INSURANCE AND RISK MANAGEMENT Change Orders…Are you Kidding Yourself?


By Mark Richardson, Principal, Pinnacle Surety Let’s face it: the owner of a project


typically wants more for their money than they budgeted. Te architect, engineer, and owner


don’t want to admit to any mistakes they may have made, such as poor plans and/or vague specification language (intentional or not). Te contractor doesn’t want to admit their mistakes, like the job was estimated incorrectly, schedules weren’t met and/ or there were shortages of labor. Add all of this to the old rule of “those who hold the gold make the rules,” and you have the foundation for a Change Order (CO) war. If not documented properly, the


contractor won’t get the CO approved. Te contractor can fight and kick and scream, but in the end, the little voice


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226 class actions, a group of employers recently reached out to their local representatives for emergency relief. In October 2015, partial relief was obtained when Governor Brown signed Assembly Bill 1506 into law, which amended several provisions of PAGA. Most notably, AB 1506 provided an employer with the “right to cure” two common paystub violations: (1) failure to include the inclusive dates of the pay period; and (2) failure to include the correct and full name and legal address of the employer. Significantly, employers have only


33 days to cure these violations upon receiving notice of the violation. By curing these violations, you are able to avoid PAGA penalties. However, a violation will only be deemed to have been corrected if you provide compliant paystubs to all employees for all pay periods over the prior three- year period. Tis is quite burdensome. Also, and perhaps most impor-


tantly, AB 1506 does not provide a cure provision for the underlying


www.AGC-CA.org


in the contractor’s mind is saying, “you are kidding yourself.” Instead of the CO becoming a receivable, it falls into that dark and dreary line on the balance sheet entitled “under-billings.” After 20 years of sitting in on


jobsite construction meetings for and with my clients (GCs and subs), there are three common aspects that are apparent to me when it comes to Change Orders. First, one party usually knows the contract language, specs, plans, and schedule better than the other party, and has detailed documentation to prove it. Second, Party “A” does know the contract well and is seeing if Party “B” knows the contract as well; if not, Party A is hoping to take advantage of Party B. Tird, the fulcrum point for the best leverage in negotiating the Change Order has often been passed by…losing


Section 226 penalties, allowing employees to continue to bring these hyper-technical class actions against unwitting employers. As a result, it is critical that you take proactive steps to minimize your risk now.


How to Minimize Your Company’s Exposure


It is imperative that you audit


your company’s paystubs to ensure compliance with the nine categories of information required in Section 226, and seek guidance from counsel to ensure that your compliance meets such a hyper-technical standard. Additionally, you should strongly consider imple- menting enforceable arbitration agreements with your employees, which is one of the greatest tools to help protect a company from being subjected to a costly class action lawsuit. 


Danielle Hultenius Moore, dmoore@


laborlawyers.com, (858) 597-9600 or Collin D. Cook, ccook@laborlawyers. com, (949)851-2424, are with Fisher & Phillips LLP.


the opportunity to properly document approved COs. So what is


the fulcrum in the CO process? In my opinion, it is the very point at which the contractor can decide to not move forward with the project until the CO is approved and documented. Every CO has the exact moment at which time the contractor has the most leverage to obtain the CO. If at this time the CO is not documented properly and the contractor relies on “we’ll send you the paperwork later,” or, “I need you to do this now because we are behind schedule and I will make it up to you later or on another project,” or, “you know me, I would never take advantage of you,” most often the result is another under-billing. While the owner of a project does


have the gold, the contractor does have control of the project. It may not seem so, but in the end, if the contractor knows their contract, schedule, and statutes, they can control the gold and all in good faith. In a world with fast moving projects and lightning quick technology/communication, knowing your contract and the scope of work you bid can give you the confidence to demand an approved CO before you move forward with the project. Often, the contractor gets caught


up with “keeping the relationship” with the owner rather than taking the fiduciary responsibility in protecting his/her business by not executing work that should be a CO. While the contractor may have several other responsibilities, doing work for free is a one-way road. So, the next time a work for free opportunity comes around, the contractor must be aware of the exact fulcrum point to obtain the CO. 


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