What Is Construction Change Order Management?
The Change Order Process in Construction Projects
By Bart Mendel
A construction contract is a legal agreement between an owner and contractor that details the scope of work to be performed along with cost, schedule and other important criteria. Fundamentally, it is a document that serves to assign responsibility and allocate risk. A good construction contract ensures clarity and minimizes confusion regarding:
- What the contractor will build and how it is to be built
- How much the project will cost
- How long the work will take
- The quality of the work to be performed and the materials to be used
- Payment terms
- A whole host of terms and conditions
It pays to spend the necessary time to negotiate and properly document all the above to avoid disputes later. And, don’t sign the contractor’s proposal until you get professional advice from your attorney or construction manager. Their proposal or contract is typically written to protect them and not you.
What are change orders in construction contracts?
Once the contract is executed, changes that are desired by the owner or occur due to other factors are documented by a written change order. It is in the best interests of all parties that any changes to the agreed, contractual scope of work be formalized by a written change order. A change order typically involves three aspects:
- Scope: What is the change in materials, labor, quality, function, etc.?
- Schedule: How does this change affect the original construction duration?
- Cost: What is the change in price (either extra or credit) for the work?
Occasionally, variations in terms and conditions could also be documented by change order.
Expect the Unexpected
Even the best planned projects encounter the unexpected, particularly in renovation projects. No one can predict what the future holds: delays, increased costs or disruptions due to unforeseen or underground conditions, changing jurisdictional requirements and many other factors may prompt necessary changes to the scope, schedule and cost of a project. Architects or owners themselves often change their specifications and desires, sometimes seeing opportunities for improvement once the building is partially constructed. In every construction project, you should expect and plan for changes—this is why every project budget should include a contingency of 10% to 15% or more, depending upon the degree of risk and amount of unforeseeable conditions.
How to mitigate change orders in construction projects
Much of the work of mitigating change orders happens long before the potential change event. Many owners are too eager to commence construction; many change order opportunities can be eliminated by careful planning. Large construction projects benefit from preconstruction services that occur during the design of the project. Preconstruction services related to minimizing change orders are best performed by a professional contractor or construction manager and may include:
- Detailed assessment of the site, utilities existing buildings or facilities in advance of design
- Invasive testing including subsurface conditions, utility locations and sizes, exploratory surgery on existing buildings and assemblies to determine how they are constructed
- Detailed constructability review of the architect’s and engineers’ drawings and specifications to eliminate errors or ambiguity, ensure the intended work is properly detailed and required scope is not missing
- Evaluation of jurisdictional requirements to ensure all codes and local requirements are met and properly identified in the drawings
A professional construction manager lays the foundation for accuracy and anticipates and closes loopholes for change orders by preparing or compiling comprehensive bid documents. Missing scope is the most common reason for change orders and mid-project overruns. It takes a great deal of construction expertise to both perform preconstruction services and evaluate contractor bids to ensure they are in accordance with the specifications and incorporate all desired scope.
Basics of construction change order management
By maintaining control of the change order process and documenting scope, cost and duration changes, the risk of miscommunication for both the owner and contractor will be minimized. Here are some key points on the basics of construction change order management:
- Familiarize yourself thoroughly with the scope of work for each contract. Do not allow the contractor to perform any work that changes any of the criteria listed above until approval of a written change order.
- Require all change requests be made in writing by the contractor. Avoid verbal change orders which could be a source of dispute later. If you must give verbal direction to maintain schedule for a time critical item, document this direction with an email within 24 hours. Carefully review all change order requests for appropriate scope of work, amount and duration. Discuss and revise the change order request with the project team until acceptable to all parties.
- A special note about duration: many change orders trigger a delay to the schedule which is not often captured at the time of the change and creates additional costs and/ or misunderstandings later. At the time of negotiation, insist that all change orders clearly identify whether or not they affect the schedule.
- When the invoice arrives, confirm that each line item in the change order is correct and has not been previously billed.
- If you are an agent for the Owner, establish clearly articulated parameters regarding the scope and dollar amount of your authority so you will know when you can make autonomous decisions and when you need to seek the owner’s approval.
This article is intended as a beginner’s primer for the process for change order management. For large, complex projects, rely on a professional construction manager for advice. Nothing replaces the objectivity and experience of a professional construction manager to reduce potential for change orders, ensure quality, reduce risk and avoid disputes.
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