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.
Minnesota Compensation for Change Orders and Builder Allowance Overages: A Comprehensive Guide In the context of the construction industry, Change Orders and Builder Allowance Overages play a significant role in ensuring that construction projects in Minnesota proceed smoothly. In this detailed description, we will explore the concept of Compensation for Change Orders and Builder Allowance Overages, its importance, and the different types that exist within the state of Minnesota. Compensation for Change Orders: Change Orders refer to modifications made to the original construction plans or contracts. They arise when changes need to be implemented during the construction process, such as alterations to design, materials, or scope of work. These changes often result from unexpected circumstances, unforeseen site conditions, or client-requested adjustments. Compensation for Change Orders ensures that contractors are fairly reimbursed for the additional labor, materials, and time required to accommodate these changes. There are several types of Compensation for Change Orders in Minnesota: 1. Cost-Plus Contracts: In these agreements, the contractor is reimbursed for the actual cost of labor and materials, plus a predetermined fee. This type of compensation is commonly used when the extent and nature of potential changes cannot be accurately anticipated at the project's outset. 2. Unit Pricing: Unit pricing compensation is based on pre-determined rates for specific tasks or materials. Contractors are compensated accordingly when specified units are modified or quantities change. 3. Lump Sum: Sometimes, a lump sum compensation is agreed upon for certain changes with clear specifications and costs. This method simplifies accounting and eliminates the need for extensive documentation for small-scale modifications. 4. Time and Materials: This compensation method involves contractors submitting detailed documentation of labor hours, materials used, and their associated costs for invoicing the change orders. Rates for labor and materials are predetermined. Builder Allowance Overages: Builder allowances are predetermined amounts outlined in contracts to cover the cost of specific items, such as cabinets, flooring, or fixtures. These allowances help accommodate the client's preferences and choices during the construction process. However, in some cases, the actual selection made by the client may exceed the allocated budgeted amount or allowance. Builder Allowance Overages, therefore, refer to additional costs incurred when clients exceed the budgeted allowance for specific items. To address Builder Allowance Overages in Minnesota, construction contracts usually outline: 1. Stipulations for approval: Before exceeding an allowance, clients may need to seek approval from the contractor or project manager. This ensures transparency and helps manage the project's overall budget. 2. Cost-sharing agreements: Contracts may specify how extra costs over an allowance will be divided between the contractor and the client. Common arrangements include clients covering the full overage or sharing the additional expenses on a predetermined percentage basis. 3. Documentation requirements: Contractors usually require clients to provide detailed records of their selections, costs, and any overages that may occur. This helps maintain accurate project accounting. In summary, Compensation for Change Orders and Builder Allowance Overages are essential aspects of construction projects in Minnesota. Depending on the contract type and project specifics, various compensation methods are utilized, such as cost-plus contracts, unit pricing, lump-sum agreements, or time and materials billing. Similarly, Builder Allowance Overages are managed through stipulations for approval, cost-sharing agreements, and detailed documentation. These measures ensure both fair compensation for contractors and effective management of construction budgets and client preferences in Minnesota.
