A Small Business Guide to Construction Change Orders

Construction projects are rarely set in stone. Often, the client wants to make adjustments to the plan — called change orders — but the results don’t always go according to plan.

That reality is pilloried in the 1948 comedy classic, “Mr. Blandings Builds His Dream House.” A couple hires an architect to design and supervise construction of their new home, but a series of setbacks and obstacles send the project spiraling out of control.

In one early scene, the couple takes over the architect’s “conventional” drawing and begins adding all sorts of unrealistic changes, over his objections.

This prompts the exasperated architect to remark “you’ve got the upstairs about twice as big as the downstairs.” The couple won’t hear any of it, leading to disaster later on.

Change orders are one of the biggest reasons a construction project is unable to stay under budget or on schedule, so you must be careful with them. They can literally make or break your company in the long run.

The ability to manage change orders is a vital part of construction management and construction cost control. Here’s how to do it properly.

Overview: What is a change order?

A change order is a client-requested alteration to a construction project, which may include a request for additional work, a modification to existing work, or anything else that changes the original construction plan.

Change orders often expand the scope of work, which may lead to higher costs for the project or cause a delay, or both. Change orders are often the reason projects are delayed or go over budget, which is why construction managers often try to limit the type and the number of change orders a client can request.

The change order process typically requires the client to submit a formal change order request form to modify the contract to include the requested changes.

It may include a revised scope of work, new pricing, an adjustment to project milestones, and the signatures of both you and the client to ensure everyone is on the same page.

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6 elements of a change order

Many construction change order templates exist. The information they require will depend on the type of construction and other factors. However, most change order documents will include the following six core elements.

1. Project basics

The top of the change order form will include project basics such as the name of the project, the address of the job, the construction manager, the client, the date of the change request, and other pertinent information.

This all helps the construction manager keep change orders organized. Without this context, change orders get lost in the shuffle and the work may not get done.

2. Revised scope of work

Typically, a change order means your scope of work — the document that lays out exactly what work will be done over the course of the project — will be adjusted to incorporate the change. This could be a significant revision and overhaul of the scope of work, or just a slight modification to the wording.

3. Justification

If your contract limits change orders — which is a good idea if you’re in construction and want to keep costs under control — it likely requires a justification for any change orders. Your change order form should include a field for the client to lay out the justification for making the changes as stipulated by the contract.

4. New pricing

Change orders typically involve a price change due to more materials, higher quality materials, additional man-hours, equipment usage, and so on. The change order form should spell out what the cost increase will be and recalculate the cost of the entire project once the change is made.

5. Adjustment to project milestones

Change orders often have a big impact on the construction timeline or schedule. The form should describe the adjustments to the project schedule to incorporate the changes. All impacted project milestones should be listed, as well as a new completion date for the project if that has been altered.

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6. Signatures

A change order is an agreement, so both parties — the requester and the construction manager — must sign off on the document.

How to successfully complete and submit your change order

So your client wants to make a change. How do you go about using change orders to manage the process? This step-by-step guide lays it out.

1. Ask the client to submit a change order

If they’re dealing with large companies, clients usually understand the change order process and will submit the form without having to be prompted. But for smaller contracts with individuals, a client may simply request a change without realizing there is a formal process.

Provide the client with a change order form and ask them to fill it out. If you don’t have a change order form, you can find many templates online.

2. Check the change order against the contract

Just because a client requests a change doesn’t mean you have to grant it. If a contract places limitations on change orders, a client may not be able to request a certain type of change, or they may have already used up their allotted number of change orders.

Either way, it’s wise to decline additional change orders. You may be tempted to grant a request to keep the client happy, but allowing excessive change orders will cause significant disruptions to the project and dip into your bottom line.

3. Review whether you can meet the client’s request

Not every client request can be granted, even if the contract allows it. For example, a client may request you substitute the materials you currently have with a high-end material that isn’t available in the time frame requested. Or the client may request work that is outside your scope of expertise.

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If this is the case, have a conversation with the client and discuss possible alternatives. For example, you could suggest a different material in the first example, or negotiate bringing in a subcontractor to do specialized work at a higher cost to the client in the second example.

4. Double-check price and schedule changes

Don’t simply trust the client’s estimation of what the price increase or schedule changes are likely to be — if they’re wrong, you’ll bear the extra costs and delays.

Check prices to ensure the client has adequately included all costs and the correct estimates for, say, the price of extra lumber. Discuss with your crew whether the suggested schedule change is realistic or if it should be lengthened.

5. Approve and modify the scope of work

Once you have reviewed the change order and determined everything is accurate and allowed under the contract, sign the change order, and ask the client to sign as well.

Then, modify the scope of work to include the change and make adjustments to the project schedule. Inform your team about the changes and start implementing them.

Software will help you handle change orders

Like any paperwork, change orders can be a pain to manage. However, they are important documents, and you must keep them organized. Construction management software often includes document management capabilities and change order templates to help you create change orders and keep a change order log.

Software will also handle many other tasks associated with construction project management, such as organizing construction workflow, planning and scheduling, and resource management.

Each platform is different, and even highly rated solutions may not make sense for your business depending on how you run it. Try out a few software options to see which ones work best for your business.

View more information: https://www.fool.com/the-blueprint/change-order/

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