Change orders 101: Basic principles explained and tips to manage

Construction projects rarely go as planned. Unexpected discoveries, last-minute client requests, design tweaks, or even shifting regulations can necessitate adjustments along the way.

These adjustments can throw a wrench into a well-planned project, but there's no escaping them, making flexibility an essential component in any project.

To ensure that everything runs smoothly, change orders are implemented as guardrails to prevent the project from taking a hit. This comprehensive guide will help you understand, implement, and manage change orders effectively, regardless of whether you're a contractor, a project owner, or someone just foraying into the realm of construction.

From defining the concept and discussing why it's important to exploring its key components and steps for creating an effective change order, this guide provides valuable information to help you keep your construction projects moving on schedule and within budget.

Main takeaways from this article:

• Change orders are essential in contract management for addressing necessary adjustments in project scope, cost, or timeline.
• Proper documentation and clear communication are critical in managing change orders effectively and avoiding potential disputes.
• Each change order should include a detailed description, reasons for the change, impact analysis, and necessary authorizations.
• Using technology like DocJuris can simplify the change order process with features for real-time collaboration and negotiation insights.

What are change orders?

Change orders are formal documents used in project management, particularly in construction and engineering, to record modifications to the original contract terms. These modifications can include changes in the original scope of work, project timelines, costs, or any other conditions stipulated in the initial agreement.

A change order is a mutual agreement between the contracting parties to make additions, omissions, or adjustments to the agreed-upon project specifics.

Change order vs. contract amendment

While similar, there's a subtle difference between these two terms.

A change order typically relates to specific parts of a contract, such as modifications to the scope of work, deadlines, or costs. These changes usually originate from unforeseen developments during a project's lifecycle. For instance, discovering unexpected site conditions that require additional work would necessitate a change order. It's a more granular approach, which is often used to address immediate, tactical adjustments while maintaining the overall integrity of the original contract.

A contract amendment involves broader revisions to the contract itself. This might include substantial alterations to the terms and conditions agreed upon by both parties. Unlike change orders, which frequently operate within the framework of the existing contract, amendments reorganize the structure or content of the original agreement, making it suitable for massive strategic changes.

Why is a change order important?

Change orders are crucial for maintaining a healthy project environment. Here's why:

• Clarity and transparency: They ensure clear negotiations and prevent misunderstandings about the scope of work. By articulating the specific changes, their reasons, and their impact, change orders provide a transparent record for successful collaboration.
• Fair compensation: Change orders help ensure that contractors are fairly compensated for the additional work they do to implement changes, and owners are clearly informed of the impact on their budget.
• Project continuity: Addressing changes formally through change orders helps to avoid disruptions and delays that can occur when changes are not properly managed.

When do you need a change order?

Change orders come into play for a variety of reasons. Here are some common scenarios:

• Scope changes: The owner decides they want that granite countertop instead of laminate. While this might seem like a minor tweak, it requires a change order to document the impact on the scope of work and timeline, and the original contract value gets influenced.
• Unforeseen site conditions: What would you do if you dug out the foundation and uncovered an archaeological site? Unexpected discoveries necessitate a change order to address the new situation.
• Material or cost adjustments: Material costs can fluctuate, or a specific product might become unavailable. A change order documents the revised cost or proposes an alternative.
• Client or stakeholder requests: The owner wants to add a custom lighting feature. A change order documents everything and ensures everyone's alignment.
• Regulatory or compliance changes: Building codes may get updated mid-project, requiring a change order to adhere to the new regulations.
• Timeline adjustments: Unexpected delays may necessitate extending the deadline. A change order formalizes this extension and outlines any related cost adjustments.

What should be included in a change order?

A well-drafted change order is comprehensive and leaves no room for misinterpretations. Here's what your document should include:

Description of the change

It's essential to clearly outline the specific modifications to the contract and what the change involves so that all parties understand the new terms. A precise description prevents misunderstandings and sets correct expectations for project outcomes.

Reason for the change

The rationale behind the change order must be clearly documented to avoid any misunderstandings. Clearly stating the reason ensures all parties are on the same page and helps maintain trust and transparency throughout the project.

Impact on cost

The cost impact addresses the financial implications of implementing the change. This ensures that all stakeholders are aware of any budget adjustments, allowing for transparent and accountable fiscal management within the project.

Impact on timeline

When timelines shift due to a change order, it’s crucial to update all project parties. This transparency ensures alignment and helps manage expectations, preventing frustration and confusion as project milestones are adjusted.

Authorization and signatures

Authorization and signatures are critical for ensuring that all parties formally approve the change. This step safeguards against misunderstandings and legal issues, providing a clear, documented agreement before proceeding with the project modification.

Reference to the original contract

Change orders should explicitly reference the original contract to maintain a clear connection between the agreed-upon terms and any modifications. This helps ensure all parties understand the context and implications of the changes being made.

How to create a construction project change order

Creating a change order involves a systematic approach to ensure that the modification is properly documented and approved. By following these steps, you can maintain project integrity and avoid potential disputes.

1. Identify the need for a change

Recognizing the need for change is the first step in managing change orders effectively. This can stem from unforeseen site conditions, client requests, or regulatory changes. It's crucial to pinpoint and document these needs early to prevent misunderstandings and keep the project moving smoothly.

Here are some actionable tips for this step:

• Observe and analyze: Be vigilant for signs of potential changes, such as client requests, unexpected site conditions, or regulatory updates.
• Communicate: Discuss the need for a change with the project team, client, and any relevant stakeholders.

2. Draft a detailed description of the change

Detailing the change clearly helps everyone understand what's being adjusted. Include specifics like materials, labor, and scope. The more thorough your description, the less room there is for misinterpretation. This precision not only clarifies the work but also aids in securing prompt approvals and smooth project progression.

Here are some actionable tips for this step:

• Be specific: Clearly define the nature, scope, and location of the change.
• Utilize visual aids: Consider using diagrams, sketches, or photos to illustrate the proposed modification.

3. Assess the impact on cost and timeline

Evaluating the change's financial and time repercussions is critical. You'll need detailed estimates of additional costs and any schedule adjustments. This step ensures transparency, keeping all parties informed and aligned. Having an accurate assessment upfront can prevent future disputes and help manage expectations effectively.

Here are some actionable tips for this step:

• Do a cost analysis: Estimate the additional costs associated with the change, including materials, labor, and equipment.
• Evaluate the schedule impact: Evaluate how the change will affect the project's timeline. Determine if there will be delays or accelerations.

4. Prepare the change order document

Now, put together the change order document in a comprehensive, clear, and precise manner with detailed descriptions, cost impacts, time adjustments, and authorization signatures. Using contract management software like DocJuris can make this entire process smoother and more consistent.

Here are some actionable tips for this step:

• Use templates: Use a standardized template to ensure consistency and completeness.
• Add content: Include the description of the change, reason for the change, cost impact, timeline impact, and necessary signatures.

5. Obtain necessary approvals

Securing the necessary approvals is crucial to ensure that all stakeholders are on the same page. This step includes getting signatures and formal agreements from project managers, clients, and any other relevant parties, confirming that everyone understands and agrees to the proposed changes and their implications.

Here are some actionable tips for this step:

• Huddle with the stakeholders: Secure approvals from the client, contractor, and any other relevant parties.
• Conduct a legal review: Consider consulting with legal counsel to ensure the change order complies with contractual obligations and applicable laws.

6. Update project documentation and records

Ensuring that all project documentation reflects the approved change is critical. This step not only aids in preventing misunderstandings but also ensures that every team member is working with the most current and accurate information.

Here are some actionable tips for this step:

• Update project plans: Modify the project plans, drawings, and specifications to reflect the change.
• Keep a change history: Maintain a record of all changes made to the proposed contract.

7. Monitor the implementation of the change

Ensuring changes are effectively integrated into the project requires vigilant monitoring. Proper oversight helps identify issues early, maintain alignment with project goals, and ensure that all adjustments are executed as planned, minimizing disruptions and maintaining quality and schedule adherence throughout the process.

Here are some actionable tips for this step:

• Set up progress tracking: Regularly monitor the progress of the change to ensure it is being executed according to the agreed-upon terms.
• Establish quality control: Verify that the work meets the required quality standards.

8. Review and close the change order

After implementing the change, it's essential to review all aspects, ensuring that everything aligns with the agreed modifications. Proper documentation and final approval are the last steps, solidifying the change order’s completion and helping to prevent any future misunderstandings or disputes.

Here are some actionable tips for this step:

• Do a final inspection: Conduct a final inspection to confirm that the change has been completed satisfactorily.
• Clear all payments: Process any additional payments due to the contractor.
• Formalize the closure: Officially close the change order once all requirements have been met.

Key challenges with change orders

Change orders are a must for flexible project management, but they can sometimes present challenges and obstacles. Let's look at some common challenges that may arise with change orders and how to deal with them.

Poor communication

Lack of clear communication between the owner, contractor, and other stakeholders can lead to misunderstandings about the desired changes and their impact.

➤ Solution: Establish open communication channels, clearly define expectations, and document all discussions related to changes.

Inadequate documentation

Inaccurate or incomplete details in the change order document can potentially lead to confusion and disagreements between the stakeholders down the line.

➤ Solution: Utilize standardized change order templates to ensure essential information is captured consistently.

Delays in approval

There can be delays in obtaining approvals from all parties involved, which can stall project progress and result in costs running up.

➤ Solution: Establish a clear approval workflow with defined timelines to avoid bottlenecks.

Cost overruns

If there are unforeseen costs incurred in the process, it can lead to project budget overruns and ultimately jeopardize the project's profitability.

➤ Solution: Conduct a thorough cost analysis before finalizing the change order and include a buffer in the budget for potential cost fluctuations.

Impact on the project schedule

Changes can disrupt the project timeline and lead to delays and missed deadlines, which can have cascading effects on subsequent stages and even result in penalties or contract breaches.

➤ Solution: Assess the change's impact on the schedule upfront and communicate any adjustments to stakeholders.

Contract disputes

Any ambiguous change orders can lead to disagreements regarding the original scope, overall cost, and responsibility allocation and put a tremendous strain on resources.

➤ Solution: Draft clear and concise change orders that accurately reflect the agreed-upon modifications. Consider legal counsel for reviewing complex changes.

Streamline your construction contract process with DocJuris

Change orders don't have to be a headache! DocJuris, a powerful contract management platform, can help you deal with these orders and their challenges with ease. Here's how:

Real-time collaboration: DocJuris facilitates seamless communication between all parties involved in the change order process.

Negotiation heatmaps: Visualize areas of agreement and disagreement within change orders to expedite approvals.

Review and markup contracts in minutes: DocJuris empowers you to swiftly review and mark up change orders electronically, streamlining the approval process.

Simplify your construction projects with our AI-powered contract review platform and discover how it streamlines contract management for project success.

Request a demo.

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