How Change Orders Work in Construction

Completing a change order correctly minimizes risk, improves the chances of approval and helps contractors get paid faster. The article contains information on how to fill out a change form, key details to include and pitfalls to avoid during the change order process.

What is a change order?

A change order is a document used to alter the original agreement on a construction project. It details the changes in the scope of work, cost and schedule that are required.

In many instances, the construction contract dictates the change order process. The contract should provide specific guidelines on how to manage and process the change order.

Change orders will not only alter the project scope and schedule, but they can also affect a contractor's liability and put their payment at risk.

Changing the scope of work

All construction projects go through changes. Once you're on the job, the project scope and site conditions often turn out different than you expected when you signed the contract.

Sometimes the project owner will ask you to do more or less work. Other times, you realize that the site conditions won't allow you to finish the work for the price you agreed upon. Any time a change happens to the scope of work in your contract, you'll want to request a change order – and get the property owner's signature on it.

A change order isn't the only way to change the contract scope. A change directive, also known as a work request directive, is a top-down change order without the contractor's input.

An Architect's Supplemental Instruction (ASI) may be used if the change is immaterial, meaning the schedule or price won't change based on the alteration.

Change orders aren't only used when an alteration is required — they can also be used to offer suggestions. The value engineering process on some federal projects, for example, includes a provision for change proposals known as VECPs, where contractors are invited to suggest changes that reduce costs without impacting performance.

6 things every change order should include

The contract may spell out the specific change order form a contractor should use, and how to submit it. Unless the contract lists a specific form to use, you can generally use any form.

If the contract doesn't specify the change order to use, a contractor may choose to write one. You may create it in a spreadsheet or word processor, or even write one by hand. What's most important is that it contains the key pieces of information that can help a property owner or architect approve the change.

1. Project and contact information

The change order form should include:

• The contract number
• The owner's name and contact information
• The general contractor or architect's name and contact information
• The project name and address
• The contractor's name and contact information
• The change order number (how many orders have you submitted so far?)

This information is important to tie the change to a specific contract, especially when doing business on a large commercial project or with the government.

2. Dates of the change

The change order form should include the date that you complete the change order.

Depending on the contract, additional dates may be helpful, such as the date that you first gave notice of the change, or the date when you submitted the change order for approval.

In general, construction contracts will require parties to provide notice of any changes to the scope of work within a certain number of days. Failing to inform or follow the right notification process can cause a change order to be rejected or payment withheld. The typical timeframe to notify the project owner or the owner's rep of a change is 5–10 days, but this changes from contract to contract.

When a contractor fails to follow the process, then the change order might proceed – but the contractor might not be paid even when the work gets completed. Read your construction contract thoroughly to understand the process of submitting a change order.

3. Details of the work

This is where the contractor will describe the work changes in detail. It may be extra work that they will do, or a description of the work that is no longer required. The contractor should provide as much detail in this section as possible, assuming that the reader isn't as familiar with the project as they are.

The actual reason triggering the change condition is important to prove the case for approval. These conditions can be the result of site conditions, design, scope changes, law or regulation changes, strikes, terrorism, vandalism, weather or a "force majeure" event. A force majeure event is one caused by external uncontrolled conditions that cannot be avoided by anyone on the project.

The contractor should be as specific as possible. They may attach written descriptions, photos, drawings or any other evidence that can clearly demonstrate the reason for the change.

When writing the change order, keep in mind that it could end up in the hands of a lawyer or individuals that do not know much about the project. Including as much detail as you can will protect your rights down the road.

4. Updated schedule

The change order form must include a description of any changes to the construction schedule that results from the change. The contractor should include the number of days it will take to complete the change, and the new date that they will finish.

In some cases, a project owner may ask the contractor to provide a detailed analysis of the impact the change has on the overall critical path of the project schedule. Typically, when the change does not impact the project's critical path, the contractor will not be allowed to get credit for extra days or a time extension. Be sure to depict the changes and consequences showing a side-by-side comparison on both schedules.

5. Cost of the change

The change order form needs to include the resulting cost of the amendment. This includes positive and negative charges, overhead, profits, tax, insurance and any other extra costs associated with the change. The change order form will follow the same format as the contract.

If it's a unit price, make sure to provide a detailed unitized breakdown for all costs, including labour and material.

6. Updated contract value

Make sure all change orders reflect an updated version of the contract's value. The change order form should include:

• The original contract value
• The value of all past approved change orders (if any)
• The cost of the current change order
• The new proposed contract value (including all of the change orders, positive or negative)

Submitting a change order

Once a change order is completed, it's signed and sent to the owner or owner's rep for the construction project. The owner will evaluate the change and may ask for additional information. The contract should specify how much time the project owner has to accept, reject or request additional documents supporting the change request.

If the project owner signs it and returns it to the contractor, the work is approved and the contractor can begin.

Match the invoice

The change order must follow a very similar format as the application for payment or schedule of values so the contracting officer or the project owner can compare against the original contract value.

In a lump sum contract, the unit must follow the same standard as the ones in the original contract. Be aware that if you request a change, the project owner can decide whether this is something that they want you to do – or if they will hire someone else. Work should never start without a signature under the assumption that the property owner will approve a change later.

In some scenarios, the project owner will provide a written directive instructing the contractor to continue the work. In those cases, when allowed by the contract, the contractor can claim reimbursement for their costs.

Get it in writing – and save it

I have talked to different contractors that prefer to go ahead with the work without having a change order approved. If you're a contractor, never do any work if you don't have proof of approval. If changes to the contract arise, get it in writing and ask the property owner to sign it. Working without approval increases your liability and the risk of non-payment.

Once you have approval, save it with the rest of the project documents. Every contractor should keep a copy of every document they provide to the project owner, and save it in case disputes arise later. Change orders are no exception. Government projects may require that contractors maintain documents for a specific period of time. Create a document retention policy and follow it for every construction project.

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