picture of a commercial business park

Have You Noticed Me Lately?

05/15/24

Construction is a very difficult business with a lot of moving parts. On every project there are 5,947 chances for things to go wrong. Contractors find themselves at the mercy of project plans, changes, payments, scheduling, weather, labor, equipment, materials, and deliveries. So much can go wrong; so much is out of their control. At the end of every job, when it is too late to do much about it, the bottom-line reality of what the project manager, superintendent, or foreman has, or more typically, has NOT done, to manage the contract properly becomes apparent. Not paying attention to key contract clauses about notice, documentation, and change-order procedures is a sure way to watch your profit dwindle.

Contracting Is About CONTRACTS

Most contractors don’t like paperwork. But unfortunately, contracting is about CONTRACTS, and contracts are paperwork. As much as 50 percent of all profits made or lost on construction projects can be a result of how you manage the contract. The contract or subcontract defines how you must do business with your customer. Too many contractors and subcontractors sign pre-prepared five, 10, 15, or 20-page contracts without reading them, or having their attorney review them, or without understanding the specific contractual requirements.

Did You Notice?

One of the first things to look for when reviewing your contract is: What requires notice? “Notice” is proper notification to your customer about a change, conflict, incident, omission, or problem, within a specified number of days, and in a specified format (usually in writing). Before you start a project, review the contract, and prepare a chart listing items which require proper notice. This “Notice and Documentation Chart” can then be used by the project manager, superintendent, foreman, project administrator, and bookkeeper throughout the duration of the project.

Notice and Documentation Chart

Description: Written Notice Required:
Changes in the work Within seven days of awareness
Differing field conditions Within three days of awareness
Plan conflicts and omissions Within seven days of awareness
Delay requests Within 10 days of occurrence
Change order request Within 14 days of change notice
Claims and protests   Within 14 days after request
Submittal approvals   Within seven days after submittal
Request for information   Within five days after request
Payment issues  Within 10 days of problem
Schedule updates  Monthly updates required

* Note: This is a sample chart only. Review the general contract or subcontract on every project to complete this chart.

W.I.N. with No V.A.s

In the construction business, you must use the slogan: W.I.N. = Write It Now. Phone calls, meetings, or meeting minutes are NOT proper notice or documentation. Contractors tend to delay providing written documentation regarding conflicts, issues, and changes until weeks after the problem occurs. Often, they might call or tell their customer about issues and think that is notice enough. When contractors don’t put things in writing until after the fact, or invoice for extra work without proper notice, they are at risk of not getting paid per the contract. This creates major conflicts trying to collect for additional work or delays that might be warranted.

Another saying you should enforce is No V.A.s = No Verbal Agreements. Verbal agreements aren’t worth the paper they are written on. Properly record all verbal agreements in writing and e-mail or fax them to your customer the same day. No exceptions. Confirm these in your regular project meetings and monthly recap reports. A phone call to your customer is NOT sufficient notice or an official request in any situation.

A construction manager was asked to review change order requests from the general contractor to the owner. On a project nearing completion, the manager received several change order requests for issues, which had occurred several months prior, for field conflicts and plan omissions. The general contractor was passing along their subcontractor’s requests for extra items. A review indicated there was no backup for the work hours requested, no signed daily labor tickets for the work, nor any detailed material invoices to show the actual paid cost of materials. The construction manager asked the contractor to review their contract, which required all requests for change orders to be submitted within 14 days of the occurrence, detailed cost breakdowns be provided, and all hours to be verified daily by the superintendent.

The general contractor was hoping that the construction manager’s good nature, common sense, or integrity would get the change order approved, even when the contractor was the one who didn’t follow the rules.

Take the Time to Be Complete

Assembling all documentation, paperwork, change order requests, notices, and information required by your contract often seems overwhelming. But once you get in the habit of following the contract, it becomes easy and a normal part of your construction routine. In order to get everything you deserve while building a project for your customer, you must be timely in your requests. Missing the notice time requirements may result in a loss of your right to collect for things out of your scope of work or control. When documenting items, take a little extra time and be complete in your description of the event.

By not documenting conflicts or changes in a timely and complete manner, contractors inadvertently shift more responsibility onto their own shoulders and can lose the right to collect. Providing proper notice starts at the beginning of every project. Meet with your customer to discuss the contract terms and what it requires. Review and agree on the project notice and documentation required for every conflict or change. And then be ready to follow the contract.

Business - Commercial Real Estate Industry

Ready to explore how Sunflower Bank can assist you? Speak to a personal banker at a branch near you, contact a specialist on our Wealth Management team, or find the right financial partner on our Commercial Banking team for your business needs. 

Back to Resource Articles

This article contains general information only. Sunflower Bank is not, by means of this article, rendering accounting, financial, investment, legal, tax, or other professional advice or services. This article is not a substitute for such professional advice or services, before making any decisions related to these matters, you should consult a qualified professional advisor.