Whether it’s construction services, professional services, modifications or enhancements to manufactured goods, everyone faces the same difficulties collecting monies owed for change orders or work beyond the scope. During Debt Collection, Why are change orders or work beyond the scope so difficult to collect?
Here are a few reasons why change orders or work beyond the scope pose a challenge when it comes to collecting monies owed and what you can do to anticipate the issues.
Top 6 reasons:
- Not in writing.
- There wasn’t an agreement for the additional work.
- The additional work performed was included in the original contract.
- The additional work performed was directly disallowed in the main agreement.
- No one likes to pay extra.
- It’s too expensive to pursue the client.
1) Not in writing:
Although there is an immediate need for the work to be done RIGHT NOW, there is time for formalities. Your bottom line depends upon it.
You will have a better and easier time proving your case with a signed writing from the responsible party. Without a writing, you will have a “he said she said” and there will be an issue of fact which will probably mean it will take a long time to collect and, unless settled your case will go to trial. Get it in writing so that someone else can spend time chasing your money and you don’t have to.
2) There wasn’t an agreement for the additional work:
Just like your underlying agreement to provide the underlying goods or service, the change orders or work beyond the scope must be a binding contract. Your customer needs to agree to payment in consideration for the services or goods provided that are changed or beyond the scope of the original contract.
Make sure your agreement for additional work has the four necessary elements of a contract. A person with authority from the buyer and seller, must show his agreement to the terms therein. Depending upon the underlying agreement, an email may suffice.
3) The additional work performed was included in the original contract:
The additional work was already contemplated in the original agreement. It wasn’t really additional or beyond the scope. In this case, the change order is invalid.
4) The additional work performed was directly disallowed in the main agreement:
The main agreement strictly prohibited certain types of charges or behavior. You had agreed to these restrictions and now, cannot change the terms of the contract without a formal modification signed by your buyer with terms of a binding contract.
Try to anticipate delays and additional work will be needed when executing the main agreement, do not restrict yourself from being able to collect for additional work that may be needed.
5) No one likes to pay extra:
If it’s free, it’s for me. There are those that will never voluntarily pay more than initially agreed.
Some clients could exert a lot of pressure to encourage you to walk away or reduce the amount owed as a result of the contract. Whether it’s a punch list, a list of delays or problems, there are those that seek to escape payment.
Do not build your profit into the possibility of additional work. Make sure you charge a fair price in the underlying agreement.
6) It’s too expensive to pursue the client:
Pursuing the client for payment owed as a result of a change order or work that is beyond the scope can be challenging even when in writing. If the costs outweigh the benefit, you should think twice.
So, what do you do if you performed extra work resulting in change orders or work performed beyond the scope and it’s difficult to collect?
Understand your legal rights, the cost of the collection process and the probability of collecting.