Everything you need to know about change order process

During construction projects, things often change in terms of what needs to be done and how much it will cost. A change order is the official way to document and make these adjustments to the project contract. Understanding such orders is crucial, as disputes over them are quite common in the construction industry. 

Here, we’ll try to understand the change order process and its legal implications.

What is change order in the construction industry?

Such an order is like a modification to a construction agreement that alters what the contractor needs to do. It often adjusts the work outlined in the original contract. Needless to say, it can increase the contract price or change the time given to finish the job, or both. For a change order to be valid, both the owner and the contractor must agree on all the details.

Sometimes, such changes are a normal part of construction projects. They happen when the original plan in the contract needs to be adjusted, and everyone involved – right from the project owner and contractor or subcontractors to sometimes the lender – agrees to the changes. 

What are the reasons for a change order?

Common reasons for change orders include mistakes in the design plans, underestimating the time or money needed, or unexpected issues at the job site. The formal order spells out these details, and how they affect the project’s plan in terms of the timeline and the new cost. While change orders often mean more work, they can also involve making things smaller or substituting certain elements.

Most construction contracts have a section that explains how to deal with change orders. Having a clear process from the start helps keep the project on track, ensures the contractor gets paid on time, and protects everyone involved. Construction companies need a system to handle change orders promptly, so projects can keep moving without unnecessary delays.

What is an example of a change order?

Change orders are necessary because it’s hard to foresee every challenge from the start of a construction project. Mistakes in the plans, the owner’s wish to make aesthetic changes, or the need to cut costs can all be addressed through a change order.

Let’s say the homeowner wants to move a wall to fit a new design element, add a window that wasn’t in the original plans, or switch the floor finish from tile to hardwood. These changes, known as additive change orders, can increase the contract price. On the other hand, there are deductive change orders that remove parts of the work, usually resulting in a decrease in the contract price.

What does change of order entail?

More often than not, what you planned for in a construction project may differ from the actual project scope and site conditions. When any change happens, it’s essential to request a change order and get the property owner’s signature on it.

A change order is one way to alter the contract scope, but there are other methods. For example, an Architect’s Supplemental Instruction (ASI) mentions minor changes without affecting the schedule or project costing.

Change orders aren’t just for necessary alterations – they can also be used for suggestions. For example, federal projects might involve change proposals such as value engineering processes (VECPs), where contractors suggest changes to reduce costs without affecting performance.

How to initiate a change order process?

Creating a change order form requires all relevant information related to the construction project and the amendment to the original scope of work.   

Give the project and contact information

Include essential details such as the contract number, owner’s name, contractor/architect’s information, project name and address, and the change order number.

Include the dates of the change

Specify the date of completion for the change order and consider additional dates such as notice of change and submission date for approval, depending on the contract requirements.

Mention the details of the work

Provide a thorough description of the work changes, whether additional work or reductions. Clearly explain the triggering conditions, such as site, design, or scope changes, with supporting evidence such as written descriptions, photos, or drawings.

Add the updated work schedule

Include the new schedule resulting from the change, indicating the number of days required to complete the change and the new finish date. 

Mention the cost of the change

Specify the final cost of the change, covering overhead, profits, tax, insurance, breakdown of labor and material costs, and any additional costs. 

Include the updated contract value

Ensure the change order reflects an updated contract value, including the original contract value, the total of past approved change orders, the cost of the current change order, and the proposed new contract value. This comprehensive information helps maintain clarity on the project’s financial status.

What is the best way for handling change order disputes?

Dealing with change orders can be a big challenge for construction lawyers. Property owners and contractors often disagree on changes, leading to disputes about additional costs. Here are some tips to keep in mind when you’re in the middle of a change order disagreement. 

• Start by carefully reviewing the contract to understand the agreed-upon terms and conditions regarding change orders.
• Gather all relevant documentation, including the original contract, change order requests, approvals, and any correspondence related to the dispute. 
• Ensure open communication with all parties involved – understanding their perspectives.
• Try to find common ground. 
• Be open to negotiation. Consider factors such as additional costs, time implications, and the overall impact on the project.
• If direct negotiations are unsuccessful between the involved parties, consider getting in a neutral third party to mediate or arbitrate. 
• If the dispute persists, consult with a lawyer to understand your rights and obligations under the contract. 

Last thoughts

In construction, changes are bound to happen, just like in many other aspects of life. Whether it’s the owner changing the design, unexpected events such as a hurricane affecting deadlines, or a subcontractor miscalculating costs, there are various reasons for changes. However, uncontrolled changes can hurt profits and even disrupt a project.

To handle this, smart construction companies follow a clear rule for project management: Any change to an existing construction contract needs a change order. This order typically outlines the adjustments in the project’s scope of work, cost, and schedule. When done effectively and consistently, construction change orders ensure that both clients and contractors are on the same page, preventing disputes, unpaid bills, and even legal issues.

Read more: What is a construction superintendent?

Written by Ramona Sinha. January 14, 2024

Ramona is the Senior Content Writer for Kukun. This experienced blogger uses simple and succinct words to decipher the complex phenomenon called life. She has written articles covering a broad range of topics, such as real estate, lending and mortgage, finance, business, taxation, home designs, home improvement projects, decor concepts, and more. An avid traveler, she’s a digital nomad at heart and an animal lover from the depth of her soul.