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Change Orders: What, How, and Why?

Change Orders: What, How, and Why?

Construction projects are inherently complex. For the most part, no contractor or owner can foresee the challenges that their project might face throughout the construction timeline. Supply chain issues, weather disruptions, or aesthetic preferences might shift the scope of a project. Change orders serve as a necessary mechanism to allow both the contractor and owner some flexibility within a rigid contract.

Key Takeaways

  1. Change orders offer necessary flexibility, but they must be managed properly to avoid a loss in productivity.
  2. Change orders allow for modifications to the project with the consent of all parties involved
  3. The initial contract should outline a process for a change order

What is a Change Order?

A change order, also known as a variation, refers to "any modification or change to works (agreed in the contract) is treated as a variation". Change orders will shift the scope of the project to fit the owner's vision. A change order document will usually outline specific work items to be added or removed from the original contract to account for unforeseen factors. Change orders can be made due to construction disruptions that require a change, or due to aesthetic preferences. Because financial changes will be made as a result of the change order, both the owner and the contractor must agree on all terms and conditions for the order to be fully processed.

Change orders will codify specific changes; they can be viewed as amendments to the original contract. Because the contract is changing, all parties must agree upon the changes. A change order request form contains the information needed to begin processing the change.

Why Are Change Orders Important?

All construction contracts are rigid yet also extremely complex. Change orders are necessary documents that give both the contractor and the owner vital flexibility. Disruptions are inevitable and it is lucrative for all parties involved to be prepared by setting up a process for change orders. The original contract should contain "Changes In Work Clauses" that lay out the process for requesting a change and modifying the price. Most clauses will mandate that oral change orders are insufficient and that the change order must be written.

Possible Reasons to Request a Change Order

  • Errors in the original blueprint or budget
  • Supply chain disruptions
  • Weather damage/disruption
  • Labor shortages
  • Unforeseen environmental challenges (unstable ground)
  • Materials damaged in transit

How Should I Format a Change Order?

A change order comes in the form of a formal document meant to amend the original contract. So, the change order document should begin with information to identify the project at hand. The body of the document should include 4 main elements: the new work item, the reason for changes, adjusted cost, and the new estimated project completion date.

Here is a sample Change Order request document made by the American Institute of Architects… take a look to see the specific information required for a change order request document.

change_or

Types of Change Orders

Change orders can either widen or minimize the scope of a construction project. When the scope is widened, a change order will be used to add work items to the project. This is referred to as an additive change order. An additive change order will cause the final price to increase. This price increase must be included in the change order request document.

When the scope is minimized, a change order will be used to delete work items from the project. This is referred to as a deductive change order. A deductive change order will cause the final price to decrease. Deductive change orders are often met with little resistance because of the price reduction.

Things to Keep in Mind with Change Orders

Because change orders will shift the scope and timeline of the project, they have the potential to cause issues if mismanaged. To mitigate prospective change order issues, both parties should maintain organized documents and open lines of communication. A study conducted by researchers at Concordia University found that there is "a significant direct correlation between the labor component of change orders and the loss of productivity". They attribute the loss in productivity to inadequate scheduling and coordination after the completion of a change order. So, if the contract properly outlines the procedure for a change order in the "Changes In Work Clauses", then contractors will be able to avoid a loss in productivity that may disrupt the project further.

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