What Is a Construction Change Order?
According to some estimates, an average of 35% of projects experience at least one major change throughout the life of the project. As a contractor, change orders can leave you feeling like you’re trapped between a rock and a hard place. When it’s requested, you can’t tell a project owner no and you can’t simply ignore the change; you have to find a solution (and fast).
At its core, change order is work that is added or removed from the original contractor’s scope of work, as agreed upon in the contract signed by the client and contractor before work began. As the work proceeds, however, somebody (either the owner or the contractor) decides a change is needed to be made to accommodate unforeseen factors.
While a construction change order might sound like a unilateral request or decision, it’s not. In fact, it’s not a contract amendment. As Construction Law Today explains, “a Change Order is a bilateral agreement between parties to the contract–an owner and prime contractor, prime contractor and subcontractor, two or more subcontractors–to change the contract. A Change Order represents the mutual consensus between the parties on a change to the work, the price, the schedule, or some other term of the contract.”
As such, a change order must be written out and approved by all parties, which can take time, money, and patience to complete.
Key Takeaways
- A simple change order definition is that a change order is work that is either added or removed from the original scope of a project assigned by a contract that the contractor and client agreed to.
- Change orders are original contract amendments that come up often, with an estimated 35% of projects requiring at least one.
- A change order represents a mutual agreement to change the work, schedule, price, or other term of the contract.
- Change orders usually include information such as the description of the requested change, an itemized documentation of additional subcontractor costs, a summary of the cost of the proposed change, and a statement that states if the project completion date will change based on the change order.
- Change orders are a regular cause of cost overruns, so contractors should plan for them during each project.
- Common reasons for change orders include inaccuracies in the original design or contract, inaccurate drawings, unforeseen conditions at the job site, and more.
- Change order form submissions can be prepared for. Ideally, this happens with instructions on how to handle change orders in the original contract.
- Improving change order management helps reduce costs and schedule disruptions.
- Better designs, visualizations, and communications help improve change order management.
- Specialized software linked unconnected parties to promote better collaboration. Cloud-based document management adds additional visibility and accountability during a project.
- Making more data and information available helps project managers minimize costs and changes to the schedule.
What Do Change Orders Typically Include?
Change orders vary depending on the project, stakeholders, and specific change needed by one or both parties. However, all change orders need to include detailed information, including:
- A description of the requested change compared to the original contract or bid
- Itemized documentation of any subcontractor costs
- A summary by the contractor of the total costs of the proposed change
- A statement of contractual basis for the requested change and its impact on the project completion date
When Do Construction Change Orders Typically Occur?
In actuality, change orders are so common that they affect more than a third of projects. Therefore, you can reasonably expect to encounter many change orders throughout the course of your construction career. Despite this, a surprising number of contractors fail to plan for them, which is one of the most common causes of cost overruns.
As the Journal of Construction Engineering explains, “Various reasons for construction cost and schedule overruns in any project include design error, inadequate scope, weather, project changes and underestimating the time needed to complete the project. Items omitted from the engineer’s estimate of the projects due to design errors or inadequate scope frequently result in change orders, which increases cost as well as the time of delivery.”
Some of the most common reasons for change orders include:
- Inaccurate specifications in the original designs or contract
- Ambiguous or inaccurate drawings
- Unforeseen conditions at the job site, such as obstructions that could not be planned for
- Workers or materials that do not arrive or come late to the site
- Faulty budgets and schedules
While you will not need to deal with a change order on some projects, being prepared with a streamlined and standardized approach ensures you’re at least ready should they arise.
How Do You Prepare for Change Orders?
No matter what prompts a change order, if you want to make sure it doesn’t lead to even more costly delays or even the failure of your project, you need a reliable process in place to anticipate the worst. Ideally, you and your client specify in the original contract how you’re going to handle a change order. When you formalize the construction change order process, there’s a reduced chance of anyone being surprised or upset by what comes later.
On the other hand, if you choose not to specify what happens until the very moment change is needed, the resulting disagreements can lead to bad blood and even a breach of contract. No one needs (or wants) that, so instead make the effort to include the necessary verbiage in your contract from here on out. Then, when you do need to amend the contract, you’ll know exactly how to do so with respect to all parties’ needs.
How to Improve Change Order Management
Proper change order management enables teams to mitigate the significant costs and schedule disruptions in construction. Still, for many construction companies, effective management is a major paint point. Preventing change orders from occurring and managing them when they occur requires a cultural and procedural shift.
Nonetheless, through the proper use of technology in the construction industry, good communication, and better data collection practices, construction companies can reduce the amount of time and money wasted on change orders.
Better Designs and Visualization
Building information modeling (BIM) technology is a model-based process that provides insight to architects, engineers, and designers as they plan the construction of buildings and infrastructure. BIM helps in the design phase by providing more accurate visualizations before the building phase begins.
Furthermore, BIM can also be bridged into the field during construction. While changes that occur during actual construction will be significantly more expensive than in the design phase, BIM can help provide a more accurate analysis of the total impact. BIM integrated tools also provide better data during the construction phase, which enables project managers to better predict how changes will affect the overall project.
Improve Communications Throughout Construction
Good communication is essential for large construction projects. Many companies now use specialized software to link teams of unconnected parties and promote collaboration throughout the design and construction process. The adoption of such software facilitates better communication across the board. This ensures that everyone is up to date on the latest developments. If a change occurs, all members of the team are alerted and can participate in the discussion, thus preventing miscommunications or missed information that can lead to even more project delays.
Specialized software can be used to link involved parties on the job site or where ever they happen to be. This is crucial during the construction phase when different members of the team are working from different sites and environments. Increased documentation of the change also improves the ability to manage future change and consequential costs.
Cloud-based document management adds visibility and accountability to a project. Electronic communications management also enables companies to get rid of manual tracking of change orders via Excel, email, and paper. This ensures that documentation is available instantly to anyone who needs it and speeds up the spread of information to ensure maximum efficiency.
Empower Better Change Order Management With More Data
Successful change management is often a decision making process. With more information and data available, project managers are better able to minimize the cost and schedule impact when a change order occurs. As mentioned, BIM and communications software improves data collection efforts.
Robust data collection and data management come back to the use of proper technology and software. Companies that use multiple disjointed applications for managing their data run the risk of missing important pieces of information. With all of the information available through one organizing source, project managers are able to see the sum total of data available and make informed decisions based on that information. In order for the data to be made available to project managers, everyone must use the same software to share their information.
Do your current processes give you the data you need to capture critical project information? Take our free assessment.
Anticipate Construction Change Orders
As you know by now, change orders will happen at some point on your projects, and the worst thing you could do is be ill-prepared. Instead of taking a defensive approach, or worse, ignoring them completely, get out in front of potential changes before they become an issue and always anticipate the potential for a change. With a streamlined change order process adapted for your company, you’ll reduce the frustration of the dreaded change order and be able to work more efficiently in the event of the unexpected, keeping your project moving forward as a result.
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