Change Orders are instructions to revise construction plans after they have been completed. Change orders are common to most projects, and very common with large projects. After the original scope (or contract) is formed, complete with the total price to be paid and the specific work to be completed, a client may decide that the original plans do not best represent his definition for the finished project. Accordingly, the client will suggest an alternate approach.
Common causes for change orders to be created are:
" The project's work was incorrectly estimated;
" The customer or project team discovers obstacles or possible efficiencies that require them to deviate from the original plan;
" The customer or project team are inefficient or incapable of completing their required deliverables within budget, and additional money, time, or resources must be added to the project; and
" During the course of the project, additional features or options are perceived and requested.
Alabama Compensation for Change Orders and Builder Allowance Overages refers to the various methods and monetary arrangements established within the state of Alabama to account for changes in construction projects and expenses exceeding the allotted builder allowance. These mechanisms are designed to ensure fair compensation and prevent financial disputes between contractors, builders, and property owners. Change Orders: Change orders are modifications or alterations made to the original construction plans during the course of a project. They may be requested by the property owner, architect, or contractor due to unforeseen circumstances, design adjustments, or client preferences. In Alabama, compensation for change orders can be determined through different methods such as: 1. Time and Material (T&M) Basis: When a change order occurs, the contractor is compensated based on actual labor, materials, and equipment expenses plus an agreed-upon markup or profit margin. This method allows for flexibility but requires careful tracking of costs. 2. Cost-Plus-Fixed-Fee (CUFF): This approach involves reimbursing the contractor for all direct costs associated with the change order along with a predetermined fixed fee or percentage to cover overhead and profit. The fixed fee is agreed upon before the project commences. 3. Lump Sum or Unit Price: In some cases, change orders are handled through a fixed lump sum or unit price. The contractor is paid a predetermined amount to cover the modification without considering the actual costs incurred. This method simplifies administrative tasks but may pose challenges if unexpected expenses arise. Builder Allowance Overages: Builder allowances are predetermined amounts allocated to cover specific items or finishes within a construction project. These allowances are typically set for items such as flooring, fixtures, appliances, or cabinetry. If the property owner exceeds the allotted allowance amount, compensation for the overages can be handled using various approaches: 1. Deduction from Retained Amount: The excess amount exceeding the builder allowance is deducted from the final retained payment that is held until the project's completion. This deduction ensures that the property owner covers the overages while maintaining contractor accountability. 2. Additional Change Order: If the builder allowance is exceeded, an additional change order can be issued to account for the overages. The change order will specify the additional amount required and the corresponding compensation method. 3. Renegotiation: In some cases, the builder and property owner may negotiate a resolution outside the original contract terms. This could involve increasing the overall project budget to accommodate the excess or adjusting the scope of work to balance the cost. In conclusion, Alabama Compensation for Change Orders and Builder Allowance Overages includes various methods such as time and material, cost-plus-fixed-fee, lump sum, deduction from retained amount, additional change orders, and renegotiation. These mechanisms ensure fair compensation for changes and overages, minimizing financial disputes and promoting successful project completion.
