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Construction change order

Building 101: What Is a Change Order?

Construction change orders—you know it happens. We know it happens. And chances are you’re not alone in your frustration. In fact, change orders are one of the most common types of construction delays, driving scope creep, budget overruns and sometimes even costly litigation.

As a contractor, change orders can leave you feeling like you’re trapped between a rock and a hard place. When a change order is 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) or you won’t last long in this business. According to some estimates, an average of 35 percent of projects experience at least one major change throughout the life of the project. With odds like that, you can’t very well shut your eyes and hope for the best.

So, what can you do instead? To start, you can minimize the amount of time, energy and money changes cost by putting a solid system in place for managing all construction change orders that come through your door. A reliable system for change orders that spans the breadth of the company and project will ensure that costs associated with change orders remain low and work moves ahead as quickly as possible.

To begin to refine your change order process, you need a full understanding of exactly what a change order is, when and how often they occur, the best way to respond to a change order and what they typically include. Once you nail down the basics, you’ll be able to develop a specific approach that works best for your company to minimize costs and keep your project moving forward.

What Is a Construction Change Order?

Although usually more complicated than it sounds, basically a change order is work that is added or removed from the original scope of work, as agreed upon in the contract signed by 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 change order might sound like a unilateral request or decision, it’s not. In fact, a change order is 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.

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 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 increase 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 jobsite, 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 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.

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 for the potential for a change. With a streamlined 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.  

Further Reading:  How to Save Money in Construction: Cost-Cutting in Each Project Phase