There is an old saying that goes "change is inevitable except from a vending machine." But when it comes to renovation projects, homeowner associations should be wary of "change orders". Change orders are a sneaky way for contractors to jack up the price of a project they've won with a low bid. But change orders are sometimes necessary since it’s impossible to identify all of the underlying conditions in a building or predict every potential problem before a project begins. Therefore, the key questions are: What are legitimate change orders and how much should be allotted for them?

Many HOA projects run over budget because the companies hired to prepare the scope of work don't spend enough time doing investigative work. This leads to costly change orders to address overlooked repairs that should have been spotted.

Don't Duplicate Work. On a typical project, the engineer or architect should conduct an thorough examination of the proposed work. Even the best design work is dependent on properly administering the quality of construction. That means you need to provide competent oversight by way of periodic quality control inspections to ensure you get what you bargained for.

Set Aside a Contingency. Every project should include a contingency of 10-20% of the total bid for unforeseen circumstances. A contingency gives the board the option to add items during the course of construction. The contingency is not intended to cover major changes to the scope of work that should have been accounted for during the design phase.

Two Requirements. To control excessive change orders, your agreement with the contractor should state that:

1. The price of a base bid item will be renegotiated when its quantity increases by more than 10% above what was specified in the original bid document.

2. All change orders are to be put in writing and signed by the board or manager before the additional work is undertaken.

To avoid unnecessary cost overruns, make sure to prepare a well investigated and comprehensive scope of work and never pay for any changes not approved in writing. That way, more of the "change" remains in the HOA’s pocket.

For more innovative homeowner association management strategies, see Regenesis.net

Published: November 17, 2010

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Richard Thompson owns Regenesis, a management consulting company that specializes in condominium and homeowner associations. He is a nationally recognized expert on HOA management issues. Regenesis publishes The Regenesis Report, a monthly newsletter for HOA boards, developers and managers. To subscribe, go to Regenesis.net. He can be contacted by email at .