Managing and Reducing Change Orders in Construction
06/14/2022
Change Order
noun; plural change orders
Definition : a written alteration to a previously signed contract for work (as in construction)
What are Change Orders in Construction?
A change order in construction is a written alteration to a previously signed contract for work. In expanded terms, a change order is the documentation outlining the scope and cost for added or subtracted work to a specific construction project, which modifies the original contractual agreement to include the new terms of the work. Any given project may experience one or many change orders over time, determined by a variety of factors:
- The complexity of the work
- The state of construction documents when the work was bid
- The procurement method
- Changes in building use/tenancy
Change orders are an important piece of documentation for all parties in a given project, and they also tend to be thought of as a negative item because they often add costs to the work, though this is not always the case.
When is a Change Order Justified?
Contractors will submit a change order if the scope of the work adjusts after a price has been agreed to. The scope can change due to many things, including but not limited to:
Additional requirements from the local authority having jurisdiction (JHA).
For example: a project is priced prior to construction permits being issued. Once the permit is issued, the local JHA requires modifications to the plans that add cost to the work.
The building was designed as a speculative space.
The owner signs a lease with a tenant that now requires a tenant improvement build-out.
In an existing space, unknown factors become evident during demolition, such as:
- Finding structurally significant walls or components
- Discovering hazardous materials
- Identifying undocumented utility piping
Drawings used to hard bid the work were incomplete or missing details.
The owner or design team dislikes a specified dimension or finished product and decides to make a change.
Boulders or soft soils are discovered on the site during excavation activities.
In short, there are a myriad of reasons that changes to the scope or cost may present themselves over time. Construction is inherently full of risks that may impact the cost of work and justify a change order.
Reducing Change Orders in Construction Projects
The best way to reduce the number of change orders on a project is two-fold:
- Negotiate the project with your general contractor and involve them in the preconstruction process.
- Hire a competent designer to team with your GC to develop complete construction documents.
Engaging the entire design and construction team at the conception of a given project allows all parties to work cooperatively to achieve the end goal. A great preconstruction team can identify and reduce risks by anticipating and planning mitigation strategies for the work.
Some examples include:
Risks related to Site Work
Early investigative efforts through the use of a civil engineer, a geo-engineer, and an excavation company can provide insights into the site that will identify risks. While not all site complexities can be determined before digging begins, these experts should be able to calculate reasonable allowances to carry to account for them.
Risks related to Building Materials
In today’s climate of long lead times, materials delays and labor shortages, it’s critical to identify all needed items and the length of time that will be required to ensure they arrive on time. With a negotiated contract, the GC can be authorized to pre-order materials to arrive on time and avoid escalation and delays.
Risks related to Quality of Work
As discussed in this episode of The Perlo Podcast, picking the ‘lowest price’ bid isn’t always a good plan if high quality work is desired. Pre-qualifying the trade partner firms and involving them in the budgeting process helps ensure that the final product is exactly as expected.
Performance of Constructability Reviews to Reduce Risk
An important task in the preconstruction process is the completion of constructability reviews. Contractors can evaluate designs when they’re preliminary to identify cost, schedule and quality impacts and suggest alternatives if what is drawn isn’t ideal. These items can inform the design before it’s finalized and reduce costly re-designs.
Change orders can’t always be avoided. However, working with a high-quality and experienced construction team can reduce the quantity of them.
Reviewing Change Orders for Accuracy
Change orders are often unavoidable during construction for all the reasons discussed previously. When they occur, there a few things to keep in mind to ensure that the changes are complete, accurate and as cost effective as possible.
Verify that the scope is complete.
A good contractor will critically evaluate the scope that any trade partners include in the change to ensure that this change order won’t lead to another future change order.
Evaluate the costs included.
This may mean reviewing trade partner quotes, supplier quotes and the fees assigned to those. Change orders should be sent to the owner and design team with cost backup attached which explains the breakdown for how the costs were calculated.
Pre-negotiate the change order fees and insurance rates that are assigned to them.
Documenting these fees in the original construction contract manages expectations for mark-ups on changes.
Consider schedule impacts.
Often, changes in scope and work may change the end date. Change orders should always account for any added days that will be required to complete the work. Note that an extension of the project schedule will usually include additional general conditions costs.
A good contractor will know what is included in the change order and why. They will also have spent time reviewing the original contract documents to confirm that the added work, associated costs and schedule changes are justified.
Final Thoughts
While change orders may be unavoidable, establishing ground rules and using a team approach to evaluate each one of them can prevent the process from becoming contentious. Using strict review processes for each change with a critical eye for details will ensure that any changes are accurate as well as justified.
If you’re thinking of your next construction project and want to ensure that you have the best team on board, contact us today.