Specifications, Payments, Change Orders

The contract is a legal document. The project drawings and specifications are architectural documents, engineering plans, or a list of included features. The contract does not attempt to fully describe or detail the scope of work to be performed by the contractor. It simply identifies those particular drawings and specifications upon which the contractor has based the price and commitment to perform the work.

There are different ways of compensating the contractor. The first way is agreeing to pay the contractor a fixed price for the work. The contractor submits a bid, there are usually some negotiations over the price, and a fixed dollar amount is agreed upon between the owner and the contractor. This amount will include the contractor’s overhead and profit.

A second way of compensating the contractor is on a ‘cost-plus’ basis where the contractor proceeds with the work, and then submits all bills and invoices to the owner. The owner reimburses the contractor for construction costs incurred by the contractor together with either a contractor’s fee for supervision, overhead and profit, or a percentage mark-up on the contractor’s costs for supervision, overhead and profit. Sometimes ‘cost plus’ contracts have guaranteed maximum amounts beyond which the contractor agrees that the owner will not be responsible for cost reimbursement to the contractor.

Once construction has begun, owners generally do request changes in the work. That’s just human nature. The handling of these change orders is addressed in the contracts provided to Dallas BA members and agreed upon in writing before work begins. The written change order should address issues of price increases or decreases and impacts on the construction schedule.