Construction change orders are one of the most important documents in the construction industry. While the hope is that everything goes to plan, it rarely does, and change orders ensure that any necessary changes that occur are documented and that everyone is compensated fairly. Construction change orders are critical to reaching the best possible outcome for the project.
But it’s not just the document that matters, it’s also its management. In this guide, we’ll go over construction change orders, why they happen, and some of the best practices for managing these vital documents for contractors, subs, and project owners.
What Is a Change Order in Construction?
A construction change order is an official document drawn up to formally alter the original construction contract. They’re essentially miniature contracts that modify the terms, scope, or details of the primary contract due to a design change, site conditions, budgetary constraints, or materials issues, though reasons can vary. Both the contractor and the project owner must agree to the change and then document it through the change order process.
There are several parties on a project that can initiate a change order in construction. Owners might if they’d like to change the direction of the project, remove an aspect of the original plans, or are feeling the purse strings tighten. Contractors can initiate them if something on the site makes the original plan impossible or if an inspector requires a change. Design teams can issue change orders if the original design is impossible in real space, a project owner requests it, or if an aspect of the project is off track and needs a new target.
Common Causes and Examples of Change Orders in Construction
There are a lot of reasons why a contract or project might require a change order to keep it on track, cover liability, and protect the contractor’s profit margin. The following are some of the most common causes.
Errors or Omissions in the Original Plans
The goal is always for the original plans to be as comprehensive and complete as possible. However, designers do occasionally miss a detail or two and issues can go unnoticed well into the project’s progress.
For example, the original plans might’ve called for a specific type of window on the south side of the home. However, the window contractor realizes that the heat gain from that particular window model would be too intense. A change order would have to be initiated to order the correct windows for the space and keep the project on schedule.
Regulatory or Code Changes
The original plans might’ve been approved, but municipalities can make mistakes that they don’t pick up on until the project exists in real space. Or, codes can change in the middle of the project, and the inspector can require that the project now meets the new code. In either case, a change order would be required.
Unforeseen Site Conditions
Truthfully, it’s hard to know what’s in store for a project before the job actually starts. Unforeseen site conditions such as flooding, unstable soil, buried obstacles, and other challenges might not be noticeable until the project begins, at which point the contractor needs to address the issues.
In these circumstances, a change order would expand the scope of the project to include solutions to the issues, such as French drains, retaining walls, or heavier-duty excavation equipment and permits.
Materials Substitutions
Materials shortages and supply chain challenges are very common causes of change orders. If the contractor is unable to find the specified materials and has to substitute for another, a change order would need to be initiated to document the change.
There are even instances where an engineer’s input would be required to ensure that the substituted material meets the requirements. In these cases, the change order not only protects the contractor’s budget, it also protects the contractor from liability.
Owner-Initiated Design Modifications
Owners are allowed to have a change of heart throughout the project, but they’ll have to pay for it. If an owner decides to change the layout of the kitchen, the number of bathrooms, the use of a utility space, or even the paint color, the change should be documented with a change order. This ensures that the contractor performing the work will get paid for said work and that the customer agrees to venture off the agreed-upon plans.
The Change Order Process
The change order process in construction is the order in which a required change is noticed, the required documentation is submitted, the change is approved, and the new contract is implemented.
Without a solid change order process, there are simply too many variables and too much liability involved with the average construction project. Change orders in construction need to be simple to request, go through a speedy but thorough approval process, and be implemented immediately upon approval to keep the project moving forward.
Here’s a breakdown of what a proper change order process looks like.
Step 1: Identifying the Need for a Change
The first step in the change order process is noticing the issue. The issue might be something that the owner brings up during a walkthrough or a meeting, or it could be something that a subcontractor notices while working on their aspect of the project. If the change will affect the contractor’s profit, the project’s timeline, or the overall design of the project, a change order is necessary.
Step 2: Submitting a Change Order Request
Once the change has been identified and the affected party believes a change order is necessary, it’s time to actually submit the change order request. This document should describe the change needed and the reasoning, as well as detail the overall impact on the project.
Every change order request should include the following information:
- Project identifying information (project name, contract number, owner, site location, and contact information)
- Contractor and/or General contractor’s contact information
- Change order number
- Date of the change order request’s submission
- What the change is and why it’s necessary
- Detailed scope of work that the change will require
- A proposed schedule update
- Accurate cost estimation including overhead, tax, insurance, and any other associated costs
- Original contract value and updated contract value
With these bits of information documented, contractors and owners can communicate about the changes and what they mean for the overall outcome of the project. Timely and open communication is a must when the project veers from the original scope.
Step 3: Review, Discuss, Negotiate and Approval
After submission, the change order needs to be reviewed and approved. The owner, architect, and affected stakeholders will typically review the change order request, whether in person or (ideally) electronically, discussing the validity of the request and its impact on the design, budget, and schedule.
After evaluating and discussing the change, sometimes a negotiation or a change is required. Perhaps the designer comes up with a different solution. Maybe the owner decides they don’t need whatever feature or system is in question. In some cases, they may just want a better price for the work performed. The key stakeholders can then update the change order request and send it back to the contractor.
Once everyone agrees on what needs to be done and the terms of the request—whether it’s the first request or one that’s been negotiated—everyone signs the change order to approve it.
Step 4: Implementation
With the approved change order in hand, the contractor can start work. They can order the appropriate materials, schedule their labor, and move forward with the new scope of work. The change order is tracked throughout its phase of the project to ensure that’s been completed according to the new scope of work and that everyone stays informed on the progress.
Managing Change Orders Effectively
Change orders themselves are easy to understand. However, they can be a bit complicated to manage. Here are aspects to consider for effectively managing your change orders.
Clear Communication
Everything about a change order requires clear, unobstructed communication. The required change needs to be effectively explained while any questions the stakeholders have need to be addressed and answered, and all of this should happen quickly.
Detailed Record-Keeping
Successful change order management requires detailed tracking and record keeping. It’s not only critical to be able to look back at why a change was necessary and what the solution was but also that it was completed and that everyone who needed to approve it did so. After all, these are mini-contracts and they change the original scope and budget, so documenting them protects the general contractor and subcontractors.
Find a Change Order Software Solution
The best way to manage change orders is with a change order software solution. Specialized software that simplifies the change order generation process, minimizes errors, tracks progress, and documents it all will help companies work more efficiently. They’ll also be able to maintain their profits.
Beam can handle it all. It allows users to customize templates to create change orders quickly and accurately—even from the job site, complete with every detail. Users can also send and track change orders as well as receive digital approvals and signatures from one platform. Instant notifications are sent to the key stakeholders, ensuring they see the change order right away, when it matters.
Beam doesn’t just make it easy to submit and approve change orders. It simplifies updating budgets as well as job costing to ensure everything is on track. Most importantly, Beam makes it easy for contractors to get paid for their change orders, automatically generating and sending accurate invoices in less time than manual processes.
Any comments or questions are automatically sent to the appropriate parties, allowing teams to make decisions faster. Good contractors thrive on this level of communication and efficiency, so book your demo today.