After a bid has been accepted, a project won, and work started, circumstances can still change. Construction projects are governed by contracts, and when unforeseen circumstances arise, those contracts may need to be amended. That’s when you need a change order.
In a nutshell, change orders alter the original contract or scope of work for the job. They’re used by construction companies to formally document when and how work needs to change and what the consequences of those changes are. Change orders, sometimes called variation orders, are common in the construction industry (by one estimate at least 35 percent of jobs need them), and having a policy in place for them is vital.
“Contract changes allow a party to implement changes in the work while the project is being constructed.”– Dr. Charner Rodgers, who holds a Ph.D. in architecture and a Masters of Civil and Environmental Engineering.
What would cause a change order?
There are a variety of circumstances that could require a change order. These could include unclear or ambiguous site drawings, incorrect specifications in the original contract or design, unforeseen conditions on the job site, or late materials and equipment delays.
Unforeseen conditions could include the presence of groundwater, an inability to use the excavated soil as structural fill, or even soil that can’t support the weight of the building to be constructed, says Dr. Rodgers. Generally, these are conditions that couldn’t have been known when the contract was first signed, and their existence materially affects the ability to get the job done at the price point and in the time originally agreed to.
A change order may also be created as a result of additional features being requested. For example, a homeowner works with a contractor to build a deck. After the contract has been signed, the homeowner asks for a decorative railing on the grade-level deck. The contractor should put in writing the scope of the additional work and include an itemized breakdown of the costs of materials and labor the change will require, as well as the effect on the overall project timeline. Only after the homeowner has given written approval to the new scope of work and contract amount should the contractor begin the added work.
How to deal with change orders
The process for creating or handling change orders will often be referenced in a contractor or subcontractor’s original contract or scope of work. That document might outline who’s allowed to request and approve change orders and what the policy is for doing so. The owner, general contractor, project manager, or others might need to be involved—often the same people who signed the original contract. If there isn’t already a change order process, it’ll need to be created.
Write everything down.
At a minimum, everything should be written down. Without clear written approval to alter the scope of work and contract pricing, the contractor runs the risk that they won’t be paid for the extra work.
“If it wasn’t in a change order,” says construction attorney Karalynn Cromeens, “it doesn’t exist and you’re not getting paid.”
Revise the scope of work and include updated pricing.
A change order needs to answer the same questions as an original contract. It should include a revised scope of work and the relevant pricing for materials and labor. It should state whether and how the timeline for the finished project will need to be modified because of the additional work. Approvals from all the relevant parties will need to be requested and obtained. This is critical because, without approval, the expenses of the extra work may not be paid. In some cases, the completion date will be affected by the change orders.
Keep track of your costs.
However, some major projects will have contract provisions stipulating that work should continue while change order negotiations are happening. In those cases, Dr. Rodgers says, contractors should keep meticulous records covering costs incurred for the work.
Communicate changes clearly and plan ahead.
Constant communication with all team members is key to successfully planning for change orders and preventing confusion. Change orders should be addressed as soon as they come in, and every detail should be documented. These documents will be invaluable in the event of a later dispute. In some cases, an email chain outlining the new scope of work and contract amount, and which includes written approval, can function as a change order in instances when there’s no formal change order process.
Ultimately, the approvals, documentation, and disclosure provisions exist to protect the contractor and the other parties in the event of a dispute over the construction project and payment. To that end, there are sometimes ways for contractors who perform changed work without a formal approval to press for payment, says Dr. Rodgers. If they can show that the approval was sought and implicitly granted, it’s possible that they’ll be able to recover the fee. But in general, litigation is costly and should be avoided. Clear contracts can help in that effort. They may also contain provisions around what to do when site conditions are materially different than expectations, and even allow for withdrawing of a bid.
“How not to get screwed on change orders? If you’re asked to do extra work, get it in writing and signed off on before you do the work. Don’t do the work and then come back and expect to be paid for it if it’s not in writing.”– Karalynn Cromeens
MT Copeland offers video-based online classes that give you a foundation in construction fundamentals with real-world applications, like contracts. Classes include professionally produced videos taught by practicing craftspeople, and supplementary downloads like quizzes, blueprints, and other materials to help you master the skills.