Change orders are formal project documents that help general contractors, and asset owners make amends to the scheduled construction work. In most cases, modifications to the construction scope are costly and frequent. Therefore, the general contractor must understand the implications of the change to focus on the management process.
The project owner requests a change order in most cases. It’s an essential part of the beginning construction phase. This article will help you understand what a change order is, the management process, strategies to use, and how to navigate disputes.
Change Orders in Construction Projects
A change order in construction is as standard as almost every city has a McDonald’s. Roughly 35 percent of all construction projects will have one significant change in their lifetime.
Asset owners, general contractors, specialty contractors, employees, and customers need to know what a change order is and how it might be used during the construction process.
What’s a Construction Change Order?
In a sense, a change order is a formal document outlining amendments and adjustments to the contract scope of work. These contract documents must be agreed upon by all involved parties, including the contractor who must change, the project owner, and the general contractor. It’s a way for everyone to be on the same page before the project starts.
There are two categories for change orders:
- A change order might involve additional work beyond what was outlined in the initial contract. They often include price increases and deadline extensions.
- A change order could remove some of the scheduled work. They might include a reduction in the construction contract price and might be disputed by change order recipients or specialty contractors.
Common Reasons for a Construction Change Order in a Construction Project
In most cases, a change order results from missteps or mistakes during the planning or pre-construction phase of the project timeline. They can also happen because of mistakes during construction, new client requests, material substitutions, etc.
Here are the top causes of a change order in construction:
Every construction project is built on an estimate, and that’s just a rough calculation of a future quantity, number, or value. Therefore, they’re used to plan resources, time, and money necessary for a construction project.
Usually, when estimates get produced, questions arise about the design, resources, and potential shortfalls in funding. If they don’t get answered easily, it’s best to create a change order to address the issue before starting the project.
The most obvious reason for a change order is a production error. Construction projects have so many moving parts, and it’s easy for mistakes and accidents to happen.
The asset owner must choose a general contractor based on their project experience. However, the general contractor has to select subcontractors on that same criterion. Everyone should do what they can to make sure all workers on the project are certified and professionally trained.
Here are the two types of design changes for construction projects:
- The project owner changes their mind and requests additional/new work.
- The project can’t be completed without revisions made to the original contract designs.
The general contractor and subcontractors can’t determine the first, but they control the latter.
The Construction Change Order Process
Every change order process will vary based on the asset owner and contractor. However, there’s a general workflow considered to be the best practice for the industry. Here are the steps to deal with change orders:
- Read the Contract Fully – Whether you’re a subcontractor or general contractor, you should pay attention to the clauses surrounding change orders in the contract. They can include requirements about information, timeframes, and much more.
- Review the Specs and Plans – One way to anticipate change is to familiarize yourself with the pre-bid documents. Finding omissions and errors about your scope of work can be corrected before the work begins to reduce project delays.
- Address the Change Order Quickly – When a contractor gets a change order, they should initiate the necessary negotiations to make revisions fast so that work can resume before delaying the project.
- Communicate Changes to Stakeholders – If a subcontractor gets a change order, there’s little to communicate. However, the general contractor must work with others to revise their plans and communicate everything to others it might affect.
- Document Everything – A construction firm can protect itself from liability by documenting all project-related documentation through the contract. It should also be digitized for the best results.
Construction Change Order Disputes
Sometimes, construction change orders aren’t well-received, especially when they deal with scheduling and costs. If a conflict arises, both the receiving and issuing party should be aware of these things:
Is a Change Order Necessary?
The first step is to determine if a change order is justified or more fact-specific than your original contract. This is a gray area, but it’s crucial to ensure the change is really a change. Therefore, it’s wise to investigate RFI (requests for information), pre-bid documents, fieldwork orders, and everything else.
Usually, the issuer hopes that the change order isn’t required and is just an extra detail. The recipient hopes to find appropriate grounds to negotiate timelines and price increases for any new work in the change order.
Never Start New Work without the Change Order
General contractors are often eager to start on project changes, but they shouldn’t do any work outside of the contract scope until the recipient and issuer agree to the terms and have signed a new contract.
There could also be extenuating circumstances when a change order isn’t required. If the issuing party claimed in the contract that actions and words are sufficient for change requests, they might not need a change order.
Contractor- or Project-Specific
A general contractor must clarify who the change affects with the parties involved. A change to one single contract might not necessarily change the other.
There could be instances where the change order was issued by the asset owner to the general contractor about work the subcontractor will perform. Therefore, the general contractor issues the corresponding change order to the subcontractor.
If the change order focuses on the work the contractor is doing and won’t affect the rest of the job; no other changes might be needed to the scope of work. Therefore, the project schedule may not be affected at all.
Managing Change Effectively in Construction
Change is always inevitable for construction projects. Likewise, some of them cannot be addressed by a simple change order. However, there are both ineffective and effective ways for those involved to manage change. Here are some of the things a general contractor will likely do to manage their projects well to reduce conflicts and boost operational efficiency:
Plan for Change Throughout the Life Cycle and Project Scope
Typically, the construction change directive is that a management program should be reactive and proactive. Therefore, anticipating and planning for change throughout the life cycle will be highly beneficial.
Focus on Being Open to Change
Company culture is crucial for most sectors. However, it’s difficult to instill and build a culture for each construction project because many workers and subcontractors will all be role-players during the production process. It’s possible to do, though!
Change culture must be established daily, just like safety culture. Likewise, project management is crucial, and project managers and other staff are critical for this effort.
Typically, project managers will need to use safety meetings, toolbox talks, and have other conversations with their subcontractors. This will communicate the scope of work changes, prepare people for changes, and remind everyone of their expectations and goals during a change order.
Frequent and Clear Communication
On-site staff are crucial to have during the communication process. However, technology can and should enhance the touch frequency between the subcontractor and general contractor.
Leverage a Change Order Policy
Everyone knows that change orders are more than a simple request for work. They are contract amendments, which are legally binding in every state. Therefore, they are considered a powerful mechanism throughout the change order process. However, they can only be effective if everyone has the right expectations and knows what to do when they come up.
Use Appropriate Technology
The construction industry is one of the biggest sectors where technology lags behind. Likewise, it’s not a very efficient area, with roughly 30 percent of all contractors finishing their projects within budget and on time.
However, this is all changing. After the global COVID-19 pandemic, technology adoption increased in many industries, and construction was right up there with them. Therefore, working with a contractor or company that understands the benefits of technology and uses it frequently will be highly beneficial.
Conclusion – What Is a Construction Change Order, and When Is It Necessary?
Overall, construction projects are too complex and large to go off without a problem. Mistakes will invariably be made, and accidents will happen. Therefore, recourse and change are required because it’s simply the nature of the industry.
However, change orders, along with other formal processes, can reduce the cost of changes and complexities for projects. Everyone should understand the basics of change orders and how they work because they might be needed.
Knowing what it is might be the first step. Still, it’s also crucial to ensure it’s necessary, review plans, don’t delay or ignore the change order, communicate with everyone, and negotiate effectively for the modifications.
Documenting everything is essential because it creates information about material costs, schedule delays, etc. These supporting documents will protect the construction company in case of a lawsuit or dispute.
Overall, construction companies review changes carefully and keep all their written records. It’s wise to work with someone who understands your needs and goals. Ace Construction Texas, Inc. is here to assist.
Our team can work with customers directly or with project managers. Whether you know you’ll have to go through the change order process or not, understanding what it is and how it works is the first step. Please call (512) 576-0593 to request your free estimate on your next construction project!