation correctly referencing the relevant contract clause numbers, construction drawing numbers, schedule or program item numbers, correspondence, Bill of Quantity items or construction contract specifications as required.
As part of formulating the impact of the event all calculations and schedules should be included. The change order claim schedule should reference the approved contract schedule. Calculations should reference where the facts and figures came from and how they were put together. The calculations should be checked for math errors (which can occur all too frequently).
Remember to include all of your legitimate and claimable costs. It’s usually difficult to add in extra forgotten costs after you have submitted your claim. It’s unprofessional and will annoy your client. It may even cast doubts on the legitimacy of your original claim.
It’s useful to discuss your change order claim with others in the project team to ensure you have the facts set down correctly and that you have referenced the relevant documents and included all of the costs. Get someone to check your claim for errors and to see if they can follow your logic. If your logic is flawed, or can’t be easily followed your customer will be inclined to reject it first, before asking questions. Once a change order claim is rejected it becomes more difficult to change their mind and convince your customer you’re entitled to the variation.
Submitting your change order claim
The client must be notified of changes as soon as you become aware of them, and certainly within the time specified in the contract. Failure to do so may mean the contractor loses the right to claim.
The change order claim must:
- Be lodged within the time-frame specified in the contract
- Be addressed to the correct person
- Be delivered to the correct address
It’s often a good idea to discuss large or contentious claims with your client before submitting them. This not only forewarns the client the claim is coming, but also provides an opportunity to discuss the reasons and the merits of the variation.
The negotiating phase
As much as we all consider our claim as complete, final and non-negotiable it’s almost certain that your customer will come back with questions, counter-arguments and try and negotiate the quantum of the claim down, or even reject it completely.
In responding to questions from the client ensure that your replies remain factual and stick to the original arguments presented. It’s easy to introduce other arguments and ideas which could be contradictory or confusing.
Reply to all questions in writing referencing the original claim. If the questions are raised in a meeting take notes of the questions and your answers, and confirm them afterwards in writing.
It goes without saying that all correspondence relating to the claim needs to be filed where it’s readily able to be retrieved. Some claims can take months to resolve, and if the claim follows the legal or arbitration route it could even take years.
It’s essential that successful construction change order claims are correctly formulated and submitted in accordance with the contract. They need to be resolved as soon as possible, preferably amicably and without resorting to protracted legal disputes. However, this shouldn’t mean that contractors don’t fight for their entitlements in terms of the contract.
A properly drafted and presented change order claim which is fair will be more readily accepted by your customer. Make sure your claims are successful.
How do you ensure your construction change order claims are successful?
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