A change order is a written amendment to a construction contract that changes the scope of work, price, or project schedule. Change orders can be initiated by either the owner or the contractor, but both parties must agree to the changes before they can be implemented.
Change orders are common in construction, as unexpected events can often arise during a project. For example, the owner may decide to add or remove features from the project, or the contractor may encounter unforeseen site conditions. Change orders can also be necessary to comply with new regulations or to address design changes.
While change orders can be necessary, they can also be disruptive and costly. It is important for both owners and contractors to understand the change order process and to carefully manage all change orders throughout the project.
So, in this article, we will give you more details on what and how change order construction works.
What is Change Order Construction?
A change order is a legal document that modifies the initial construction project agreement. It describes the necessary adjustments to the work’s scope, price, and timetable.
In many cases, the construction contract governs the change order procedure. Specific instructions on how to handle and process the change order should be included in the contract.
Change orders could affect a contractor’s obligations, jeopardize payment, and change the project’s scope and timetable.
When do construction change orders usually occur?
Change orders actually affect more than a third of projects because they are so common. As a result, you may anticipate encountering a lot of modification orders throughout your construction career. Although this is the case, a surprising number of contractors neglect to account for them, making this one of the most frequent reasons for cost overruns.
According to the Journal of Construction Engineering, “Design fault, inadequate scope, weather, project changes, and underestimating the time needed to complete the project are several reasons for construction cost and schedule overruns in any project. Change orders frequently come from items left out of the engineer’s estimate of the project because of poor design or an inadequate scope, which drives up cost and delivery time.
The following are a few of the most typical causes of change orders:
- Faulty specifications in the contract or original plans
- Ambiguous or inaccurate drawings
- Workers or materials that fail to show up on time
- Flawed timelines and budgets
How Should Change Orders Be Prepared for
Whatever the reason for the change order, you must have a solid procedure in place to prepare for the worst if it results in further expensive delays or even the failure of your project. Ideally, the terms of the initial contract between you and your client should state how you will handle modification orders. By formalizing the construction modification order procedure, it is less likely that the results will surprise or upset anyone.
The arguments that follow from failing to describe what happens until a change is necessary, on the other hand, can cause ill will and even a contract breach. Instead, try to include the essential language in your contract moving forward because no one needs or wants that. When it comes time to update the contract, you’ll know exactly how to do so while considering all parties’ demands.
The Best Ways to Boost Change Order Construction
Teams can minimize major expenditures and schedule disruptions in construction with proper change order management. Still, efficient management remains a key focus for many construction firms.
However, construction firms can lessen the amount of time and money lost on modification orders by using technology in the sector wisely, maintaining strong communication, and adopting better data collection procedures such as:
#1. Better Visuals and Designs
Architects, engineers, and designers can learn from building information modeling (BIM) technology, a model-based method, as they prepare to create structures and infrastructure. BIM facilitates the design phase by delivering more precise renderings before the start of the building phase.
They can help provide a more accurate understanding of the overall impact, even though adjustments during the real building phase will be substantially more expensive than during the design phase. Project managers are better equipped to foresee how modifications could affect the overall project, thanks to the improved data that BIM-integrated tools provide during the building phase.
#2. Boost Correspondence During Construction
Large construction projects require effective communication. Nowadays, many businesses employ specialized software to connect groups of unrelated people and encourage collaboration during the design and building processes. The use of such software encourages improved collaboration on all fronts.
This is essential when team members work from various locations and surroundings during the construction process. Increased modification documentation enhances the management of subsequent changes and associated expenses.
#3. Increase Data to Support Better Change Order Management
The key to effective change management is making decisions. With more information and data at their disposal, project managers can better reduce the cost and schedule effects of change orders. As previously mentioned, BIM and communications software enhance data collection activities.
Adopting appropriate hardware and software is a prerequisite for robust data collection and management. Businesses that manage their data using a variety of unrelated tools run the risk of overlooking crucial details. Everyone must share their information using the same program for project managers to have access to it.
Mastering the Change Order Process in Construction
Change, as the phrase goes, is inevitable. A more accurate statement regarding construction projects would be, “Change orders are inevitable.” It might be time to look into changing your change order process if mentioning one makes you shudder.
You can effectively recognize the need for change orders and handle them when they come up on a project by having a change order process in place. Ensure your clients and subcontractors know your change order procedure so that everyone knows how change orders should be initiated and handled.
Here are some pointers for developing a successful change order procedure:
#1. The Contract
An owner or contractor may request a change order, which is only an addition to or modification of the original construction contract and scope of work. Change orders frequently require extra work due to omissions or mistakes in the initial scope of work or confusing building plans, among other factors.
Read and comprehend the construction contract completely, paying close attention to any provisions relating to modification orders. They might specify the time range for starting a change order, the necessary data and paperwork, and the designated person who will approve a change order for modifications that the contractor initiates.
#2. Plan and Specification Review
This step in the change order procedure should be done at the same time as the construction contract review. To resolve them and lessen the need for change orders later in the project, any ambiguities in the drawings or inaccuracies or omissions in the scope should be discussed with the owner and the architect.
Future modification orders will be unnecessary if the scope of work, plans, and specifications are not reviewed, and any problems with them are not found. Neglecting to complete your research is a big no-no. This entails being aware of the present site conditions and anticipating and resolving any potential problems, such as labor or material shortages, along the way, which is a crucial step in the preconstruction stage and your change order procedure.
#3. Do not Disregard or Postpone Change Orders
For a building project, ignoring or delaying a change order can be fatal. Delaying a change order till the end of the project can lead to a blown-out schedule and significant expense overruns. Once a change order is started, you must move fast to negotiate the price, obtain written approval to start the work, modify the timetable, and commence the modified work. Delays might cause a backlog of change order work or necessitate expensive rework to account for the changes.
#4. Engage in Communication With all Parties
You should integrate communication with all project participants as part of your change order procedure. The debate should begin by discussing the requested change’s justification and management strategy. If not handled properly, disagreements over change orders may become more significant.
Work closely with the owner’s authorized agent to establish the new scope of work and discuss how it will affect the progress and performance of the ongoing construction. To modify the timetables and schedules of your subcontractors, you will also need to sit down with them. Discuss how changes in scope may directly or indirectly affect their task.
#5, Discussion of the Change Order
Negotiating the change order is the last step before starting new work. This can be a challenging process because disagreements on a true change in the contract’s scope may arise.
The first thing you must do is collaborate with the owner to decide on a price and determine how the additional work will be estimated. Unit price, time and material pricing, or a one-time fee can all be used to accomplish this. This may already be specified in the contract documents, or you may need to negotiate a solution with the owner.
#6. Record Everything
You may avoid conflicts and claims by meticulously recording each stage of your change order procedure. Creating templates for requesting and initiating change orders is an effective method to accomplish this. All correspondence between you and the owner regarding the change order should be in writing. Without an authorized, signed, and executed document from the owner outlining the costs and any other negotiated parameters, do not start any change order work.
Document the work on a change order as soon as you start, including the time and material costs. Share these materials with the owner and review any potential problems you may encounter. Managing change orders across all your projects was developed by a good change order process. No matter how complicated or numerous a change order is, it should always be handled consistently and uniformly.
Five Items That Are Essential for Every Change Order
The particular change order form that a contractor should use and how to submit it may be specified in the contract. Unless otherwise specified in the contract, you may use any form.
A contractor may decide to draft a modification order if the contract is silent on the appropriate one to utilize. You can write it by hand, using a word processor, a spreadsheet, or even both. The fact that it includes the crucial details that can aid a property owner or architect in approving the change is what matters most.
#1. Project Details and Contact Details
The contract number, the owner’s name, and contact information; the general contractor’s 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?) should be included on the form.
This information is crucial to linking the modification to a particular contract, particularly when working on a sizable commercial project or with the government.
#2. The Change’s Dates
The date that you finish the change order should be listed on the change order form.
Additional dates, such as the day you first informed the party of the modification or the day you filed the change order for approval, may be useful, depending on the contract. In most cases, parties to construction contracts must give notice within a predetermined number of days of any changes to the scope of work. A modification order may be refused or payment withheld if the proper notification procedures are not followed, or information is not provided. Although this varies from contract to contract, the usual window for notifying the project owner or the owner’s representative of a change is 5–10 days.
When a contractor doesn’t follow the procedure, the change order may still go through, but even if the work is finished, the contractor might not get paid. Properly read your construction contract to learn how to submit a modification order.
#3. A Revised Timetable
The change order form must include the new schedule that resulted from the modification. The contractor must specify the updated completion date and the number of days it will take to accomplish the change.
In some circumstances, a project owner could ask the contractor to produce a thorough analysis of the effect the modification has on the project’s overall critical path. Normally, the contractor will not be able to receive credit for additional days or a time extension if the modification does not affect the project’s critical path. Make sure to display the adjustments and their effects on both schedules in a side-by-side comparison.
#4. Information About the Work
Here is where the contractor will go into great detail about the adjustments to the work. It can be more work they will perform or a description of the tasks that are no longer necessary. Assuming that the reader isn’t as familiar with the project as they are, the contractor should include as much information as possible in this part.
To support the request for approval, it’s critical to show what actually violated the change requirement. These circumstances may result from changes to the site, the design, the scope, the legislation or a rule, labor disputes, acts of terrorism, vandalism, the weather, or a “force majeure” occurrence. Anyone working on the project cannot stop a force majeure event, which results from uncontrollable external circumstances.
#5. The Change’s Cost
The cost of the alteration as a result must be listed on the change order form. This covers all fees related to the change, including positive and negative charges, overhead, earnings, tax, insurance, and other additional expenses. The format of the modification order form will be the same as that of the contract. Provide a thorough unitized breakdown of all costs, including labor and material, if the price is expressed as a unit.
What is a Change order?
A change order is a legal document that modifies the initial construction project agreement. It describes the necessary adjustments to the work’s scope, price, and timetable. In many cases, the construction contract governs the change order procedure.
How Do You Handle Change Order Construction?
- Get clarification on the work’s scope.
- Take a look at the construction contract.
- For any change orders, obtain written approval.
- Communicate With Stakeholders
- Comprehend the effects of change orders and offer your final observations.
What is the Difference Between a Claim and a Change Order?
A demand for anything owed due to an action is called a claim. A claim and a change order are two distinct things. A claim is a request from one party, but a change order is an agreement between the parties. If both parties concur, the claim is converted into a change order.
What is the Proper Step for a Change Order on a Project?
- Go over the contract first, then the plans and specifications.
- Change orders shouldn’t be ignored or delayed.
- Communication with all parties is necessary
- The change order should be negotiated
- Everything should be documented.
What are the Types of Change Orders?
The three most typical change orders in construction are lump sum, zero cost, time and material, and unitary cost (a change in scope that may be described by measurement units). Lump-sum change orders are used when the cost of the change can be measured.
What is a Typical Change Order Percentage?
According to surveys, the expenses associated with change orders on large projects often range from 10 to 15 percent of the contract value. Additionally, these studies show that productivity losses ranging from 10 to 30 percent occur when there are more changes.
Who Benefits from a Change Order?
They are excellent for ensuring everyone can execute project management changes without problems. Consumers gain from change orders because they itemize alterations, and contractors profit from them because they provide a place to ask for additional money or time.
Do Change Orders Include Overhead and Profits?
Many contracts stipulate a markup rate for modification orders, usually between 10% and 15%, to cover profit, overhead, and other indirect costs.
Conclusion
Change orders will occur on your projects at some point, as you are already aware, and the worst thing you could do is to be unprepared. Get ahead of possible changes before they become a problem and constantly plan for them rather than adopting a defensive stance or disregarding them entirely. With a streamlined change order procedure customized for your business, you’ll lessen the stress of the dreaded change order and be better equipped to handle unforeseen circumstances, keeping your project on track.
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