Change orders, allowances and delays: how a contract handles the parts that move

Is a renovation a fixed cost?

Only in part. Under a fixed price contract, the builder carries the cost of the work described in the contract documents. Everything else moves the price: changes the owner asks for, allowances replaced by real selections, and conditions the contract excludes, such as rot or hazardous materials found behind finishes. Under a cost plus contract, only the fee method is fixed, and the price is the actual cost of whatever is built.

The reasons renovation estimates move are covered in scope and unknowns. This chapter covers the paperwork: how a contract for a Vancouver character house, a Burnaby basement suite or a Surrey addition should record each change to the price, so the final price can be traced from the contract sum through every approved change.

A final account is the document that does that tracing. It starts with the contract sum, adds and subtracts every signed change order and allowance adjustment, and ends at the amount owing. Ask that the contract require one before the final payment.

What a change order should contain

A change order is a written amendment to the contract that changes the scope, the price, the time, or more than one of them. The CCDC publishes a separate guide on how its standard contracts treat changes, CCDC 16 2024, which covers the main terms, how changes proceed, the ways the contract price can be adjusted, and claims. CCDC 2, the standard fixed price form, includes changes among the subjects its conditions cover.

Whatever form the contract uses, a change order should show a number and date, a description of the change with any revised drawing, the price and how it was worked out, the effect on the completion date, and the signatures of the person authorised by each side. The contract should name who can sign for the owner. On a multiplex with several owners or partners, name one person, or require two signatures, so the builder knows whose approval counts.

One rule protects both sides: no extra work is paid without a signed change order, and no change work starts before it is signed. Some work cannot wait for a price. A contract can allow the owner to give a written instruction to proceed, with the price settled afterwards by a method agreed in advance, such as cost plus the change fee. That lets work continue without leaving the price open.

How changes are priced

Changes are priced in one of three ways. A lump sum is one quoted price for the change, agreed before the work. Unit rates use prices agreed in the contract for measured quantities, such as per square metre of drywall. Cost plus prices the change at actual cost plus an agreed fee, which suits work that cannot be measured until it is done.

The markup on a change needs its own clause. Settle in the contract, before any change is needed, the percentage the builder adds for overhead and profit on change work, whether the same percentage is credited back when work is deleted, and the hourly rates for the builder's own crew. If deleted work is credited at cost while added work carries full markup, every swap of one item for another costs the owner money.

Ask for change pricing broken down into labour, material, trade costs and markup. The breakdown lets the owner compare the change with the original contract pricing, and it is the record a mediator or arbitrator will read if the price is disputed.

Allowances and provisional amounts in the contract

An allowance is an amount in the contract for an item the owner has not yet chosen, such as tile, plumbing fixtures or appliances. A provisional amount, sometimes called a provisional sum, covers work whose extent is unknown at signing, such as rock removal or a length of drain replacement. Both are estimates inside a fixed price. When the real cost is known, the difference is added or credited.

For each allowance, the contract should state five things. What the amount covers: supply only, or supply and installation. Whether the builder's markup sits inside the amount or is added to any overrun. The date by which the owner must choose, because a late choice can delay the work. How the difference is calculated, by invoice. And whether savings are credited in full.

Set allowances from real selections where you can. A low allowance makes a quote look cheaper at signing and moves the money into change orders later. If two builders' prices differ, compare their allowances line by line before comparing totals.

Contingency: whose money, and who approves it

A contingency is money set aside for costs nobody can price at signing. In a contract it can sit in two places. An owner's contingency is held by the owner, outside the contract sum, and spent only through signed change orders. A builder's contingency is inside the contract price, and under a fixed price contract the builder keeps any part it does not spend unless the contract says otherwise.

Whichever you use, write down who approves spending, what reports the owner gets, and what happens to the balance at the end. On cost plus work, a contingency line in the estimate is a forecast, and the owner pays actual cost whether or not the line is used. The contract should say how the builder reports against it each month.

Delays, extensions and the completion date

A contract with no completion date gives the owner nothing to measure delay against. Write in a start date and either a completion date or a number of working days, then list the events that extend it. Common ones are owner changes, late owner selections, permit or inspection waits outside the builder's control, extreme weather and concealed conditions. Each extension should be asked for in writing within a set number of days of the event.

Liquidated damages are an amount per day, agreed in advance, that the builder pays if it finishes late without an allowed reason. They save both sides from proving the actual loss later. The amount should relate to the owner's real cost of delay, such as rent for another place to live, and the clause should say whether it is the owner's only remedy for delay.

Delay also has a statutory effect. Under section 1 (5) of the Builders Lien Act, a contract is deemed abandoned if no work is done for 30 days, unless the stop had a listed cause such as a strike, weather or a court order. Abandonment starts the 45-day lien filing period and the 55-day holdback period. If no one has worked on your site for a month, write to the builder, ask why, and keep a dated record, because the answer affects the lien dates. The disputes and ending chapter covers what to do if the builder does not come back.