Understanding How Construction Change Orders Work

Change orders are formal modifications to the original construction contract, reflecting adjustments in scope, design, materials, costs, or timelines. A construction change directive (CCD) is another means to modify construction contracts, often used in emergency situations where traditional change orders might delay projects. These changes can arise from various sources, including client requests, unforeseen site conditions, design errors, regulatory changes, or material shortages. Managing construction costs, particularly in the context of change orders, is essential to mitigate significant financial impacts and project delays. Managing change orders is crucial as they can significantly impact the project’s budget, schedule, and overall success.

Understanding how change orders work, from initiation to approval and implementation, ensures that all parties are aligned, minimising disputes and maintaining project momentum. Effective project management is vital in handling change orders within construction projects, utilising project management software to streamline processes and keep projects on schedule and within budget.

 

What Is a Construction Change Order?

A construction change order is a formal document issued during a construction project that modifies the original contract terms. It can include changes to the project’s scope, design, materials, schedule, or cost. Change orders are initiated when unforeseen conditions arise, client requests are made, or design errors are discovered.

Both parties—contractor and client—must agree to the changes and sign the document, which details the modifications and any adjustments to the contract price and completion date. Managing change orders is crucial to maintaining project control, avoiding disputes, and ensuring transparency in the construction process. Significant alterations to the project’s scope can lead to increased project costs, making it essential for all parties to be on the same page to prevent confusion and conflict.

 

When Should You Use a Construction Change Order?

A construction change order should be used in the following scenarios:

Scope Changes: When the client requests additions or alterations to the original project scope, such as additional rooms, different materials, or design changes. A change order documents any alterations to the original project’s scope of work, which can include additions or reductions in tasks, design changes, or adjustments to the schedule and prices.

Unforeseen Conditions: When unexpected issues, like hidden structural damage or unanticipated site conditions, arise during construction that necessitates changes.

Design Errors or Omissions: Corrections are required when mistakes or oversights in the original plans are discovered.

Regulatory Changes: When new laws, codes, or regulations are implemented that impact the project’s requirements.

Material Availability: When specified materials are unavailable, substitutions are required.

Cost Adjustments: When cost adjustments occur due to market fluctuations or labour rates. The owner and contractor reach an agreement on the proposed changes, leading to the preparation of an amendment document to formalise those changes.

 

Construction Change Order Management Process

Begin With the Contract

Ensure the initial contract clearly outlines the process for handling change orders, including the authority to approve changes, required documentation, and any cost implications. Additionally, it should specify any potential changes to the project’s scope, detailing how alterations to tasks, design, schedule, or prices will be managed. Clearly defining the project’s scope is crucial to avoid potential disputes and financial impacts.

Review the Project Scope and Plan

Review the project plan regularly to understand the project’s scope, schedule, and budget. This helps identify potential areas where change orders might be needed and assess their impact on the project. Additionally, reviewing the project plan is crucial to understand potential impacts on project costs, especially when significant alterations to the project’s scope occur.

Respond Quickly to Change Orders

Address change orders promptly to minimise delays and disruptions. Swift responses help maintain project momentum and allow for timely adjustments. Addressing change orders promptly is crucial for managing construction costs effectively, as it helps mitigate significant financial impacts and project delays.

Meet With All Involved Parties

Hold meetings with all stakeholders—clients, contractors, subcontractors, and suppliers—to discuss the change order. This ensures everyone understands the reasons for the change and its implications and agrees on the path forward. It is crucial that all parties are on the same page before proceeding with work to avoid confusion and conflict.

Change Order Template

Use a standardised change order template to document each change’s details. This template should include sections describing the change, justifying it, detailing cost and schedule impacts, and obtaining necessary approvals. Additionally, the template should include sections for proposed changes and their justifications.

Further Negotiations

If there are disagreements about the change order, engage in negotiations. This may involve discussions about costs, timelines, and resource allocation. Construction change directives can also be a point of negotiation if there are disagreements about the change order. Aim for a consensus to avoid disputes and project delays.

Don’t Neglect Documentation

Meticulously document every aspect of the change order process. Keep records of all communications, approvals, and revisions. Proper documentation ensures transparency and accountability, and provides a reference in case of disputes. Thorough documentation is especially crucial in managing construction projects to avoid misunderstandings and disputes.

 

What Should a Construction Change Order Include?

A construction change order should include several key elements to ensure clarity, accountability, and agreement among all parties involved:

Project and Contract Information: This includes the project name, address, and the original contract number. It’s crucial also to include the change order number for tracking purposes​​.

Parties Involved: List the names, contact numbers, email addresses, and postal addresses of the project owner, the main contractor, and any subcontractors involved. This ensures that everyone knows who is responsible for what​​.

Detailed Description of Change: Explain what will be altered, added, or removed. Clearly state the reasons for the change, supported by relevant evidence such as drawings, specifications, or photographs​​.

Impact on Schedule: Include the updated project schedule, specifying any additional days required and the revised completion date. This helps in understanding how the change will affect the overall timeline​​.

Cost Impact: Detail the financial implications of the change, including direct costs, overhead, profits, and any other associated expenses. Provide a breakdown of costs to ensure transparency​. Significant alterations to the project’s scope can lead to increased project costs, which may allow contractors to seek damages if the changes are deemed fundamental to the original contract.

Revised Contract Value: This should reflect the updated total contract value, including the original contract amount, the cost of all previously approved change orders, and the current change order​.

Approval Signatures: Ensure the change order is signed by all relevant parties, including the project owners, contractors, and any necessary subcontractors or architects. This formalises the agreement and makes it legally binding​​.

Supporting Documents: Attach all relevant documents that support the change, such as revised drawings, specifications, cost estimates, and engineering reports. These documents provide a comprehensive understanding of the change and its implications.​

 

Submitting a construction change order

Submitting a change order involves several critical steps to ensure it is properly documented and approved. First, identify and clearly describe the change needed, including why it’s necessary. Next, assess and document the impact on project cost and schedule.

Use a standardised change order template to include all relevant details, including project information, a detailed description of the change, cost implications, and revised timelines. If applicable, include construction change directives to address urgent modifications that do not require the contractor’s agreement but may impact the project schedule or materials.

Obtain signatures from all necessary parties, including the project owner, contractor, and any relevant subcontractors or architects. Submit the completed change order to all stakeholders for review and approval to formalise the modification.

 

Powerplay Helps You Manage Construction Change Orders

Powerplay is a comprehensive construction management software designed to streamline project workflows, enhance team collaboration, and provide real-time insights into project progress. Effective project management is crucial for handling change orders within construction projects, and Powerplay excels in this area by offering robust features which include the following:

Manage Your Team’s Workload

Powerplay construction management software streamlines managing your team’s workload by offering features such as automated workflows and centralised tracking dashboards. These tools allow project managers to efficiently allocate resources, track task progress, and ensure critical tasks are completed on time, reducing manual effort and minimising errors​.

Get a High-Level View of Your Progress

Through its robust reporting and dashboard features, Powerplay provides real-time visibility into project milestones, budget variances, and performance metrics. This high-level view enables project managers to make informed decisions, quickly identify potential issues, and ensure projects stay on track and within budget​.