How Change Orders Can Impact the State of Your Surety Bond

Being a surety company, we’re in pretty much constant contact with contractors. It’s a business, but there are few things we like doing more than talking shop, as it were, and finding out about the state of the industry, and about jobs. It’s one of the perks. Anyone who has been around contractors knows that they are an absolute wealth of stories. It’s similar to hanging out with a hundred Mark Twains. And no matter how many stories you hear, there is always a new one. However, one we’ve never heard, and that we suspect has never been told, is the one about the project going exactly according to plan.

If you’ve been in the business more than a day, you know that the plan never quite matches up with reality. That’s perfectly understandable. There are always unexpected things that happen and hidden costs that you can anticipate, but never be fully prepared for. The ground can be different than anticipated, gas prices can increase and make shipping material more expensive, weather can become a hazard — all of these things add up, to the point where you might need to make a Change Order. Doing so seems easy, but it can be a complicated process and it is important to know how it affects the state of your bond. Understanding the rules of a Change Order can protect your business and your reputation.

Change Order: Unilateral and Bilateral

A Change Order, at its most basic, is an agreement that the scope of the project has changed in ways small or large, and that a contract emendation has to be implemented to reflect this new state. This has to be done, because, while it may seem obvious that if there is an old gas tank buried unexpectedly at the dig site and special care and time needs to be taken to remove it, either side can accuse the other of breaching contract. The owner might say that the project went over time, and the contractor might say they had to do extra work. A Change Order gets everything in writing to avoid ugly, complicated situations.

However, there are different ways to interpret this. In some cases, a right to issue a Change Order is built into the contract. This stipulates that an owner can unilaterally decide that more work needs to be done. However, even with this, there are boundaries. The Change Order amendment sets up rules as to what the owner can dictate and what they can’t. It gives leeway but within a defined boundary.

Because of this leeway, though, many people think that Change Orders can be issues unilaterally in any cases. They cannot be. Any party can suggest one, but it is just that — a suggestion. This applies to all relationships — principal contractor to owner, contractor to subcontractor, etc. Everyone needs to be involved. If a subcontractor says that they need extra time to do work, the Change Order has to reflect both their need for more time (and therefore more money) and the guarantee that they will get the job done, rather than just waste the time and money. Moving up the chain, a Change Order could be needed to reflect to the owner that there is a slight delay. All parties have to be in agreement and protected. Essentially, a Change Order is how a contract adapts to the changing nature of reality, which is accelerated on any job site.

Where Surety Bonds Come In

Surety bonds, whether they are payment or performance bonds, are a major part of any Change Order and are one of the reasons why the order is so important. Performance bonds establish that the owner of the bond will do the work required by the contract in the time and with the cost stipulated by the contract. If not, there could be cost and litigation. This is in no one’s interest.

Therefore, when there is a change, the bond can be affected. Let’s get back to the buried fuel tank that was unexpectedly under half the site. This can take weeks to extricate, requiring specialty subcontractors and a host of permits. Almost assuredly, this will mean the contract won’t be completed in the initial time. These differing site conditions, if they could not be reasonably anticipated, are no one’s fault. The Change Order will be agreed upon by all parties, often including the bondholder, to make sure that no one can be held liable. Oftentimes, changing the contract without the consent of the guarantor or the bond licensor can render the bond moot and release the guarantor. Again — this has a negative impact on everyone involved.

It’s complicated — there needs to be a lot of back and forth. But think about the work done on your site. If there isn’t constant communication, things get messed up. It’s the same with the legal aspect. No owner can force a change without consent, and no one else can make a unilateral decision that materially changes the job. Everyone is protected, and while that doesn’t make for the most dramatic story to tell, it makes for the best ones.

Getting the contract requires the backing of a strong Surety company with a reputation you can depend on. Contact Surety1 today for a quick and fair bonding process that’ll get you to work.