Helping Contractors Recover Cost From Abusive Owners Who are Late on Paying Change Orders.
Attorneys often say if Contractors just followed the terms of their contract and insisted that Owners do the same, they would not have so many problems with change orders. That is not true in the real world. While clauses in the contract require submittal of estimates and approval before proceeding, most change orders issued by the Owner require immediate implementation. Failure to proceed would usually result in delay of the entire project. Other clauses including: “Time is of the Essence” give Owners the opportunity to access penalties regardless of the approval process.
Despite terms written in the contract, some Owners have no intention of paying the Contractor till the end of the contract. The Construction Manager and/or Owner’s Representative are employees of the Owner. They have perfect excuses for delay and non-payment which include: (a) “We don’t understand your estimate;” (b) “ Insufficient backup and supporting material – please review and resubmit, and (c) “Provide alternates on all material purchased – please resubmit” The amount of time for review of change orders is usually omitted from the contract. When it is stated, it is almost impossible to enforce.
The legal system fails miserably to provide a remedy in time for the hapless contractor attempting to recover cost in a timely manner. This has been witnessed over and over for contractors in in the United States, and is even worse for those in the Middle East where international laws prevail. For example, FIDIC contracts contain contradictory clauses such as 13.3.2: “Contractor shall not delay any work whilst awaiting a response. ” This clause does not appear in American Institute of Architects (AIA) or Association of General Contractors (AGC) contracts in the US. If it did, Owners would delay payment even further.
Once a Change order is completed, the Owner is in a position to negotiate the Contractor’s price down favorably no matter how reasonable. The Owner also enjoys the benefit of using the change without having to pay for it during the interim.
My client, a contractor in Las Vegas, wound up losing his business, his marriage, his home, and his life as he drove his car off the road after realizing he had been lied to by the Owner. Under enormous pressure, he decided to negotiate on his own with the Owner rather than proceed with development of a professional claim through the legal process. He listened to the Owner’s false promises instead of both my and his attorney’s advice. “This happens all the time”, said his attorney after the funeral. It is very sad to see a competent and qualified contractor commit suicide attributable to a system which is so one sided and unfair.
Gogulski & Associates, Inc. has developed innovative ways to recover cost and avoid risk on change orders. With help from Citadel’s graduate college of engineering, we will soon be showing improved means and methods to prevent this from happening when Contractors are in a world of hurt. For any construction consulting services needs, call us today.
Post by Paul Gogulski