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When you start on a project, your contract details of what kind of work will be done, when it will be done, and who will do it. Sometimes, despite your best efforts, the work needs to change – enter the change order.
What is a Change Order?
A change order is simply a written agreement to any changes to the scope of work and details how those changes will impact the schedule and the cost.
Unfortunately, changes can impact the profit and risk of the project. Often times, clients will feel blindsided by an increase in the cost, even if it comes from a change they are requesting. All of this can make issuing change orders uncomfortable, but like many things they are just the nature of the business.
No one can predict the future and even the best architect will need to use change orders from time to time. There are ways to minimize how often you will need them, but it’s most important that when you do need them you use them in the best way.
Table of Contents
- What Necessitates a Change Order?
- Review Contract and Clear Up Vagueness
- When You Sense a Change Order
- What to Include in a Change Order
- Submission and Approval
- Protecting Your Profit
- Change Order Disagreements
- Actionable Takeaways
- Additional Resources
When Do Construction Change Orders Typically Occur?
You should issue a change order any time additional information warrants changing or adding work outside of the original scope of work. Most of the time, change orders are for an increase in the scope of work, but they can also be used when there is a decrease in the scope.
Sometimes change orders could come about simply from the client changing their mind or realizing they want something additional on the project. Other times, unexpected site conditions will warrant a change order – like finding surprise soil conditions or some other environmental condition that changes the design. Errors or forgotten details in the plans are also a common reason for change orders.
Being unclear about expectations before work starts is the most common reason for a change order and is the most common reason for disputes over change orders – we will go over that more later.
It’s important to remember that change orders should be written agreements. Verbal agreements leave a lot of room for misunderstandings and can become a case of “he said, she said”. No one has a perfect memory and a written agreement helps keep track of what was agreed upon.
Written change orders protect your clients as much as they protect you. No one wants to find out that work has already started on something they weren’t 100% sure they wanted. A written formal agreement means that no work will happen until the client is extra sure they want to pay for it.
Review Contract and Clear Up Vagueness
Review the contract and the plans and specifications. If anything seems vague, clear it up now before work starts. You never know how individual parts of the project and the decisions made on those parts will impact the rest of the project. Make sure everyone working on the project is clear on their part of the work.
It’s common to not agree on what changes will require a change order. A change order impacts each group differently, so some will want a change order and others might fight it. Going over expectations and clearing things up before work starts is a major contributor to stopping future change orders.
Change orders can really mess up the schedule and the cost, so be very clear from the beginning on how the procedure for a change order will go. Your contract should include things like:
- How to calculate the cost of change orders
- What the schedule changes and delays will be
- A sample change order or a change order form
- Who has the authority to approve change orders
- The time you have for change order submission and how long the client has for responding (typically is around 15 days each – a total of 30 days for the whole process)
Sometimes, when creating a scope of work, it can be helpful to list the work that is not included in the scope. This serves two purposes. One, it makes clients aware of the plan and manages their expectations. Two, it might trigger some thought about the items you aren’t including in the scope and might inspire them to request they be included – saving you the trouble of a change order later.
Make sure no part of the contract has contradictions about change orders (or anything else). If part of the contract says something about change orders, make sure there isn’t wording later that confuses or contradicts the intent of that part of the contract.
In your contract make sure it states that all parties must sign off on a change order or notice to proceed before starting any new work that comes about from a change order. Without this added to a contract, the work could proceed without written approval, which could have consequences if the client doesn’t end up sign off on that additional work.
When You Sense a Change Order
Often, you know when a change order is coming. It’s like the weather. Reacting quickly and appropriately will make the change orders less stressful for all involved. Problems and disputes come up when a change order is slammed on the desk at the last minute.
The sooner you can let everyone know, the better. Often, it’s best to let people know that you think a change order might be necessary. It’s better to give ample notice, then to keep it a secret in the hopes that it will work out. Using some sort of method to track your progress and predict how the future will go, like the Earned Value Management System, will be of major benefit when predicting if a change order will be necessary.
It’s a good idea to give everyone the template for a change order. That way everyone – owner, architect, contractor, etc. – has the same way to request a change order and it all contains the same information. In fact, it’s a great idea to always include this in the contract paperwork. That way everyone can review and changes can be made to the form before problems arise.
Only some people should have the authority to approve change orders. Detail who those people will be in the contract and avoid issues with change order approvals not going through the right channels.
When you are issuing a change order, let your client know what work will need to stop and discuss any delays with them. Often, as architects, we will have clients who have never been through the design and construction process before. If you do mainly residential work, this will be true for most of your clients. In this case, you will have to guide your client through the change order process a bit more.
Don’t forget your subcontractors in this process. Any change order will likely impact their part of the project, and even if it doesn’t, it’s still nice to let them know. You never know – it could impact them in ways you couldn’t see before. Work with them to determine how their work will be affected by the change order.
Sometimes you will have multiple change orders on a project. This can often create a large backlog of work, so make sure you are reviewing them all together and seeing the combined impact they will have on the cost and schedule.
What to Include in a Change Order
Here are a few of the things that should be included in a change order:
- Contract number
- Owner information
- Main contractor information
- Your information
- Project name and address
- Change order number
- A description of the change
- Comparison of that change with the original contract
- A breakdown of costs
- A total change in costs
- Changes to the completion date or schedule due to the change
The more you can include in a change order, the faster it will be approved. Several commonly used change order templates are the AIA G701 form, ConsensusDocs form, and Levelsets form. Use these or make your own.
Submission and Approval
Once the change order is filled out, both you and the owner (or owner’s rep) will sign it agreeing to the change. Sometimes, the owner will request additional information before approval. Approval can also depend on who is requesting the change. If the owner is requesting the change, they can sometimes be more willing to approve the work.
In your contract, include terms for how long the owner will have to accept, reject, or respond to a change order. This way, you know what to expect and you have the contract to fall back on if the owner takes forever to respond. The standard time used is 15 days – this gives the owner plenty of time to review, while not going too long and severely impacting the project schedule. Once the owner has signed the change order and sent it back to you or the contractor, the change order is approved, and work can continue.
Protecting Your Profit
One of the biggest roles a change order serves is to communicate to the client not only what the change in cost will be, but also why the increase in cost is necessary. They are a way to remove any pressure to do more work for less money. If you are clear about the scope of work and the change order process, clients will be less shocked and more ready to approve when a change order hits their desk.
With no set process, changes can be forgotten, and you can never send a new bill for the extra work. This cuts into your profit. Having a change order process and including that in the contract will help ensure that you get paid for all the work you do.
There is something known as no-cost change orders. These come about when there is some other benefit to doing the extra work for free. If you want to work with the client again, consider providing some of the work for free. Doing so might mitigate conflicts and make the client happy. When considering this, look at the cost of the change and keep an eye on your profit. You don’t want to go out of business trying to increase your business.
Change Order Disagreements
It happens to the best of us. You are clear about your expectations, the scope, and your change order process, and you still have the client pushing back. In fact, it happens often. Here are four tips for dealing with change order disputes.
- Ask yourself: Is this a real change to the contract?
Review the contract and the change order again. Review other project documents too. Is there any way this work is covered in the original contract?
- Take into Account Actions vs. Words.
It’s common for contractors to start on the work before getting a written change order. If they did this, most would consider them to have waived requiring a written change order. Ask yourself if your actions during the project were contradictory to your words.
- The Change Order Process isn’t Automatic.
On a project, there are multiple contracts. A change order on one contract will not extend to all the others. Change orders need to be sent to all the contractors and subcontractors.
- Lose the Battle, Win the War.
Sometimes it’s ok to make allowances and let the client win. There is nothing wrong with admitting you made a mistake. That will often take you farther than digging in your heels.
- Always get change orders in written format. Don’t rely on spoken words or agreements.
- Have a formal process and form that everyone uses to submit a change order.
- Do you have specific people who approve change orders and does everyone know who they are?
- Review your contract one more time. Close all the gaps and remove all vague wording.
- Remind yourself that it’s ok to protect your profits and it’s ok to make sacrifices when necessary.
- It’s always better to act quickly when it comes to change orders.
- Keep a level head and an open mind when resolving disputes.
- Project Owner’s Guide to Analyzing Change Orders
- What is a Change Order? - Managing Your Construction Business
- How to complete a change order on construction projects, step by step
- Estimating 101: How to Manage Change Orders and Make a Profit
- Change order 101
- Mastering the Change Order Process
- A Quick Guide to Managing Change Orders
- 6 Tips for More Effective Change Orders
- Change Orders Dispute Tips
- Change Order Disputes