The Complete Guide to Managing Change Orders in Construction

Written by: Kelsey Hainley and John Meibers

Navigating the unpredictable waters of construction projects can be as challenging as it is rewarding. Change orders are a common phenomenon within the construction industry, representing a vital aspect of project management that can significantly impact timelines, budgets and stakeholder relationships.

Understanding what change orders are and why they are essential for construction projects is crucial for anyone involved in the industry. This guide provides a comprehensive overview of managing change orders, from initiation to execution and stakeholder involvement. By exploring best practices, challenges and the role of technology, construction contractors will be better equipped to handle change orders effectively, ensuring smooth progress throughout their construction projects.

In This Article:

• What are Change Orders?
• Importance of Construction Change Orders
• Common Reasons for Change Orders
• How to Avoid Change Orders
• Role of the Project Manager in Change Orders
• Key Components of Change Orders
• Types of Contracts for Construction Change Orders
• The Change Order Process
• Best Practices for Effective Construction Change Order Management
• The Role of Technology in Change Order Management

Change orders are modifications to the original construction contract that alter the project scope, schedule or cost. They arise when unforeseen issues require adjustments to the original plans or when the project owner desires to change design elements. Key aspects of construction change orders include:

• Project Scope: Changes can include additions or omissions affecting the range of work to be completed.
• Project Schedule: Additional time may be necessary to accommodate the adjustments, potentially leading to project delays.
• Material Costs: Amended orders can lead to a rise or reduction in material costs.
• Project Budget: These changes often impact the overall budget, either increasing or decreasing the original contract price.

The need for a change order can stem from various factors, including field conditions not anticipated in the original construction contract, design errors or changes requested by the project owner.

The approval process typically requires a detailed description of the change, including the schedule impact and any alteration in contract terms. Both the project manager and owner closely scrutinize and negotiate construction change directives before they become part of the project contract.

Change orders are a critical component in managing a construction project's evolving nature and ensuring project completion aligns with the client's needs and industry requirements.

The construction industry is constantly changing, often requiring adjustments to initial plans and specifications. This dynamic environment leads to construction change orders, which are crucial and inevitable parts of successfully completing a project.

According to AIA Contract Documents, the average number of change orders over the duration of a project ranges from 1.7 for a small project to 11.18 for larger projects.

It is crucial for all stakeholders involved to recognize the importance of construction change orders. These orders are essential for addressing unexpected challenges, accommodating design modifications and ensuring project resilience in the face of evolving requirements.

Flexibility and Adaptability:

Construction projects are multifaceted endeavors, often subject to variables beyond initial anticipation. Change orders provide the necessary flexibility to adapt to evolving circumstances, ensuring that projects remain responsive to unforeseen conditions, challenges and opportunities. Without this adaptability, construction projects may face delays in the project schedule, incur additional costs and be unable to meet changing client needs.

Aligning the Project Scope:

The original project scope is the roadmap for construction endeavors, detailing the goals, deliverables and specifications. Over time, however, adjustments may become necessary. Construction change orders act as instruments to realign the project scope with changing requirements and expectations. This alignment is crucial for maintaining project clarity, preventing misunderstandings and ultimately delivering a successful outcome.

Budget Management:

One of the most critical aspects of construction projects is effective budget management. Change orders serve as a mechanism to track and control costs associated with modifications to the original scope and contract price. Through transparent processes for approving and documenting changes, project owners can ensure that the project stays within budgetary constraints, safeguarding financial viability.

Mitigating Disputes:

Construction projects involve multiple stakeholders, each with their own expectations and responsibilities. Changes to the original scope can introduce complexities and potential conflicts. Potential disputes like project delays are mitigated by documenting changes through construction change orders. Clear communication and documentation foster a collaborative environment, minimizing the risk of disagreements and legal complications.

Transparent Communication:

Construction change orders promote transparent communication among project participants. Allowing stakeholders to understand the reasons behind modifications and the associated implications ensures that everyone is on the same page. This transparency builds trust among team members and stakeholders, creating a collaborative atmosphere that is conducive to successful project outcomes.

Adherence to Contractual Obligations:

A thorough understanding of the original construction contract and project documents is fundamental to navigating the complexities of construction change orders. The importance of adhering to the contractual agreement cannot be overstated. Change orders must be implemented within the framework of the agreed-upon terms and conditions to maintain legal and financial integrity.

Client Satisfaction:

Clients often have evolving needs or may gain new insights into their project as it progresses. Accommodating these changes through construction change orders is a proactive approach to ensuring client satisfaction. It demonstrates responsiveness to client requirements, fostering positive relationships and potentially leading to repeat business or referrals.

Continuous Improvement:

Construction change orders, when managed effectively, provide an avenue for continuous improvement. They offer opportunities for project stakeholders to learn from challenges, refine processes and enhance project management strategies. Embracing changes through formal procedures ensures that the construction team can adapt and grow throughout the project's lifecycle.

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Change orders in construction projects are not uncommon, and there are several reasons why they may be necessary. These include:

Design Modifications:

Modifications to the original design are often a leading cause of change orders. While the initial intentions might seem clear during the design phase, practical implications during the construction process can necessitate changes. These modifications might be driven by the project owner's desire to update design elements or the discovery of design errors that need correcting for the project to progress safely and effectively. The project manager must then work with the project team to assess these changes, determine their impact on the project schedule and budget and incorporate them into the construction schedules while seeking approval from all stakeholders.

Regulatory Changes:

Compliance with local, state or federal regulations is crucial for any construction project. Regulatory changes can occur when new laws or codes come into effect after the original construction contract has been signed. Such changes may require the project scope to be altered to meet the new requirements, which in turn could lead to adjustments in the project schedule and budget. Regulatory amendments might relate to environmental standards, safety codes, zoning laws or other legal considerations that impact the construction project. Accurately recording these changes and ensuring the project aligns with them is crucial for the legal and functional completion of the project.

Unforeseen Conditions:

During the construction process, the project team may encounter site conditions that differ from what was documented or expected based on the original plans. Variations in soil quality, hidden structures or utilities, inclement weather and archaeological finds are examples of unforeseen field conditions that can have a substantial impact on the project timeline and cost. These conditions require immediate attention and typically lead to additional costs and additional time needed to address the discrepancies. As they are not included in the original project budget, it's critical to detail these changes through construction change directives to update the project contract terms accordingly.

To effectively avoid change orders throughout a project, it is crucial to prioritize thorough planning and communication from the outset. Engaging in comprehensive pre-construction meetings allows all stakeholders—owners, contractors and subcontractors—to align their expectations and clarify project specifications.

Utilizing Building Information Modeling (BIM) technology can further enhance visualization and design accuracy, enabling teams to identify potential issues before construction begins. Additionally, establishing a culture of continuous communication throughout the project ensures that any concerns or changes can be addressed promptly, reducing the likelihood of unforeseen circumstances leading to change orders.

Regular site assessments and proactive risk management strategies can also help identify potential obstacles early on, allowing teams to adapt their approach without resorting to formal change orders. By investing in these proactive measures, construction companies can minimize disruptions and maintain project timelines and budgets.

Project managers play a central role in initiating, implementing and successfully managing construction change orders. This section explores the multifaceted responsibilities and authority vested in project managers regarding change orders, emphasizing collaboration, strategic assessment and proactive decision-making.

Responsibilities and Authority:

Project managers bear the responsibility of overseeing the entire change order process. This includes initiating discussions, facilitating documentation and ensuring adherence to established procedures. Their authority extends to making informed decisions regarding the approval, modification or rejection of proposed changes, aligning these decisions with project objectives and contractual obligations.

Collaboration with Stakeholders:

Effective change order management is a collaborative effort that involves engaging all relevant stakeholders. Project managers must foster open communication channels, ensuring that architects, contractors, clients and other key players are informed and actively involved in the decision-making process. Collaborative efforts lead to well-informed decisions and a shared understanding of the project's trajectory.

Assessing the Project Scope:

An integral part of the project manager's role in change orders is the continuous assessment of the project scope. This involves staying attuned to evolving project needs, monitoring progress and identifying potential changes early in the process. Proactive assessment enables project managers to anticipate modifications, facilitating timely and effective decision-making.

Evaluating Changes to the Original Scope:

Evaluating proposed changes against the original scope is a critical skill for project managers. This evaluation involves assessing the impact on project timelines, costs, and overall objectives. Project managers must weigh the benefits and drawbacks, considering both short-term and long-term implications, to make informed decisions that align with the project's overarching goals.

Change orders play a critical role in managing adjustments throughout the lifespan of a construction project.

These documents serve as the formal mechanism for authorizing and recording alterations to the original construction contract, project scope and project schedule. An effective construction change order form typically includes several key components:

• Project Information: This section provides basic details such as the project name, address, and the project owner's information.
• Change Order Number: Each change order should have a unique identifier or number for tracking purposes.
• Description of Change: A comprehensive and clear explanation of the alteration being requested, including added or deleted work and changes to design elements or materials specified in the original plans.
• Reason for Change: The form should specify the rationale behind the proposed modification, such as unforeseen field conditions, design errors, or changes requested by the project owner.
• Detailed Scope of Work: The scope of the new work or modifications should be listed in detail, aligning with the project contract terms.
• Pricing Information: All costs associated with the change, including material costs and labor, should be itemized and totaled.
• Time Adjustments: If applicable, the form must clearly state the additional time required to complete the change, accurately reflecting the schedule impact.
• Approvals: Spaces or lines for the signatures or initials of all the necessary parties involved in approving the change order, such as the project manager, architect, contractor, and project owner.
• Attachments: Any relevant documentation, such as drawings, photos, or specifications, that supports the change order should be referenced and included.

A well-constructed change order form can help mitigate project delays and ensure the success of a construction project by providing a standardized procedure for systematically addressing changes.

Essential Information to Include

In construction change order forms, precision is key. The following essential information must be comprehensively included to support the approval process:

1. Date: The date the change order is issued is essential for chronological tracking and project timeline management.
2. Reference to Original Contract: Specific citations to clauses or sections in the original construction contract that correspond to the change to maintain consistency and clarity in contract terms.
3. Detailed Justification: A solid justification for why the change is necessary, potentially saving time in the approval process by preemptively addressing concerns.
4. Impact Analysis: An evaluation of how the change will affect the project budget and schedule, including any potential project delays.
5. Cost Breakdown: Detailed material costs, labor rates, and any other additional costs that could affect the original contract price. This helps maintain transparency regarding financial implications with the project owner.
6. Legal Implications: Any changes to liabilities or warranties as a result of the modification should be clearly stated.

By including all this crucial information, change orders can be efficiently processed, reducing the risk of disputes and facilitating mutual understanding among all parties involved.

The type of contract you should use for a construction change order depends on the nature and complexity of the change, as well as the original contract structure in place for the project.

Here are three common types of contracts and their applicability to construction change orders:

Lump Sum Contract

• Applicability: Lump sum contracts are suitable when the original project scope can be easily quantified and priced, and changes are relatively straightforward.
• Change Order: If the change is significant and affects the overall project cost, a lump sum contract may still be used, and a change order would be issued to document the modifications and adjust the contract price accordingly.
• Example: The client decides to upgrade the flooring material in a commercial construction project from standard-grade to premium hardwood. The lump sum change order would document this modification, specifying the change in flooring material, the reason for the upgrade and the agreed-upon increase in the overall project cost to cover the premium material and any associated labor costs. The client and the contractor would then approve the change order, formalizing the adjustment to the original contract price and ensuring transparency in the updated project scope.

Time and Materials (T&M) Contract

• Applicability: T&M contracts are suitable when the scope of work is uncertain and the project requires flexibility to accommodate changes.
• Change Order: T&M contracts inherently provide flexibility for changes in scope. However, if the change is substantial, a change order may still be initiated to document and formalize the modifications, particularly if there are cost implications. If you have a lump sum contract, you can use a T&M change order in certain situations.
• Example: A construction project initially outlined the installation of basic lighting fixtures. Later in the project, the client expresses a preference for high-end, custom-designed fixtures. A T&M change order is initiated, specifying the increased cost for the premium fixtures, additional labor hours required for installation and any associated expenses. The client consents to pay for the actual costs incurred, along with an agreed-upon markup and the change order documents the modification to the original contract, ensuring clarity and transparency in the billing process for the upgraded lighting.

Unit Price Contract

• Applicability: Unit price contracts are suitable when the project can be easily divided into quantifiable units, and the quantities may vary during construction.
• Change Order: Like T&M contracts, unit price contracts allow for flexibility. Change orders may be used to document changes in quantities or unit prices, particularly if the modifications affect the overall project cost.
• Example: In a unit price change order, the construction project, initially contracted on a unit price basis, involves the installation of underground utility pipes with predetermined unit prices for each linear foot of pipe. If, during construction, the actual conditions reveal the need for additional excavation depth beyond the original estimate, a unit price change order may be initiated. This document would outline the increased unit price for the additional excavation depth, reflecting the adjusted quantities and costs associated with the modified scope.

Zero-cost Contract

• Applicability: Zero-cost contracts are used when the contractor has identified a change to the project scope, but the change doesn't impact the original contract amount.
• Change Order: This type of change order is often the result of an internal change.
• Example: During the construction of a commercial building, the project owner internally decided to alter the color scheme of interior paint from the initially agreed-upon color to a different shade within the same paint brand and price range. A zero-cost change order was processed to document this internal change, indicating that the modification had no financial implications, and the project continued without any adjustments to the overall contract price.

It's important to note that even though the term "zero-cost" implies no direct financial impact, there may still be administrative and procedural costs associated with processing and documenting the change order.

Additionally, careful documentation and transparency are essential to clearly communicate the nature of the change and ensure all parties involved are aware of the adjustments made.

Managing change orders effectively is crucial for maintaining a good relationship with the client, avoiding legal issues and ensuring the quality and profitability of the project.

Here are some tips on how to manage change orders on construction projects:

1. Establish a Robust Documentation System: From the project's initiation, maintain detailed documentation of the original scope, budget and timelines. Develop a comprehensive contract outlining the agreed-upon scope of work, cost and schedule. Keep a record of all communication, including meeting minutes, emails and any other written or verbal agreements. Any changes need to be tracked in detail from the time they are proposed through their approval or rejection.
2. Create a Change Order Request Process: Implement a standardized process for submitting change orders. Clearly communicate to all stakeholders, including contractors and subcontractors, how to initiate a change order request. Specify the information required for a change order request, such as the reason for the change, the proposed modification and the anticipated impact on cost and schedule.
3. Identify Changes and Communicate Them Early: Encourage open communication to identify potential changes at the earliest stages. Establish a culture of transparency among project teams, subcontractors and the client. Promptly communicate any potential changes and status updates to pending change orders to all relevant parties.
4. Assess the Impact: Evaluate the impact of proposed changes on the project scope, budget and schedule. Engage project parties, including contractors, subcontractors and project managers, in the assessment process. Clearly communicate the potential consequences of the changes to all parties involved.
5. Estimate Costs: Obtain detailed cost estimates for the proposed changes from contractors and subcontractors. In most cases, the original contract includes guidelines for pricing change orders. Document all agreed-upon changes in writing to avoid misunderstandings later.
6. Formalize Changes: Update the project contract to include approved change orders. Clearly outline the revised scope of work, cost adjustments and any changes to the project timeline. Ensure that all relevant parties sign and acknowledge the change order to make it legally binding.
7. Adjust Project Schedule: Modify the project schedule to accommodate approved changes. Communicate the updated timeline to all team members and stakeholders. Monitor progress closely to ensure that the project stays on track despite the changes.
8. Identify Risks: Identify and address potential risks associated with change orders. Include contingency plans in case additional issues arise during the implementation of changes. Regularly assess project risks and adjust strategies as needed.
9. Communicate the Changes: Keep clients informed about the reasons for and implications of change orders. Provide clear and concise updates on the progress of changes and their impact on the project. Foster a collaborative relationship with the client to maintain trust and satisfaction.
10. Continuously Monitor and Review: Regularly monitor the implementation of approved changes. Review the project's progress, budget and schedule to ensure that any adjustments made are effectively integrated. Address any new issues promptly and adjust strategies as needed.

Navigating the complexities of construction change orders requires a strategic approach grounded in best practices. This section outlines key strategies and guidelines that project managers and stakeholders can adopt to streamline the change order process and enhance project outcomes.

Maintain Detailed Documentation:

Thorough documentation is the cornerstone of effective change order management. Project managers should keep meticulous records of all discussions, decisions and approvals related to change orders. This documentation serves as a historical reference, aids in dispute resolution and ensures transparency throughout the project.

Establish Clear Communication Channels:

Open and clear communication is essential for successful change order management. Establishing structured communication channels ensures that all stakeholders are kept informed and involved in the decision-making process. Regular updates, status reports and collaborative meetings contribute to a shared understanding of project changes.

Seek Expert Advice When Needed:

Construction projects often involve technical intricacies that may require specialized expertise. Project managers should be willing to seek advice from relevant experts, such as engineers or architects, to assess the technical feasibility and implications of proposed changes. This collaborative approach enhances the quality and accuracy of decision-making.

Foster a Collaborative Project Environment:

Collaboration is key to successful change order management. Project managers should foster an environment where all stakeholders feel empowered to contribute ideas, voice concerns and work together towards effective solutions. A collaborative approach promotes collective ownership of project outcomes.

Incorporating these insights into the management of construction change orders ensures that construction projects navigate changes with resilience, transparency, and strategic foresight. The synergy between understanding the original contract, fulfilling the role of the project manager and implementing best practices creates a robust framework for successful change order management in the dynamic world of construction projects.

In the realm of construction projects, technology plays a pivotal role in managing change orders. With advancements in technology, the approval process for change orders has become more efficient, helping to mitigate project delays.

Construction project management software is designed specifically for construction contracts. This software presents a detailed description of changes, incorporating design elements and field conditions that differ from the original plans. It allows the project manager and project owner to track additional costs, additional time, and project schedule impacts in real time.

Moreover, technology facilitates better communication between all parties involved, allowing for quicker resolution of issues related to field changes, design errors or material costs. By integrating technology into the construction process, stakeholders can maintain an accurate and updated project timeline and budget, adhering to contract language while managing the initial contract scope.

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