What the difference between variation orders and claims ?

Owners, contractors and subcontractors know that claims and change orders are common parts of almost any construction project.  Yet these two terms refer to entirely different problems.  Failure to keep those differences in mind can destroy the contractor’s ability to be paid for its work.  Do you know the differences between change orders and claims?

 

 

 

This Deal or a New Deal? 

 

By making a claim, the contractor is demanding that the existing deal be enforced.  The claim refers to the current construction contract and demands that the owner do something it has already agreed to do.  Presenting a change order for the owner’s signature, on the other hand, is the contractor’s  request for a new deal.  The change order says nothing about whether the owner is living up to the current contract.

 

 

 

They Come in Pairs. 

 

What is confusing is that change orders and claims often occur together.  Take the situation where the owner asks for additional work.  The contractor performs and the owner is slow to pay for the extras.  What should the contractor do?  The contractor will typically submit a change order to increase the construction contract price by the amount of the extras.  But what if the owner doesn’t get around to signing the change order?  Has the contractor made a claim for payment?  No.  All the contractor has done is suggest the amendment by change order.

 

 

 

Here is the catch:  most construction contracts impose time deadlines for submitting claims.  The AIA construction contract forms, for example, require claims to be made in writing within21 days after the claim arose.  In our situation, the contractor could lose its right to be paid if no claim is made within21 days after the extra work was started.  Submitting the change order is not sufficient - a claim needs to be made.

 

 

 

Change orders are not subject to  the same deadlines as claims.  Some construction contracts may impose no deadlines whatsoever on change orders.  After all, the owner and contractor can agree to change the deal anytime they want.  Other construction contracts impose stricter deadlines on change orders than on claims.  Some contracts, for example, require change orders to be written and signed before the change in work occurs.  Under this kind of contract, our contractor would be late on both its claim and its proposed change order!

 

 

 

What is a Contractor To Do? 

 

A few guidelines are in order:

 

• When the owner asks for a change, get the change order executed before the work starts.  Of course this isn’t always practical because the owner often demands that the work begin immediately.  Be prepared with a friendly but firm notice that will qualify as both a timely claim and a request for a change order.
• When you are not being paid on time, or have some other issue with the owner’s conduct, recognize that you have a claim that must be made or else it may be waived.  Do not rely on the submission of a change order form to protect your rights.
• Make sure you understand the contract requirements for making claims.  Do not rely solely on statements made at a project meeting, even if the meeting minutes refer to the discussion.  Check the contract requirements for how and when notices of claims must be given.  To whom?  How?  Is email sufficient? Copy to the architect?  If the deadline is close, check the contract rules on when the notice is effective - the day it is sent or the day it is received?
• Educate your project managers and other jobsite personnel on the difference between claims and change orders so deadlines are met and rights to payment are protected.