Once the contractor starts your home improvement, the construction costs and payments can quickly get confusing. As the homeowner, you are busy enough just watching the demolition and improvements take place, and making adjustments as necessary. Despite you and the contractor meticulously negotiating the contract, formalities easily deteriorate for change orders.

The first and most important safeguard is to budget and pay for your own accounting as the job progresses. This should be done before each payment to the contractor by you or your lender. The accounting complexity is enormous if time slips by after payments are made, and the contractor is less than motivated to take the time to review records for overpayments.

Credits may be due to the homeowner for different reasons. First, the contract may allow a credit if the cost of certain items is less than the contract allowances. Also, the homeowner may have had to pay third parties for work included in the contract price. Third, the homeowner should get a credit for contract items that the contractor did not do.

Obtain the services of a person (“Construction Finance Manager” or “CFM”) not a party to the contract to oversee all aspects of the construction contract. That person can ensure no work or materials for a change order are started or delivered without an itemized change order showing itemized prices, deadline for completion, and the change order is signed by both the contractor and homeowner. The CFM should monitor all contract deadlines, work completed, contract price as increased or decreased by change orders, payments already made, and advise the homeowner whether or not to approve the draw request of the contractor.