Change Orders for Construction Explained
A change order in construction is a document that outlines changes to the scope of the work that was originally agreed upon.
Since construction is a dynamic process, even the most carefully made plans may need changes once workers break ground on site. A change order is one of several important documents that helps record adjustments throughout a construction project, keeping contractors accountable to complete a particular scope of work and clients accountable to pay for that work.
In this post, we’ll cover the following:
- What is a change order?
- Common reasons for change orders
- How to use change orders effectively
- What to include in a change order
We’ve also created a change order template (Click File > Make a Copy) that you can use as a starting point.
Read on to learn all about the importance of change orders for construction.
What Is a Change Order?
In short, a change order is an amendment to the original contract for a construction project. This document enables contractors and their clients to reach an agreement about changes to the scope, duration and price of a project.
Although many of the plans for a project are solidified during the initial bid and contract, owners may need to change plans during construction for a variety of reasons. Change orders fulfill a vital role in construction by ensuring that clients are satisfied with the finished project and contractors are properly compensated for their work.
An important part of running a successful construction company is knowing how to adapt to the changing circumstances that are common on construction sites. For example, a subcontractor’s request for information (RFI) frequently leads to alterations in a project, and “as built” drawings help catalog the modifications that were made between a project’s initiation and conclusion.
Change orders are simply another important response to the dynamic nature of construction. While change orders can be used in a wide variety of circumstances, there are several common reasons to write one.
Common Reasons for Change Orders
While every construction project is unique, the situations that lead to change orders are common across all projects.
Some of the most common reasons for change orders include:
- Unforeseen obstacles: Construction workers may discover an unanticipated obstacle, like an unmarked gas line, that delays construction.
- Incorrect or ambiguous plans: During construction, the contractor may find that the building plans cannot be constructed as originally conceived.
- Building inspection requirements: An inspector may require additional work before providing building permits.
- Additional features requested: The client may request additional features not originally agreed upon.
- Delivery delays: If materials or equipment do not arrive at the job site on time, the duration of the project will likely need to be extended.
- Inaccurate budget: Sometimes, the proposed budget does not accurately account for the scope of work.
Change orders are essential in all of these cases to ensure that all stakeholders are on the same page with respect to the project’s scope, duration and cost. Therefore, it’s good to have a solid understanding of how to use change orders effectively before beginning any construction project.
How to Use Change Orders Effectively
The key to using a change order effectively is to communicate well throughout the entire construction process — starting before construction even begins.
Several guiding principles will help you master change orders:
- Improve accuracy from the beginning: Limiting change orders should be a goal, so aim to accurately estimate the scope of work during the initial contract.
- Set clear expectations: Inform the client that any changes to the original contract will result in changes to the duration and cost of the project.
- Never settle for oral agreements: Never undertake additional work until a formal change order is signed by all parties.
While change orders are a part of nearly every construction project, contractors can take steps to reduce the number of change orders and handle them in a way that is beneficial to both themselves and their clients. Though these documents vary between construction companies, there are certain elements common to all change orders.
What to Include in a Change Order
Since commercial construction is a vast industry, change orders vary depending on the specific contractors and companies involved. Nonetheless, most change orders include, at minimum, the following elements:
- Project name
- A list of proposed changes
- An explanation of the effect on cost and schedule
- A summary of the total cost of the revised contract
- Signatures, if the change order is approved by all parties
We’ve created a template on Google Docs with these elements that you can modify for your needs by clicking File > Make a Copy.
With a solid understanding of change orders, you will be prepared to adapt to the ever-shifting requirements of a complex construction project. When you’re ready to get started, make sure you have the right equipment for the job.