Change order process leaves Boston Encore casino subs short more than $34M

Dive Brief:

Some subcontractors who performed work at the $2.6 billion Encore Boston Harbor casino and resort in Everett, Massachusetts, claim that general contractor Suffolk Construction is withholding tens of millions of dollars for completed change order work, Casino.org reported.
The largest claim is from Coghlin Electrical Contractors, which said that Suffolk owes it $30 million for last-minute, unpaid changes, according to MassLive. Coghlin's owner, Sue Mailman, said Suffolk's change order review process takes place every six to eight months but that the delay is "choking" her company, which, in the meantime, has to keep up with payroll and other expenses.
Encore officials told MassLive and other media outlets that it has paid every invoice that Suffolk has submitted. Unpaid subs have also reportedly notified the Massachusetts Gaming Commission about the delay in payment, and the commission has promised to monitor the progress of negotiations between the subs and Suffolk. “Suffolk continues to work directly with its subcontractors to resolve any outstanding legitimate issues," a company representative said in an email to Construction Dive. "We are optimistic we can achieve satisfactory conclusions to close out a successful project.”

Dive Insight:

On projects large and small, the details of how change orders will be handled are set out in the contract. While six to eight months is an unusually long period of time for a general contractor to either approve or reject a change order, if it's in the contract, then there might not be much the Encore subs can do but wait.

Often at the end of a project there is a push to get it done, particularly when it's a revenue-generating one like the Encore. In this last-minute chaos, subs can feel pressured to deliver on extras and will go ahead and perform the work — especially if they have a good relationship with the general contractor and have been paid on time up to that point — and will ignore the procedures outlined in their contracts.

As a practical matter, though, unpaid change orders can be one of the main cash flow killers for construction companies.

This is why, according to what attorney Barry MacNaughton, managing partner at Ervin Cohen & Jessup LLP in Los Angeles, told Construction Dive earlier this year, it's important for subs to document changes in the field if they can't adhere to the process outlined in their contracts because of time issues.

One method, he said, is for subcontractors to send an email to the general contractor memorializing the fact that they have been directed to perform the extra work by an authorized employee of the general contractor, like a superintendent, along with an estimated cost for the new work and how much time it will add to the schedule.