By: Mike Lopez
During seasonal transitions when projects are nearing completion, one issue that often arises is the impact of proposals and change orders on the closeout process. Owners and property managers often negatively react to the mention of proposals and change orders, as they are usually associated with added contract scope (and the dreaded accompanying costs). While proposals and change orders in the construction industry are nearly inescapable for a variety of reasons, they need not be ominous. The proper tracking and execution of proposals and change orders can actually aid in the successful closeout of a restoration project.
There are many instances during a project when a contractor may be asked to provide a proposal, whether it be to address unforeseen conditions or because the owner would like to perform additional work. In anticipation of this common occurrence, the proposal process is typically outlined in the project specifications and can utilize the contract referenced AIA document G709. While proposals may be generated at any time throughout a project, it’s important that the owner remember that there is no obligation to execute a proposal.
Design professionals should make sure to review any submitted proposals for accuracy and completeness and provide any recommendations to the owner. It is also important to actively track proposals and their associated costs so as to remain mindful of a project’s overall budget. Once a proposal has been reviewed by the design professional and the owner, it will either be accepted or rejected. However, in the end, a proposal is NOT the equivalent of a change order.
If a proposal is accepted, it should be promptly signed and dated by the owner and incorporated into the contract. The process by which a proposal is incorporated into a contract is called a change order. Typically, the process of incorporating a change order into the contract, can be found within the project specifications. AIA form G701 outlines the implementation of work agreed to by the owner, contractor and design professional.
Many times, contractors simply issue change orders rather than providing proposals, which can appear to simplify the process. However, this practice is strongly discouraged, as it often causes significant confusion and delay. Change orders should only be issued upon ownership’s approval of a proposal; they must be sequentially numbered and fully executed (signed by the three parties listed on the AIA contract, including the owner, contractor, and architect/engineer) to become valid. Technically, it is only after all three parties have signed, that the work is approved as part of the contract. The form most typically used for change orders is the AIA document G701.
Other information to keep in mind when reviewing a proposal or change order is the additional time that will be required to complete the added scope. The amount of additional working days should also be indicated on a change order. This is extremely important in the event that there is a clause or penalty in the contract for exceeding the project timeline. Design professionals should also carefully review the listed costs and ensure that the total is correct. If an error is discovered on the change order form, it should be corrected immediately, before it creates a ripple effect of errors on subsequent payment requisitions and change orders that can further delay the project’s completion. Copies of fully executed change orders should always accompany the contractor’s application for payment.
It’s often assumed is that one proposal equals one change order; however, this is not the case. If agreed to by ownership, multiple proposals can be incorporated into a single change order. This greatly reduces the amount of paperwork generated and efficiently incorporates a number of items and/or credits into a single document.
Why is the management of proposals and change orders so important? Why not just perform the work and worry about the paperwork later? In the interest of protecting all involved parties, additional work should never be performed without accurate, executed change orders. If a project has progressed without the proper documentation, there is a greater possibility that conflict between parties regarding the scope of work and associated costs could significantly extended the overall closeout period. If the necessary signatures and supporting documentation are obtained after-the-fact, disagreements and delayed payment processing can result. It cannot be stressed enough that fully documented change orders are crucial to avoid confusion and aid in the successful completion of a project.