All Work and No Pay: Change Orders Delayed for Small Construction Contractors
WASHINGTON – Today, the House Small Business Subcommittee on Contracting and Workforce and the Subcommittee on Investigations, Oversight, and Regulations heard from small businesses and experts about the effects of change orders on small business contractors and solutions to ease the financial burden.
“In contracting, a certain degree of reasonable delay is expected when changes are made; however, this becomes inexcusable when federal agencies are unwilling to formally execute change orders and fail to pay for work that has been completed for months – or even years,” said Subcommittee Chairman Steve Knight.
“During this waiting period, small contractors are often left to finance new work out-of-pocket. Some of these expenses include: paying employee salaries, taxes, building materials, renting expensive machinery, and any other costs a small construction firm must assume. Unfortunately, this creates untenable situations and can result in financial distress and in some cases, bankruptcy,” added Knight.
“…the Committee is concerned that agencies may be engaging in unfair negotiation strategies with construction contractors. One such tactic involves delaying multiple change order payments until the end of a project to try to leverage a better price. Agencies may also be forcing small businesses to rely on the claims process to litigate their disputes,” said Subcommittee Chairman Trent Kelly.
Kelly continued, “Small businesses do not have the time or resources to litigate claims and often settle for lesser amounts than owed—rather than face thousands of dollars in legal fees for the potential benefit of being paid pennies on the dollar.”
From the Experts
“The concern rests with agencies failing to execute change orders and make payments to contractors for months – even years – at a time. Unsurprisingly, this delay causes serious harm to the project schedule and has a deleterious impact upon payment to the prime and subcontractors, especially small businesses which depend upon that cash flow to remain in business,” said Edward T. DeLisle, Co-Chair of the Federal Contracting Group at Cohen Seglias Pallas Greenhall & Furman PC.
Andy Brown, Vice President of Glen/Mar Construction, Inc., asserted, “When we [small construction contractors] don’t pay our bills our utilities shut off, our cars are repossessed, and our houses are foreclosed. However, when the government fails to pay their bills, small businesses go out of business.”
“A change order, in its simplest form, is an agreement to affect a change to the already executed contract. Often, it is necessitated by added, deleted or simply changed work from the plans and specifications already bid and agreed upon. While a change order typically adds value to the contract in exchange for the changed scope, it also can delete funds, change work without affecting price, and add or subtract time to completion of the work,” said E. Colette Nelson, Chief Advocacy Officer at the American Subcontractors Association, Inc.
Small Business Legislative Actions
Earlier this week, Small Business Committee Member Brian Fitzpatrick introduced H.R. 2594 the Small Business Payment for Performance Act of 2017 to ensure that small business federal contractors get paid in a timely manner for change orders. On May 4th, Small Business Committee Member Don Bacon introduced H.R. 2350 the Small Business Know Before You Bid Construction Transparency Act to create transparency by requiring agencies provide notice to prospective contractors regarding their change order policies and processes.