12.8.1 General Requirements

A. Construction contract changes to the scope of contract work, contract price or contract time must be requested by the mortgagor through the Lender on form HUD-92437, Request for Construction Changes and must be signed by the mortgagor’s Architect, the mortgagor, the General Contractor and the Lender before HUD reviews the change order for approval.

1. The HUD CA will review each change order and describe the substance and consequence of the change to the HUD Underwriter who will consult the respective Technical and/or Underwriting Branch Chief on any consequential change.

2. Change orders will be approved only when they are necessary or are for betterment or an equivalent. The following information should appear on the face of the change order:

   • Classification (necessary, betterment, etc.);

• Qualification for payment from the contingency reserve and from the Developer’s fee for nonprofit Borrowers; and

• Whether the change order results from error, omission or negligence on the part of the Architect, contractor or mortgagor.

3. Change orders submitted after the final HUD Representative’s Trip Report will not be approved, except where:

The change order pertains to “Items of Delayed Completion,” or

Written approval is given by the Regional Production Director.

4. Surety approval must be secured in writing before approving any change order for time extension (see Section 12.8.7.A.3). Surety consent is not required where the project’s assurance of completion is by a cash escrow or letter of credit.

5. The working capital escrow requirement for new construction transactions is 4% of the mortgage amount, half of which (or 2%) is used as new construction contingency to fund HUD approved change

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Chapter 12 Construction Period 12.8 Change Orders – HUD Duties

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orders, construction cost overruns and other cost overruns not caused by the General Contractor. For eligible uses and procedure for release of the working capital escrow see Section 12.15.3.

• B. Other change order policies include:

1. Changes must be accurately reported and accounted for pursuant to U.S. Criminal Code, Section 1010, Title 18, U.S.C.

2. Procedures for changes outlined here are not to be used to alter the intent of the contract documents or to lower the quality or value of a project.

3. HUD does not initiate any change but may require it as a condition of approval in connection with a change proposed by the Architect, mortgagor or contractor.

4. All changes must be approved in writing by the Lender and HUD before they are made.

5. Any change that is made without formal approval, even though tentatively agreed to as technically acceptable, must be recorded by the HUD Inspector as a noncompliance until the form HUD-92437, Request for Construction Changes - Project Mortgages, is approved. The payment of future insured advances may be affected until corrected.

6. Change orders that include a physical alteration such as change of materials, change of building plans, or change of site plans must not have any negative impact on the approved environmental review or any mitigation conditions. If the change order will have an impact, HUD will either reject the change order request or require an updated environmental review consistent with Chapter 9 requirements.