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Ultimate Guide

Ultimate Guide to Lien Waivers

Any way that you cut it, lien waivers are an essential gear in the construction machine. They help keep the vehicle moving towards its destination and promote an atmosphere of fair play. They also pop up at several points and from several angles throughout the life of a project, so they require some special attention to handle them correctly.

But, what are lien waivers? How do they work, and what do they do? Who needs to be familiar with them? How do you manage them?

Those are great questions. This guide aims to answer all those questions and more. Having a solid lien waiver-centric foundation can make a big difference in protecting your business, project, client, or reputation.

What is a lien waiver?

If you don’t have much experience with lien waivers, you’ll need a bit of a primer to understand what they are. A lien waiver is a form exchanged during the payment process on a construction project. This form states that the owner will pay a certain amount of money for work performed on the job. In return, the form states that the subcontractor waives their rights to a lien in the amount specified.

If that sounds complicated, here is an easier way to understand lien waivers: consider them a receipt. It’s a document that proves a subcontractor received payment for the part in a project. Because the sub received payment, they agree that they will not file a lien against the property.  

Lien waivers are like going to a shop. You paid for the goods, so you expect to have a receipt to show the loss prevention clerk at the door. Without that receipt, you could find yourself in hot water even if you paid full price for the goods.

The Trouble With Lien Waivers

For such a simple “I pay you, you don’t sue me” premise, lien waivers can be very tricky. This might seem hard to believe, but subcontractors don’t line up to give away their lien rights. Likewise, owners don’t enjoy paying people before they know they won’t turn on them. It’s dicey territory to navigate.

Before most subcontractors will sign a lien waiver, they want the money in the bank. Before most owners and general contractors will cut a check, they want a lien waiver. Someone has to take the first step in good faith. 

The truth is that lien waivers can actually help speed up the payment process and keep things on an even keel. The trick is to find the right balance between risk and reward. Using the correct type of lien waiver can help.

Types of Lien Waivers

As with anything construction related, one form of a document is never enough. Instead, lien waivers come in two main forms (conditional and unconditional) with two subtypes (partial and final). 

Conditional Lien Waivers

Conditional lien waivers are the least risky lien waiver for subcontractors, making them easier for an owner or general contractor to get a sub to sign. A conditional waiver states that a subcontractor will waive their right to file a lien for the amount set for in the lien waiver only once the general contractor or owner issues payment.

Conditional lien waivers go into effect once the subcontractor gets paid. If they don’t receive payment, they still have lien rights. It’s a fair way to make sure that everyone gets what they deserve. The subcontractor gets paid, and the owner receives a project free of liens.

Unconditional Lien Waivers

Unconditional lien waivers are much riskier for subs and can be difficult to get them to sign. Unlike conditional lien waivers, unconditional lien waivers go into effect the moment the subcontractor signs them. This means that the subcontractor gives up their right to the amount specified in the lien waiver immediately, whether or not they received payment.

Unconditional lien waivers are great for owners as they’re property receives lien protection regardless of what payment issues might arise. If a subcontractor signs an unconditional waiver and then has a problem getting their payment from the general contractor, it’s no longer the owner’s problem. This can quickly become an unfair environment for doing business, so it’s not the recommended waiver form.

Subtypes: Partial and Final

Both conditional and unconditional lien waivers break down into two subtypes: partial lien waivers and final lien waivers. They’re fairly self-descriptive, but for clarity’s sake, let’s address them.

Partial Payment Lien Waivers

Throughout the course of the project, progress payments will come due and subcontractors will submit payment applications. These payment requests will include set amounts that the sub is expecting. The owners may require a conditional or unconditional lien waiver before paying that amount, protecting them from liens in the amount specified by the payment app.

Partial lien waivers can be a bit tricky for subs when retainage or change orders are part of the equation. In the spirit of good business, owners and general contractors can include an area for exclusions within the partial lien waiver. Otherwise, subcontractors could waive their right to lien — accidentally as it may be — to the progress payment’s portion of the retainage.

Final Payment Lien Waivers

As a project comes to a close, subs will start lining up for their slice of the pie. Owners and general contractors can request conditional or unconditional final payment lien waivers in order to cut checks. 

Final lien waivers include everything unless otherwise noted on the lien waiver. Again, this is an opportunity for a sub to note that the lien waiver doesn’t apply to retainage or change orders. Owners will have an easier time getting these forms signed if they provide an exclusion section where the sub can note this. 

Who should be concerned with lien waivers?

There are several parties on a project that can be involved in the lien waiver process. The following are some typical roles that deal with lien waivers regularly. 

The Subcontractor

When a subcontractor signs a lien waiver, they’re giving up almost all of their leverage. That means there’s a lot at stake when it comes to lien waivers for the subcontractors. Subcontractors need to pay close attention to the language in any lien waiver they sign. Also, if a lien waiver is a requirement on a project, the subcontractor should know ahead of time so they can include one with their payment application to speed things up.

The Materials Supplier

They don’t get a lot of mention, but materials suppliers have as much at stake as contractors when it comes to payments. If a project requires lien waivers from subcontractors, materials suppliers will likely have to supply them as well. The same rules apply when it comes to lien waiver language: suppliers should look them over carefully and include them with an invoice if they’re a requirement.

The General Contractor

Among many of the headaches that general contractors deal with, collecting lien waivers falls right in the middle. On most projects, the act of collecting lien waivers from every party involved falls on the general contractor. They’ll have to get lien waivers from their subs, their subs’ subs, their subs’ subs’ materials suppliers, and so on. It’s the general contractor’s job to know who’s working on the project and to ensure they receive a lien waiver from everyone.

The Office Staff

As mentioned earlier, lien waivers can flow continuously during the life of a construction project. Materials suppliers might include them with every invoice. Subcontractors will submit them with their progress payment applications. General contractors can walk into a construction trailer with an armful towards the end of any project.

Most of the management involved in lien waivers falls on the office staff. Copying, uploading, and filing a project’s lien waivers can take hours. Factor in the time spent making sure that every contractor sent theirs, and it can take up a lot of staff-hours to organize lien waivers. 

The Property Owner

When it comes to lien waivers, there’s some irony involved with property owners. The lien waiver is an instrument that protects the property, yet the property owners are usually the least involved.

While there is the “that’s why I hired a general contractor” argument, owners should still concern themselves with lien waivers. Ensuring that the general contractor has a system in place to account for and collect lien waivers is essential. And, anytime payment requests make their way to the owner’s desk, they should be locking in on receiving lien waivers. 

Comparing requested amounts to the waivers received will help ensure no one misses their payment and files a lien against the property.

Managing Lien Waivers with Construction Software

It’s quite obvious that there are many parties involved in a construction project that need to deal with lien waivers in one way or another. Managing all that paperwork can be daunting and can cost a firm quite a bit of time and money in the meantime. Premier Construction Software can be the key to managing your waivers effectively.

Automatic Lien Waivers

Using a construction software program to track and generate your lien waivers can make a huge difference. You’ll be able to send and receive lien waivers in real-time, and best yet, automatically.

When you generate a check with Premier’s Print Check option, the system will automatically generate a lien waiver. The waiver will be pre-populated with the correct information for the payee, the payment amount, and the language you set ahead of time.

At this point, you can send your lien waivers electronically through email to receive instant authorization or print them to distribute with paper checks.

Consistent Language

In most cases, there are no regulations requiring specific forms or languages for lien waivers. Because this incredibly important document is mostly unregulated, many companies create lien waiver forms on the spot. This from-the-hip waiver generation can lead to inconsistency in your AP forms and systems.

When you generate a lien waiver with Premier Construction Software, you’ll have a consistent, tried-and-true form that you can replicate time and time again. Even if you’d prefer to hire a construction lawyer to draw up lien waiver language that’s both rock-solid and fair, you’ll only have to do it once.

Knowing what your lien waiver states without having to dig each individual form out of a filing cabinet can help straighten out murky situations before they become a problem. 

Tracking Lien Waivers

Whether you’re a general contractor, office manager, or property owner, you need to keep all of your compliance data in one place. Referencing one program for budgets, change orders, and lien waivers ensures that you won’t miss anything. 

Construction management software can track your lien waivers to show you which waivers received authorization, who signed them, and when. With a few clicks, you can check to see if any lien waivers or other compliance documents are missing so you can take action.

Remove Human Error

Any process with as many moving parts as lien waivers is susceptible to costly human-generated errors. Instead of leaning on your office staff with data entry and filing the lien waivers across several projects, you can take the burden off of them with Premier Construction Software.

Not only does Premier make lien waivers a more efficient process with alerts for missing compliance documents, but it can also help handle other accounts payable processes. Creating and sending invoices, automatic holdback and retainage release, and generally faster billing processes make Premier an invaluable tool for your firm.

Final Thoughts

Lien waivers are essential, but they can be a bit complicated to handle. With the sheer number of waivers involved in a project, ensuring that everyone is on the same page can be challenging, to say the least. 

Moving your accounts payable process over to a reliable and feature-rich construction software programs will help you streamline your lien waivers process. You’ll be able to generate, send, receive, and track your waivers with far less effort. You or your staff will be able to shift time and energy to other tasks while ensuring everyone gets paid and no one needs to file a lien.

For more information on how you can manage your lien waivers with Premier Construction Software, you can schedule a personalized product demonstration here.

Author Biography:

Tom Scalisi has over 15 years of experience working in the trades. Since moving to full-time freelance writing, he has developed a passion for helping construction companies grow. He enjoys teaching contractors how technology can streamline their businesses and educating them about their rights during payment disputes. 

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Ultimate Guide

Ultimate Guide to Submittals

Just as every trade feels they’re the most important and essential part of constructing a building, every phase of the project planning process feels like the most critical. When it comes to submittals, however, they truly are near the top of the importance ladder.

The submittal process is an opportunity for everyone on a project to get on the same page, which rarely happens throughout the life of a project. By establishing an efficient submittal management process, a project can go off with fewer hitches, better communication, and better collaboration.

What is a submittal?

A submittal is a document sent from the subcontractors in the field to the design personnel on a project. Their function is to verify that everyone is on the same page in regard to nearly every material, finish, and fixture on a project.

When an architect, engineer, or designer creates a set of plans, they specify (to the best of their ability) every material on the project. When the subcontractors finally receive and review the plans, they do their best to decipher exactly which materials the plans call for. To ensure that they’re on point, they send a submittal package to the design professional. This package includes all of the materials they believe match the specs the best.

The design professional or firm then reviews all of the submittals, ensuring that every material is consistent with the drawings. They’ll verify everything from steel beams to paint and carpet colors.

A Submittal Example

Let’s say an architect creates a set of plans to build an office building. He’ll specify every aspect of the project, from the steel beams to the carpets.

The subcontractor responsible for ordering the doors, flooring, and other finishing materials for our office building will need to create several submittals to ensure they’re using the right products. In the case of the doors, they’ll contact a supplier for a product information sheet for doors that match the ones specified on the plans. The subcontractor will submit this information sheet to the general contractor, who will then submit it to the designer for approval.

When the subcontractor sends several submittals for approval, they’ll usually bundle them up and submit them at once. This is a submittal package.

Types of Submittals

With the thousands of potential submittals possible on a construction project, it makes sense that there would be at least a handful of different types. It’s essential to understand each and how they work.

Shop Drawings

Obviously, you can’t just order every material on a construction project off of a shelf in a warehouse somewhere. Often, a fabricator needs to create a fixture, structural component, or other items from scratch in their shop.

To ensure that the fabricator’s proposed product will meet the design pro’s specifications, they’ll send a submittal with their shop drawings. These submittals often include details such as dimensions, materials, and qualities.

Material Data

Many times, an engineer or architect will be very specific about the materials they’ve included with their drawing. In public projects, the engineer may specify two or three products in the name of healthy competition. Even in these hyper-specific scenarios, there can still be a bit of gray area.

To help keep the gray area from throwing the project off schedule, over budget, or out of spec, a contractor will send a submittal with the materials they believe they are to use. As you can imagine, a submittal for every material can become overwhelming, but it’s important to ensure a safe and successful project.

Product Samples

When it comes to finishes and aesthetics, sometimes the only way to ensure the finished product meets the designer’s vision is with samples. Contractors can use sample submittals for anything from paint colors, carpets, floor tiles, moldings, hardware, or other details throughout the project.

What to Include in a Submittal

A submittal package can be full of supporting documents, images, specs, drawings, and other important information. Knowing what to include or expect in a submittal can streamline the process.

In general, submittals should include:

  • The subcontractor’s business name and contact info.
  • The contact name and info of the design professional or contractor who needs to review the submittal.
  • Any drawing reference numbers for the engineer to follow.
  • Product information directly from the manufacturer that outlines the specifications, model numbers, dimensions, capacities, and other important information.
  • Extremely detailed shop drawings. They should include the specifications of all the materials used in the construction of prefabricated items, particularly when it comes to structural components.
  • Color, texture, and finish selections available for a product, material, or surface specified in the plans.
  • Samples, pictures of mock-ups, or any other supporting information that will help the designer make a decision.

While submittal packages, spec sheets, and shop drawings can be overwhelming, the actual submittals don’t have to be complicated. They should include all of the information that will help the designer make a decision and respond quickly.

The Submittal Creation and Review Process

In a perfect world, a submittal would go from the subcontractor to the designer, and then from the designer back to the subcontractor with an approval. However, submittals can make many, many more stops along the way.

When a subcontractor creates a submittal, they have to start with the product manufacturer or fabrication shop. With the help of this supplier, they’re able to put their submittal or submittal package together.

The submittal then goes to the general contractor for review and approval. Potentially, the general contractor could deny the submittal if it’s clearly missing the mark from what the drawing specified. If the general contractor approves, they will then send the submittal up the chain to the architect for approval.

The architect will then review and approve or deny the submittal based on their point of view. The next stop for the submittal could be an engineer or design consultant, or potentially the owner. Once everyone on the chain signs off on the submittal, the material, finish, or product is okay for use on the project.

Commons Problems with Submittals

While the overarching goal of a submittal is to ensure that everyone is on the same page and that the project can go off smoothly, they aren’t perfect. There are some common issues with the submittal process, and understanding them can help you avoid them or minimize their effect on the project.

Paper Dimensions vs. Actual Dimensions

For all of the effort that architects, engineers, and designers put in trying to put the perfect roadmap together, construction projects often vary at least slightly from the plans. While the industry as a whole does allow for changes and variations with change orders or RFIs, certain phases of a project need the actual dimensions in the field.

Signing off on a submittal for a custom-fabricated material without knowing if it will actually work in the field is a problem. Plans and drawings are great for getting the project rolling, but there are times when a sub needs to be at the site to create an accurate submittal.

Delays in the Chain

One of the biggest issues with the submittal process is delays in the chain. A subcontractor can create and supply a submittal on time and with the best intentions, but a few days here and there on various decision-makers’ desks can throw off a timeline. Because there are so many stops along the way, it can be difficult to tell where the submittal package is at any given time.

Poor Organization and Tracking

Just about every part and component involved in the construction of a building requires a submittal to ensure it meets with the designer’s or architect’s specifications. With so many submittals on any single project, keeping track of them all can be a full-time job.

Delays due to poor organization can rock the timeline even more severely than a submittal sitting on a decision maker’s desk for too long. When submittals fall victim to poor management, contractors and designers have to make snap decisions that might not pan out as planned. Worse yet, the project could be at a standstill over a submittal lost in the shuffle.

Streamlining the Submittal Process

The submittal process isn’t fun for anyone involved. As a subcontractor, putting together a complete submittal takes a lot of time and work, and mistakes along the way can be a real issue. As a project manager or prime contractor, managing all of the submittals from every specialty contractor can be a headache. Misplacing just one of those submittals can throw off the entire project.

Even just ensuring that you have all the submittals from all the subs that need to submit them is tough.

Streamlining the submittal process can make a significant impact on the project’s workflow. The best way to simplify the process is to rely on a software program to help you submit, forward, and track submittals automatically.

Preparing Submittals with Premier Construction Software

Preparing a huge binder full of photocopies and product data sheets is time-consuming. Instead of printing, photocopying, and punching holes in all of your submittal documents, create your submittals with Premier Construction Software.

Premier Construction Software allows you to upload all of the important documents and pictures that your submittal will require. This can save a lot of time, paper, and frustration over the course of developing a submittal package. Once you create all of your submittals, Premier will keep track of them on its cloud-based document management system. Using this will allow anyone with permission to access these documents.

The ease of creating a submittal and the cloud-based access will allow several parties to work on a submittal package together, speeding up the process and promoting teamwork.

Create and track construction submittals with Premier Construction Software

Sending Submittals with Premier Construction Software

Even more archaic than building a physical submittal package is actually mailing or delivering one.

Sending submittals has never been easier than it is with Premier Construction Software. Once prepared, you can send a submittal, or several, to multiple contacts instantly through email. Each contact will have access to the drawings, datasheets, and whatever other documents or images you attached to the submittal.

You’ll now know who has the submittal and when they received it, taking the guesswork out of tracking your submittal package across several desks or offices.

Approvals and Denials

Getting or giving a response for a submittal doesn’t have to drag down the project with construction software like Premier Construction Software. Submittals can receive responses in real-time, allowing the project to move forward quicker than standard paper-based submittal packages.

Decision-makers are able to annotate, approve or deny a submittal electronically, giving feedback or conditions as they apply to the submittal.

Tracking Submittals with Premier Construction Software

Perhaps the most challenging aspect of submittals is tracking and organizing them to ensure that nothing gets lost in the shuffle. Traditionally, tracking these documents required administrative staff to manually input each submittal into a long spreadsheet. It’s a long and tedious process. It’s also the perfect breeding ground for human error. Premier Construction Software can help with that, as well.

Instead of creating and maintaining your own submittal log, Premier does it automatically. When you send or receive a submittal with Premier Construction Software, that submittal becomes accessible through the cloud-based document database. You’ll be able to track each submittal and its status easily from anywhere with internet access. Premier provides a complete history of each submittal as well, so you can stay up-to-date with any changes or updates.

By utilizing the document management system in Premier, you’ll be able to search for any submittal (or other important documents) on the project for any information you might need.

Submittal management is key to the success of your project.

Whether you’re a subcontractor, general contractor, or design professional, proper submittal management should be a priority for your project. Submittals with the proper information, timely responses, and open communication allow a more collaborative approach to a project. They also ensure the project goes as smoothly as possible.

For more information on how you can manage your submittals with Premier Construction Software, you can schedule a personalized product demonstration here.

Author Biography:

Tom Scalisi has over 15 years of experience working in the trades. Since moving to full-time freelance writing, he has developed a passion for helping construction companies grow. He enjoys teaching contractors how technology can streamline their businesses and educating them about their rights during payment disputes. 

 

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Resources Ultimate Guide

Ultimate Guide to Change Orders in Construction

If you’ve been around construction for any amount of time, you know how fluid a project can be. A would-be straightforward scope can morph and adapt several times before the project receives its Certificate of Occupancy.

Because a construction contract can be so rigid, and a project so fluid, there needs to be a mechanism that owners, general contractors, architects, and subcontractors can use to alter the scope officially. That mechanism is the change order, and it helps a project stay on course when the course itself changes.

This guide will help you understand what a change order is and how it works. You’ll also learn how you should be handling change orders to ensure the project continues smoothly from start to finish.

Download a printable copy of the ultimate guide to change orders in Construction

What is a change order?

A change order is an official document used to submit and approve changes on a construction project. They can be a result of a mistake, budgetary concerns, a change of heart or design, or an unforeseen and uncontrollable issue.

When a construction project begins, the owner signs a prime contract with the General Contractor. The General Contractor then signs contracts with subcontractors. All of these contracts contain the scope of work to be done, as well as the price of the project. These contracts start everyone off on an even keel and with a goal in mind.

Along the way, things change. Materials change, ideas evolve, designs scale back or grow, or an emergency pops up. For any number of reasons, the scope of the contract may have to change. As the scope of the contract changes, so should compensation.

This is where the change order comes into play.

Miniature Contracts

While a change order is actually a contract amendment, it’s helpful to think of them as miniature contracts. They essentially change the scope, schedule, or compensation of the original contract, replacing it with new details, timelines, and values.

The party requesting the change order needs to include the same type of information as the original contract, plus some extras. It will include the changes requested, the reason, and the price change.  It can also include other important information like changes in the timeline or issues it may cause. If there’s supporting information like materials quotes or pictures, the requesting party should submit them as well.

Once approved, the change order becomes the new contract for that aspect of the project.

Different Types of Change Orders and Their Uses

There are a few main types of change orders, and they have different uses throughout a project. The main types are internal and external change orders.

Internal Change Orders

Depending on how your firm runs your projects, transferring unused money from one budget line to another could require a change order. For example, if you shifted $5,000 from the permit budget line to the drywall budget line, an executive may need to approve that shift.

In order to propose that change, you need to create an internal budget transfer change order.

You can handle any other changes made to the project that does not cause or create revenue by creating an internal change order, as well. 

External Change Orders

External change orders are for changes involving the customer. Most frequently, these are adjustments to the budget, scope, and timeline that the customer has to approve. External change orders almost always cause or create revenue. 

If a material change occurs, or the project changes direction, you’ll create an external change order that documents the customer’s approval. This external change order will allow you to move forward under the new change in scope. 

Why are change orders important?

Change orders are incredibly important for the success of a construction project. They allow for flexibility, collaboration, and a fair deal for everyone involved.

Change Orders for Owners

Change orders allow owners to make changes to the plan as it progresses. While these changes are often frustrating for contractors, they allow the owner to achieve the exact project they were imagining at take off.

When a project jumps from plans on a page or computer screen to a piece of land, the owner gets their first chance to actually envision the project. They can walk the decks, see how the plan lays out the walls, windows, and doors, and get an idea of what the finished project may look like. 

They may not always like it, or something new may enter their mind. Or, maybe their budget changes. By creating a change order, they can alter the plan, discuss it with the contractor, and set a new course for completion. As long as the contractor agrees and the timeline works, everyone wins.

Change Orders for Contractors

Whether you’re a General Contractor or a sub, change orders are absolutely essential on a project. Everyone knows things come up and projects change, and a change order can help.

For instance, let’s look at material availability on a roofing project. When you signed the original contract, you specified that you’d use ABC roofing shingles for the project. But, when it was time to order your materials, only XYZ shingles were available. 

It’s cases like these where change orders are absolutely essential.

If the XYZ shingles are more expensive than ABC, your job cost forecast could go out the window. You’ll be working just as hard for less money, and the costs will eat into your profit and your bottom line. A change order can request approval for the changes, saving your profit on the project.

If XYZ shingles are less expensive, and you purchase them anyway without a change order, you’ll be in breach of contract. If the owner or General Contractor finds out, they could withhold your payment or take you to court. A change order will alter the contract officially, clearing you from any wrongdoing compared to the original contract.

What should a change order include?

Regardless of which side of the contract you’re on, a change order is a request to alter its scope. It’s an extremely important document and, as such, needs to include a lot of important information.

While some contracts may specify that you use a particular change order form, other contracts leave it up to the requesting party to create their own. If you’re creating your own document, here are the basics it needs to include. 

Project and Contact Information

First and foremost, your change order needs to include the basic information about the contract. This includes the names and addresses of the parties involved.

Aside from your own business name and address, you need to include the other parties. You want the owner’s name and contact information, as well as the prime contractor’s name and contact information in your change order. You also need to specify the project’s name and address, as well as the contract number.

 Be sure to include the change order number on the project as well. You may only be expecting one change order, but things happen. Keeping track of change orders and the order you submitted them in can be important.

Dates

When it comes to submitting change orders, dates can go a long way to protecting both owners and contractors in the event of a dispute. They can be the paper trail you need to ensure things go smoothly, so don’t leave them out. While the signature date does signify approval, it may not be enough.

You need to include the date that you completed the change order on the document. It will help you establish that you knew there was an issue or change on a specific date and were taking the appropriate steps towards a solution. 

You also need to include the date that you’re submitting the change order on, should it be different from the day you completed it. This can often be your signature date.

Also, if you discussed the change order previous to completing the document, you should include that date and the name of the person you spoke with in the supporting details. This date establishes a timeline for the project change, which can become important in a dispute. Most contracts require notice of changes within a specified timeframe, so including the date of the discussion in your change order is always a good idea.

The Changes

The changes are really the heart of the change order, so you obviously need to include them. Changes can occur for many reasons and can take many shapes. If they change the cost, timeline, or scope of work, you need to include it.

As an owner, this is your opportunity to be very specific about the project change. If you’re changing the flooring in a commercial building’s lobby, you should specify how you’re altering the agreement. If it’s a different material, a different layout, or a different pattern, be sure to include it in the change order so there is no room for errors and misinterpretation. 

Remember, contractors sign contracts based on plans. Change orders can come on the fly, with nothing but an idea to describe them. Be descriptive and detailed.

Contractors should also be very specific so there’s no room for confusion when payday arrives. If you’re switching materials, give exact units and product numbers. If you’re adjusting man-hours, again, be descriptive about it. 

Most importantly, if the general contractor (or owner, in some cases) requests a change from you, be sure to describe it in detail.

The Reasons

For a contractor, it’s important to explain the reason for the change order request. If you’re using the “miniature contract” mentality, a change order submission is like a bid. It needs to be compelling so it receives approval.

If there’s a change in material price or availability, be sure to state so. If the inspector was on the site and requested changes, make sure you mention that. If the General Contractor made a judgment call, be sure to include it. If a labor strike or force majeure scenario caused the changes, absolutely be sure it’s in the change order.

The Cost

If there’s a price change, which there usually is, include it in your change order. While this guide will not go into the act of pricing your change order, it will touch on the importance of its inclusion. 

Regardless of whether you’re an owner or a contractor, you need to include the difference in cost that the change order will cause. If the scope changes to include less work, the price will decrease. Include it so everyone is on the same page. If the materials are increasing the price, put it in the change order.

It’s best to include these increases in dollar amounts instead of percentages. Taking the guesswork out of the change order process will help speed up the approval.

Also, your price change needs to follow the format of the original contract so it’s easy to compare the two. Both owners and contractors will have an easier time understanding the changes and the costs involved when they can compare it to the old contract. 

Supporting Documentation

If you have any documents that support the need for the change order, be sure to include them with it. As a contractor, they can strengthen your case, and as an owner, they can clear up any confusion.

Supporting documents can include requests from inspection reports, pictures, price quotes, and any other number of other ways to prove the change’s necessity. If you have something that supports your request, make a copy and include it in the change order packet.

Signatures

For a change order to be official, both parties need to sign it. Be sure to include room for two signatures (yours and the other parties) on the page with the materials, scope, and price change, if at all possible. There should be a signature line, a line for print, and also a line for the date.

Be sure to include a line directly above the signatures that states something along the lines of “This change order is approved to proceed.” This indicates that the signatures serve as approvals for the work to move forward under these new parameters.

How can I keep track of change orders?

Whether you’re an owner, general contractor, project manager, subcontractor, or clerical staff, keeping track of change orders can get confusing. You need to stay on top of what’s coming in, what’s received approval, the dates of submission, and the impact they’ll have on the project’s financials.

Hard Copy Systems Are Confusing

While it’s possible to create a hardcopy system for tracking your change orders, it can quickly become overwhelming for you or your clerical staff. Papers can go missing, people can be a challenge to get a hold of for signatures, and sorting through a large project’s worth of change orders can get confusing.

Adopting a Construction Software Project 

Adopting a construction software program that helps you and your staff automate the change order process can help avoid some costly errors. These programs can take a pile of loose papers and turn them into a spreadsheet that’s easy to read, track, and adjust as the project continues. They can track outstanding change orders and the dates they were submitted or received. These programs can generate internal change orders as well, allowing you to shift budgets and receive approvals instantly.

Instant Approvals and Automatic Updates

Possibly most important of all, adopting the right software will allow you to automate and streamline your approvals. Typically, change orders are first sent to project managers for approvals before sent to architects followed by the customer. Instead of going through the hassle of tracking down physical signatures on a hard copy, you can send a batch of proposals via email to be signed electronically. There are software that even allows for flexible workflows such as restricting who requires approval signatures by $ thresholds or a % of the budget. Once the customer reviews the proposals and signs them electronically, the software will automatically update the rest of the system. 

Streamlined change order approvals and signatures, and real-time system updates can make your project management team’s job much easier.

Change Order Reports

Keeping track of where money is going, and why it’s going there, can help you maintain transparency and profitability in your change order process. By locking the estimate, the software will require staff to create change orders anytime they shift a budget or transfer funds. It can help keep everyone honest and the project above board.

A change order report can also point out inefficiencies. If line items and funds are shifting back and forth constantly, you might be able to determine your weaknesses on the project. With the ability to filter and run by change order type and reason. The report might help set a better course on the next project with new personnel or practices. 

Month to Month Variance Reports

Keeping track of your change orders, approved or otherwise, is essential for effective management and forecasting as the project moves forward. With the right construction software, you can generate a variance report automatically, showing you what changed, how it changed, and was the change affected. 

A variance report is also an effective way to compare your project’s actual costs to its estimated costs. You’ll be able to keep a better track of the project’s bottom line and make adjustments to maintain profitability.

managing change orders in premier

Final Thoughts

For a project to reach a successful completion, some flexibility and cooperation along the way are almost always necessary. While legally binding contracts are rarely flexible, the change order process aims to keep things fluid, ensuring a desirable outcome for all parties involved.

While the process of completing a change order can be a bit confusing, or even nerve-wracking if it’s your first time, it’s a relatively straightforward principle: Here’s the change, here’s why, and here’s how much it’s going to change the price. 

By understanding how they work, why they’re so important, and how to keep them organized, you’ll be able to leverage the change order process in pursuit of a better project outcome for everyone on the contract.

 

About Premier Construction Software
Premier Construction Software is a true cloud, all-in-one accounting, job cost, project, document and drawing management solution designed to meet the needs of GCs, Developers, Design Build, and Homebuilders. Trusted by thousands of companies, Premier partners with forward thinking, progressive construction companies to provide a fully integrated solution for office and field staff operating on Mac, PC and any mobile device. Premier operates in North America as well as Australia, providing a true cloud solution that meets the needs of both markets today.

 

Author Biography:

Tom Scalisi has over 15 years of experience working in the trades. Since moving to full-time freelance writing, he has developed a passion for helping construction companies grow. He enjoys teaching contractors how technology can streamline their businesses and educating them about their rights during payment disputes.