Congratulations on winning the construction bidding war and securing the project! But as you dive in, change orders will inevitably come knocking. But fret not, for we are here to equip you with the knowledge and tools to navigate these alterations with finesse.
Compare Top Construction Bidding Software Leaders
What This Guide Covers
- What Is a Change Order in Construction?
- Types
- Common Examples
- Limitations
- Process
- Navigating Construction Contract Changes
- Best Practices
- Tips To Tackle Disputes
- FAQs
- Next Steps
Let’s get started!
What Is a Change Order in Construction?
A change order is a formal document generated by clients or contractors to request alterations or modifications to the original scope of work. It serves as an amendment to the existing contract.
Project stakeholders, including the contractor, client, and potentially the architect or engineer, review and evaluate the change order before approving and implementing it.
You can create multiple change orders for a project, but it’s important to carefully review the clauses before initiating them. Once the client approves a change order, it becomes legally binding.
Purpose
Change orders enable you and the clients to come to an agreement with alterations made to the original contract. They act as an extension of the contract. You don’t need to scrap the existing agreement. You simply have to attach the change order to it.
Because change orders are legally binding, you can approach a claims court and get compensated if clients violate the terms.
Causes
Step onto any construction site, and you’ll quickly realize that change orders are as common as the sound of hammers and the scent of freshly cut timber. These intriguing twists and turns in the construction journey can emerge from various factors. We’ve listed some of them below.
- Design Changes: Modifications to the original design requested by the client.
- Scope Changes: Expansion of the project’s scope beyond the initial agreement.
- Errors or Omissions: Mistakes or missing information in construction plans or documents.
- Owner-Requested Changes: Alterations to the project requested by the owner.
- Regulatory Requirements: Changes in building codes or zoning regulations necessitating modifications.
- Unforeseen Conditions: Unexpected circumstances during construction, such as hidden structural issues or adverse weather.
- Supplier or Material Issues: Delays, unavailability, or substitutions of suppliers or materials.
- Coordination Conflicts: Conflicts in coordinating trades or subcontractors, impacting the construction timeline.
- Value Engineering: Implementation of cost-saving measures or alternative construction methods.
- Client Financing or Budget Changes: Changes in the client’s financial situation or budget, leading to adjustments in the project.
Engineers play an important role in construction projects. They take care of technical issues and ensure the work is of quality standards. And they can request change orders too.
Some reasons for engineering-related change orders include:
- Geotechnical Issues: Common problems include unstable slopes, poor drainage systems and water seepage.
- Problems With Utilities: Disputes regarding utility plans, designs and facilities.
- Environmental Obstacles: Plans interfering with environmental laws and protection measures.
- Functional Changes: Redesigning work due to specification changes.
You don’t have to draft change orders for every project. But we advise you to adopt a standardized change order process to save time and effort.
By being aware of these factors, you can anticipate and address change orders in a timely and efficient manner, ensuring successful project execution.
Components
To avoid disputes, ensure your change orders contain detailed information. Include the following in your change orders:
- Project Name: Clearly state the project name for which you’re issuing the change order.
- Contact Details: Include contact details (name, role and phone number) of the person requesting the modification for effective communication and clarifications.
- Scope Comparison: Provide a detailed description comparing the original and altered scopes of work, highlighting specific modifications and additions for clarity.
- Work Summary: Outline the specific tasks or deliverables that the change will impact or add as a result.
- Timeline Impact Statement: Explain how the modification will affect the overall schedule, including any adjustments or delays that may result.
- Cost Breakdown: Break down the costs associated with the change order, including any additional expenses or savings.
- Signatures of Authorized Representatives: Ensure that authorized representatives from both the client and contractor sign the change order, confirming their approval of the proposed modifications and associated implications.
You can use the American Institute of Architects’ change order form to make documentation processes a breeze.
American Institute of Architects’ change order form.
Compare Top Construction Bidding Software Leaders
Types
Just as every project requires different materials, each project may call for a specific type of change order. Consider these common change order types:
- Lump Sum: Provides a clear and definite price for the altered scopes of work.
- Zero Cost: Helps you capture changes that won’t impact the contracted price.
- Time and Material: Assists you in tracking your time and materials used when you can’t estimate the costs for proposed changes. You should discuss time and material factors with clients and include them in your contract.
- Unitary Cost: You can use this change order if you plan to decide on unit prices for materials before the construction project begins. Clients can sue you for breach of contract if you increase unit prices without any notice.
It’s advisable to discuss the change order types with clients before you start the construction work.
Common Examples
Below, we’ve highlighted some construction change order examples to help you understand the concept clearly.
Suppose there’s a delay in concrete delivery that hinders your workers from completing their tasks. In such situations, you’ll need to draft a change order and schedule a meeting with clients, informing them about the reasons for the project delay.
Change orders may or may not alter the contract heavily. For example, if you initially committed to using carpets for flooring but design changes necessitate the use of tiles, you can make a simple adjustment to the material information. This change may not heavily alter the contract, especially if you can reallocate the budget allocated for carpets to cover the cost of tiles.
In other instances, when clients realize the need for additional features in the project, they can request a change order to include these requirements.
Work collaboratively with your legal team to draft a comprehensive change order that incorporates the new features, makes price adjustments and revises the project timeline.
There are several free change order templates available. You can access those and customize them according to your needs.
Limitations
While change orders can be valuable tools for adapting to evolving project needs, they aren’t without limitations. We’ve listed some limitations below.
- Project Schedule Impacts: Change orders require you to allocate additional time for review, negotiation and implementation, causing project delays.
- Financial Implications: Change orders often result in increased costs that you must carefully manage, as they can exceed your project budget.
- Administrative Workload: You’ll need to handle substantial administrative tasks and coordinate among multiple parties when processing change orders.
- Workflow Disruption: Changes can disrupt your construction processes, affecting productivity and coordination among different trades involved in the project.
- Design and Coordination Challenges: Modifying the scope of work presents design and coordination challenges that you need to address through adjustments and careful management.
- Contractual and Legal Considerations: Failing to follow proper procedures or obtain necessary approvals for change orders can expose you to disputes and potential legal complications.
- Statutory Limits on Scope Increase: Public sectors or original contracts could impose statutes that restrict the extent to which you can increase a project’s scope through change orders.
- Insufficient Coverage for Expanded Scope: Change orders may not adequately address your new needs when the scope of the change order exceeds the original order requirements.
Process
Managing changes effectively requires a proper system in place. Without one, even deciding on a change order template can become a time-consuming ordeal. That’s why having a streamlined process is crucial. We’ve outlined the same below.
Create a Template
There are several change order templates available online. You can download them or refer to them and generate your own change order form.
Some clients prefer you to submit change order requests according to the AIA format. So always discuss with them their preferred change order template type.
You should ensure that the form includes essential sections like specifications and summaries of changes. You should also clarify the revised project cost and timeline.
Review Plans and Specifications
By reviewing plans and specifications, you can gain a comprehensive understanding of the current project scope. This enables you to assess how the proposed change aligns with the original design intent and determine the extent of modifications required.
To determine whether you can seamlessly integrate changes into the existing design or if they require substantial alterations, evaluate the following factors:
- Assess the Technical Feasibility: Consider whether the proposed changes align with the capabilities and limitations of your current system or infrastructure.
- Determine Compatibility: Evaluate if you can easily incorporate changes without causing conflicts or disruptions with your existing design elements or components.
- Analyze Complexity: Assess the level of effort and resources required to implement the changes, including any potential dependencies and their impact on other system functionalities.
- Consider Project Constraints: Take into account time, budget and resource limitations to determine if you can practically accommodate changes within these constraints.
This assessment enables you to determine the best course of action for achieving your desired outcomes while maintaining the integrity of your existing design.
Determine Responsibility
Evaluate the situation and determine the specific party accountable for the change, whether it’s the owner, architect, engineer or subcontractor.
Assess the cause and impact of the change to determine which party’s actions, decisions or omissions contributed to the need for the change. Consider factors such as design modifications, errors or unforeseen circumstances.
Read the Contract
Sending change order requests without reviewing the contract is like heading into a war unarmed. Clients will immediately reject your change orders if you violate the terms. You should read the agreement carefully to identify conflicting change order clauses.
Some clauses include:
- Deadlines for initiating change orders
- Extra documentation requirements
- Availability of an authorized agent to approve change orders
Remember, even unintentional mistakes can invite lawsuits, resulting in revenue losses.
In May 2022, Direct Steel filed a lawsuit against the American Buildings Company — Direct Steel, LLC v. American Buildings Company — for demanding they sign change orders requiring an additional payment of $256,334.90. Direct Steel feels this amount is outrageous and seeks a declaration that the change orders are void based on economic duress.
To avoid such lawsuits, you must discuss change order clauses with your clients before signing the contract.
Meet the Stakeholders and Subcontractors
After reviewing the terms, you should schedule a meeting with the stakeholders. Submit the change order form and send a meeting reminder to the authorized agent. Without the agent, you can’t make changes to the contract.
You should clearly define the new scope of work and discuss with your clients its impact on performance and the current construction schedule. Ensure you’re on the same page as stakeholders regarding project changes.
You should update your subs about workflow changes. Inform them about new completion dates to reduce their burdens. You also need to determine whether or not you need to draft a separate change order for subcontractors.
Negotiate
Not every client will sign change orders on the first go. And that’s when negotiations take place. It can be tricky as conflicts may arise over costs, material substitution, schedule or various other factors. That’s where change clauses come to your rescue.
For instance, if you pre-decided costs based on unit or time and material pricing, you and the business owner can’t make any changes to it. You should include the same amount in your change order form.
Once there’s a mutual agreement between you and the involved parties, ask clients to sign and make the change order legal.
You can implement construction scheduling software to keep up with the revised schedule. They also help you monitor work progress.
Document the Process
You should always document everything from initiating change orders to signing them to avoid legal issues.
You should also keep communication records that serve as evidence of your discussions and agreements regarding change orders. This helps you avoid misunderstandings and disputes in the future.
Don’t discard any documents immediately. You should retain them for two to three years at least in case of any unforeseen circumstances.
Navigating Construction Contract Changes
When alterations to the scope of work are necessary, it’s crucial that you have a clear understanding of the processes and principles that govern these changes.
Let’s explore the three key aspects related to construction contract changes:
- Changes in the work clause
- Construction change directives
- Cardinal change doctrine
Understanding these concepts will help you gain insights into the mechanisms, contractual provisions and legal considerations involved in managing and addressing changes during construction projects.
Changes in the Work Clause
The “changes in the work” clause outlines procedures for modifying a project’s scope of work. If your clients haven’t initiated a discussion about it, take the initiative and schedule a meeting to define your terms. This proactive step helps prevent conflicts and ensures clarity for both parties involved.
Different agreements place change clauses in different sections. For instance, in the AIA A201-2017 form, you can find change provisions in Article 7. But in the AGC ConsensusDocs 200, change clauses are in Article 8.
A snapshot of AGC ConsensusDoc 200’s changes clause.
We’ve highlighted some things you should consider adding to the change clause in the table below.
| Considerations | Descriptions |
|---|---|
| Size of Changes | Set limitations on the number of change order requests. |
| Notice Requirements | Set a communication channel to share important notices with clients. |
| Pricing | Discuss and determine price units in advance. |
| Conflict Resolution | Outline conflict resolution procedures to resolve disputes in a timely manner. |
| Unwritten Change Orders | Clearly state whether or not verbal change orders are permissible. |
| Time Impacts | Define a process for requesting time extensions. |
A well-drafted changes clause helps you complete construction projects on time and within budget.
Construction Change Directive
A construction change directive commands a contractor to immediately carry out additional work requested by the client. Construction professionals refer to change directives as force account work.
You can’t refuse a change directive even if you’re uncertain about payment terms.
Clients use the G714 form released by AIA to draft change directives.
AIA’s G714 construction change directive form.
Company owners issue a change directive when it becomes difficult to reach a resolution regarding the scope, time and price. If you refuse to work, they can sue you for breach of contract.
In situations where you and the client can’t agree, architects have the authority to make the final decision on the scope, cost and schedule.
Unlike a change order, change directives don’t require the agreement of all parties. The client issues them to minimize project delays.
You can file a claim to receive compensation for performing additional work after project completion.
Cardinal Change Doctrine
The cardinal change doctrine gives contractors the freedom to walk away from a project when clients make fundamental changes to the scope of work. You aren’t obligated to work even when clients issue a construction change directive.
For instance, if you initially agreed to construct a hotel but the client later requests to build a shopping center, the cardinal change doctrine would allow you to decline the directive to construct the shopping center.
If clients force you to perform the work, you can serve them legal notices.
Courts look for the following things when determining the validity of the cardinal change doctrine:
- An increase in the workload
- A significant modification to the project type
- A significant difference in the project costs
Proving these things in court is no easy feat. We recommend you hire an attorney to make your case strong.
Best Practices
It’s difficult to deal with changes. Recalculating project costs and estimating a revised deadline can be tedious. While calling upon a genie to instantly recalculate changes is impossible, we can adopt efficient ways to manage change orders.
We’ve highlighted some tips for the same below.
Use BIM
It’s difficult to manage changes in a complex project. And relying on manual change management processes can cause more errors. With building information modeling (BIM) technology, you can make accurate visualizations before construction begins.
BIM assists you in viewing your project in 6D mode and making precise calculations. This enables you to rule out inconsistencies and prevents you from drafting multiple change orders.
They also consist of material and spatial geometric specifications. So when clients request changes during the construction phase, these tools automatically update the model and allow you to predict the total impact of alterations on the overall project.
Some construction management software like Construction Cloud, AutoCAD Plant 3D and CostX also provide integrated BIM capabilities.
Improve Data Collection
Construction projects heavily rely on data. Analyzing data collected from past change orders helps you identify patterns and trends. This information enables you to anticipate potential changes, understand recurring issues and develop proactive strategies to address them.
But it can be difficult to capture data accurately. You can implement construction management solutions to make data collection processes more efficient.
Using multiple disjointed apps to store data poses a risk of losing vital details. To mitigate this, you should seek a system with integrative capabilities. It enables you to view and transfer information within minutes.
Prepare Forecast Models
When you have knowledge of what lies ahead, you can equip yourself with the necessary resources to overcome obstacles. This is where predictive models come into play. They enable you to forecast changes that could potentially impact your project in various ways.
To effectively use predictive models, generate and analyze multiple scenarios that can significantly affect project expenses and timelines. By exploring these scenarios, you gain valuable insights into potential risks and opportunities.
Sharing the results of your what-if analyses with clients is crucial in order to prevent future disputes and align expectations.
Implement a Change Order Process
To ensure clarity and minimize misunderstandings, it’s important to clearly outline the process for initiating change orders in the contract.
Include a clear workflow for submitting, reviewing and approving changes. Define the responsibilities and timelines for each step to maintain efficiency and accountability. This helps you deter any unnecessary requirements and establishes a framework for addressing project changes in a structured manner.
Ensure Clear Communication
Effective communication is the key to success. If you don’t inform your team about the discussed changes, they won’t be able to deliver the desired results. You should implement a solution that offers a messaging portal to keep everyone in the loop.
Such systems help connect involved parties and promote collaboration throughout the construction process. They assist you in notifying team members about the latest developments, helping you prevent project delays.
Provide Training
By offering training sessions, you ensure that project team members have a clear understanding of the change order process. They become familiar with the necessary procedures, documentation requirements and their roles in effectively managing changes.
Training ensures that team members are aware of legal and contractual requirements related to change orders. They understand the importance of adhering to these obligations, reducing the likelihood of non-compliance and potential legal disputes.
Tips to Tackle Disputes
Change order disputes can sometimes resemble an unexpected storm on an otherwise sunny day. The clash of perspectives, the tangle of contractual obligations, and the potential for delays and added costs can create a tempestuous atmosphere.
According to the CRUX Insight 2022 report, some top reasons for disputes are as follows:
- Changes in scopes of work
- Contract interpretation disputes
- Design information was issued late
- Contract management
- Design was incorrect/incomplete
- Poor management of subcontractors and suppliers
However, amidst the storm, there is an opportunity for resolution and harmony. Below, we’ve outlined some of the best practices you can follow to avoid conflicts.
Draft a Clear Contract
Ambiguity in agreements leads to misunderstandings. To avoid this, you should use simple language when drafting contracts. If you need to include technical terms, define them clearly. Keep it straightforward to promote clarity and prevent potential disputes.
Some other things you can do to generate an easy-to-understand contract are as follows:
- Use short sentences
- Draft in the active voice
- Switch nominalizations to action verbs
- Avoid repetition
- Use sections and subsections effectively
You can hire a lawyer to draft the agreement on your behalf. But make sure you proofread it because sometimes attorneys use a lot of legal jargon.
Set Realistic Clauses
Don’t sign an agreement if you think the clauses are unrealistic. For instance, the authorized agent assigned by the client might reside in a different time zone which makes it difficult to reach out to them. In such cases, you should identify a secondary authorization contact.
Stay vigilant and ensure that the agreement aligns with practical circumstances to prevent unnecessary complications.
Decide on Pricing Standards
To avoid misunderstandings and disagreements, it’s important to establish prices for changes before signing the contract. While you may believe your charges are fair, clients may hold a different perspective.
To determine prices, you can implement these two pricing models:
- Backward Pricing: You start with the profit margin you want to achieve and then calculate the price for a project or change order.
- Forward Pricing: Here, you set the prices in advance with the help of cost estimates.
Both pricing models take into account direct, indirect and consequential costs. Regardless of your model, you should determine the impact of projected time and productivity on costs.
Seek Legal Remedies
If you find yourself unable to resolve payment conflicts with your clients, you have the option to file for a mechanics lien. It enables you to seek compensation when clients don’t pay you for the performed work. Due to their legal nature, you can find them on public property records.
Mechanics lien laws vary from state to state. For instance, the California mechanics lien law requires you to file within 90 days of project completion, whereas you have to file mechanics liens in Illinois within four months from the last work date.
However, we recommend you have open discussions with your clients and attempt to find a resolution before resorting to legal action. Lawsuits can be both expensive and time-consuming, so it’s best to address conflicts at an earlier stage if possible.
Avoid Procrastination
Delaying change orders can result in cost and schedule overruns. So no matter who initiates them, you should handle them expeditiously.
You might think about performing the work and then sending a request. But this delay can cause backlogs and won’t guarantee payment for the additional work you completed.
J.R. Skrabanek, attorney at Thompson and Skrabanek, says, “the best way to avoid disputes over change orders is to be proactive.”
Taking swift action allows for timely communication, negotiation and implementation of necessary changes, keeping projects on track and minimizing any negative impacts.
Don’t wait, tackle change order disputes head-on to maintain project momentum and keep everyone involved aligned and satisfied.
FAQs
Can clients refuse change orders?
Clients have the right to reject change orders if they perceive them as unnecessary. To build trust, you should clearly communicate the reasons behind your change requests, ensuring the client understands the purpose and benefits of the proposed modifications.
Who prepares the change order?
Upon receiving a change request from the project owner or authorized party, the contractor takes responsibility for evaluating the proposed changes, estimating the costs and impacts, and preparing the necessary documentation for the change order.
Who approves the change request?
Typically the project owner or the authorized representative of the owner, such as a project manager or architect, approves the change order.
What are lien waivers?
Lien waivers are agreements between contractors and clients wherein contractors give up their rights to file a mechanics lien. They act as payment receipts stating that company owners paid contractors in full for their services.
Should I apply sales tax to change orders?
Yes. Change orders are an addition to the base amount, so they need to have their own sales tax.
Next Steps
Both you and the clients can request changes at any stage of the project. And you should be ready to deal with them. You can anticipate change orders to avoid disputes or possible legal actions. You can also craft an effective process to prevent project delays and budget overshoots.
P.S. Never make modifications on a handshake. Prepare a legal document, get it signed by clients and only then resume the work according to the revised components.
You can use construction bidding solutions to streamline your change order process. But how do you select the right one? We’ve got you covered! You can use our free comparison matrix to compare multiple solutions simultaneously and make informed decisions.
What type of change order do you initiate the most, and how do you manage them? Please let us know in the comments below. We’re waiting to hear from you.