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.
Pennsylvania Compensation for Change Orders and Builder Allowance Overages: When it comes to construction projects in Pennsylvania, change orders and builder allowance overages occasionally arise, leading to the need for compensation. Understanding the various types of compensation available for change orders and builder allowance overages is crucial for both contractors and property owners. In this article, we will delve into the subject, providing a comprehensive overview of Pennsylvania compensation for change orders and builder allowance overages. Change orders, also known as variations, refer to modifications made to the original scope of work as specified in the initial construction contract. These changes might arise due to design revisions, unforeseen site conditions, or client preferences. Regardless of the cause, change orders often result in additional costs or delays, which require financial compensation. In Pennsylvania, compensation for change orders occurs under specific circumstances defined by the construction contract, applicable laws, or established industry standards. Contractors typically negotiate their compensation for change orders on a case-by-case basis, as some contracts may include provisions outlining payment calculations. However, general industry practices also provide guidance. There are three primary types of Pennsylvania compensation for change orders: 1. Cost-Plus Method: In this method, the contractor is paid the actual cost incurred for completing the change order, including direct costs such as materials, labor, and equipment, as well as any indirect costs, overhead expenses, and profit margins. 2. Percentage Markup: This is a commonly used compensation method where a predetermined percentage of the change order cost is added to cover the contractor's overhead and profit. 3. Time and Materials: Under this approach, the contractor is reimbursed based on the actual time and materials required to complete the change order. The reimbursement includes the cost of labor, materials, equipment, subcontractors (if applicable), and any agreed-upon markups. Another crucial aspect of Pennsylvania compensation for change orders is the concept of builder allowance overages. Builder allowances are predetermined amounts within a construction contract that owners allocate for specific items or finishes (e.g., flooring, lighting, or fixtures). However, if the chosen items exceed the allotted allowance, an overage occurs, necessitating compensation. When dealing with builder allowance overages, compensation methods similar to change orders can be applied, including the cost-plus method, percentage markup, or time and materials. The selected method often depends on the contract provisions, the agreement between the parties, or standard practices in the construction industry. It is essential for both contractors and property owners in Pennsylvania to have a clear understanding of the compensation options available for change orders and builder allowance overages. By familiarizing themselves with the various methods, stakeholders can ensure fair and reasonable compensation arrangements, preventing disputes and fostering successful project completion. In conclusion, Pennsylvania compensation for change orders and builder allowance overages involves multiple approaches, including the cost-plus method, percentage markup, and time and materials. Understanding these compensation methods is vital for effective contract negotiation and ensuring smooth construction project execution.
