Change order vs. rewritten contract

[Kdog76]

I have a customer who recently purchased a property. I gave him a price to change the service and wire the kitchen with two twenty amp circuits and a few extra outlets. He accepted my price and I changed the service. He has paid over 1/2 down for that work. He signed the agreement.

Then he gutted the entire kitchen and bathroom, so I gave him a revised price on that work, and included a breakdown on the previous work as x amount and now to wire the kitchen extras and bathroom and a hallway as x amount. Not a change order, just a revised contract noting the downpayment and changes as a new contract. He signed this agreement.

Then he decided to gut the whole house and needed a price on that. I gave him a price and he accepted. He wants a revised contract now to show the whole dollar amount as one figure on one contract.

1) Do I revise the whole contract to show the whole scope of work with no breakdown as far as scope of work and dollar amount ( I get concerned about collecting payment on the work I have already done vs. now this new stuff if its all lumped as one sum)

2) Do I revise with the breakdown scope of work & price for each and clearly show the difference in work with the price breakdown ( I would prefer because I can show I changed the service and what I all did and why the price is what it is.

I've done work for him before and know that at the end he WILL try to get me to lower my price by any and all means neccesary so I REALLY have to cover my bases on this one. He WILL have to sign whatever I hand him. I'd hate to have him withhold the rest of the payment untill I'm 100% done and don't know about asking for progress payments on a job that will take 2 or three weeks.

Any thoughts?

 

[gadfly56]

I have a customer who recently purchased a property. I gave him a price to change the service and wire the kitchen with two twenty amp circuits and a few extra outlets. He accepted my price and I changed the service. He has paid over 1/2 down for that work. He signed the agreement.

Then he gutted the entire kitchen and bathroom, so I gave him a revised price on that work, and included a breakdown on the previous work as x amount and now to wire the kitchen extras and bathroom and a hallway as x amount. Not a change order, just a revised contract noting the downpayment and changes as a new contract. He signed this agreement.

Then he decided to gut the whole house and needed a price on that. I gave him a price and he accepted. He wants a revised contract now to show the whole dollar amount as one figure on one contract.

1) Do I revise the whole contract to show the whole scope of work with no breakdown as far as scope of work and dollar amount ( I get concerned about collecting payment on the work I have already done vs. now this new stuff if its all lumped as one sum)

2) Do I revise with the breakdown scope of work & price for each and clearly show the difference in work with the price breakdown ( I would prefer because I can show I changed the service and what I all did and why the price is what it is.

I've done work for him before and know that at the end he WILL try to get me to lower my price by any and all means neccesary so I REALLY have to cover my bases on this one. He WILL have to sign whatever I hand him. I'd hate to have him withhold the rest of the payment untill I'm 100% done and don't know about asking for progress payments on a job that will take 2 or three weeks.

Any thoughts?

Your change order should show, in a summary box, the original contract price, the sum of pending (not approved) change orders, the sum of all previously approved change orders, the current contract price, the proposed change order price, and the proposed new contract price. This section summarizes the history of the job and tells at a glance what the customer has commited to pay and the potential additional revenue from the job. When the last change order is processed, you and/or your bookeeper can see instantly what the job invoices should total. This assumes that you haven't done any work w/o an approved change order, which of course none of us have been guilty of :roll:.

You will also have a narrative describing the current proposed change order, the reason for the change order, and perhaps a description (make/model) of the equipment to be added or deleted. You may or may not include a material and labor breakdown. This process should help you reduce potential conflicts regarding what was paid for and/or approved when.

And just by the way, I charge for doing change orders, even when I'm giving money back. Someone has to pay for that time!

 

[Kdog76]

Gadfly 56,
Thank you much for the detailed response. I can tell you have had a little more experience in that department then I have. Great learning lesson. I feel better about doing it your way to show the approved changes and let him sign off on the "future" work.

 

[zog]

Ahhhh, change orders

 

[Kdog76]

Ahhhh, change orders

Exactly. Great photo.:grin:

 

[satcom]

You may or may not include a material and labor breakdown. This process should help you reduce potential conflicts regarding what was paid for and/or approved when.

If he includes a material and labor breakdown, which in most cases, is the main reason for conflicts, on residential work, and if he was in New Jersey, he would have to charge sales tax for all the work, when it is broken down, on a firm contract price, the work is not taxed, but treated as a capital improvement.

 

[gadfly56]

If he includes a material and labor breakdown, which in most cases, is the main reason for conflicts, on residential work, and if he was in New Jersey, he would have to charge sales tax for all the work, when it is broken down, on a firm contract price, the work is not taxed, but treated as a capital improvement.

On capital improvements, filing an ST-8 in New Jersey still requires you to pay tax on materials. No ST-8, the whole price gets taxed. And as a side note, fire alarms don't qualify as capital improvements in any case (in New Jersey).

 

[gadfly56]

On capital improvements, filing an ST-8 in New Jersey still requires you to pay tax on materials. No ST-8, the whole price gets taxed. And as a side note, fire alarms don't qualify as capital improvements in any case (in New Jersey).

Here I am quoting myself. How self-indulgent. My comments on ST-8 apply to commercial construction. In New Jersey, most residential construction is tax exempt to the owner. The contractor would still have to pay sales tax on the materials he purchased for the project. See Bulletin "S&U-2, Sales Tax and Home Improvement".

 

[Kdog76]

Not in Jersey, and no in this case there was no breakdown on labor vs. material. Strictly adding work on and quoting a price for the work. Gadfly, I implemented your idea on a change order and got it signed and dated today no problems. Thanks again.

 

[satcom]

On capital improvements, filing an ST-8 in New Jersey still requires you to pay tax on materials. No ST-8, the whole price gets taxed. And as a side note, fire alarms don't qualify as capital improvements in any case (in New Jersey).

The ST-8 does not require you to pay tax on the material the state of new jersey does not not trust contractors and requires then to pay the tax up front, however when you do a project using an ST-8 you can file to get your tax on material monies.

 

[gadfly56]

The ST-8 does not require you to pay tax on the material the state of new jersey does not not trust contractors and requires then to pay the tax up front, however when you do a project using an ST-8 you can file to get your tax on material monies.

Re-reading my post, I see a potential point of confusion. When I said "you" I meant the customer, not the contractor.

I'm not sure about your point on "requires them to pay up front"; we file ST-3's with any number of suppliers and they do not charge us sales tax for pipe, wire, etc.