The change order challenge: Can things go bad, or right?

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boston hospital
Image from Wikipedia
Image from Wikipedia
Image from Wikipedia

Some years ago, in addressing how a successful contractor has managed to maintain a profitable business despite needing to compete in “low bid wins the job” open competitions, the contractor opened up to me with an observation: He wins the jobs because they are rigged in advance. The local hospital authority, knowing and liking the contractor, builds deliberate ambiguities and change order opportunities into the contract; so the contractor confidently bids low, wins the work, and then submit change orders, which the owner promptly approves and pays.

Conversely, in another situation, a major contractor, seeking to process a legitimate change order (based on the decision by the owner to change the scope of work after the contract was awarded), received a call-in to the institution’s construction manager. He was told that if he pursued the change order, he would never see any more work with the institution. And that happened. Despite submitting compliant bids and RFPs, his business has repeatedly been denied bidding opportunities.

The final story, perhaps, reflects the saddest variation on this theme. A major public-private partnership project needed to be constructed on a tight budget — but the complete drawings and instructions were not available to trades as work started. Not surprisingly, there were serious job-site conflicts, for example, concrete poured where conduit needed to go. Subtrades and suppliers started filing change order requests. The general contractor, under pressure to hold the line on costs, forwarded these requests to the ownership consortium for approval, which generally were denied. At the same time, the subs and suppliers were urged to press on with their work. The process bankrupted one supplier, who lost his lifetime equity in one horrible project, and severely hindered a major sub-trade, who, seeing the writing on the wall, pulled workers from the job site. The general contractor urged the sub-trade to return, and the contractor did, only to begin what has become a protracted and legally unresolved (yet) search for payment.

These observations suggest that in many cases, what happens after you win the work may be far more important than before you get the job. All of the marketing in the world won’t help you if you are stuck in a bad job. Yet there are times when your relationships and knowledge can allow you to win seemingly impossible victories because of your advance-knowledge and understanding of the rules.

Undeniably, successful construction projects are built on a framework where trust begins at the outset, and stays in place through the conclusion. Lessons learned (and questions to ask):

  • Will this project “ruin” you if something goes wrong? If the risk is real, what can you do to mitigate it before starting?
  • Be very careful about change orders: Make sure your contract language is clear and be sure that everything is signed off. Also, establish your payment terms very explicitly and avoid the trap of paying for services without recovery (and, if you are further down the chain) being caught in a one-sided pay-when-paid contract provision.

I welcome your observations. You can email me at buckshon@constructionmarketingideas.com or comment below.

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