Utah Contractor Practice Exam

Which of the following is NOT a reason for a contractor to keep change orders?

1. Tax purposes

2. Legal requirements

3. Payment verification

4. Client requests

The correct answer is: Client requests

Keeping change orders is essential for contractors for several valid reasons. Each of the reasons provided highlights an important aspect of project management and compliance. For instance, maintaining change orders is crucial for tax purposes because they help document changes in the project scope, which can impact the overall financials and reporting for tax liabilities. Legal requirements also play a significant role, as change orders often serve as formal documentation of modifications to a contract, safeguarding both parties in case of disputes or misunderstandings. Payment verification is another vital reason. Change orders provide a clear record of additional work or material costs incurred, ensuring that contractors can accurately bill clients and receive payment for the extra work performed. This documentation is critical to maintaining cash flow and avoiding disputes over billing. However, while client requests may prompt a contractor to make changes, they do not serve as a formal reason that necessitates the keeping of change orders. Change orders are typically formalized processes initiated by either party to ensure there is a clear understanding and agreement on the modifications made to the original contract. Therefore, client requests, while important in the communication of changes, do not inherently justify the need for keeping change orders. They must be documented appropriately through the change order process to establish a legal and financial basis for those changes.