Change Orders Formalize Project Changes
Change orders have a bad reputation! But change orders are not necessarily a bad thing; they are very useful elements of the building process.
If you’ve ever hired a contractor to build something, you’ve likely experienced change orders. In fact, it may be the building owner who initiates a change order by requesting a change. Let’s take a closer look at the meaning and use of change orders.
What are they?
Let’s assume you are the owner of a building that is being remodeled. What happens when you change your mind or add something to the project? What if the architect or contractor has project suggestions after the contract is signed? What happens when the project’s materials, such as lumber or brick, are not available? In all cases, the contract signatories agree on a change order to include changes to the project.
Simply stated, a change order is work that is added to or deleted from the original contract scope. Change orders are likely to affect the contract amount (price) and/or the final completion date (time). Sometimes, due to some unforeseen delay, time is added to the project schedule. Change orders amend the contract to reflect desired changes.
What is a change order changing?
Change orders affect one or more of the three items specified in the project contract:
1. The scope of work
2. The project price
3. The project deadline
How do they work?
Let’s get back to your hypothetical remodeling project. Perhaps you decide to add a window to the project. When the contractor opens the wall to add the window, he discovers there is a structural member that needs to be modified to accommodate the window. Or perhaps you are building a company headquarters and the excavating subcontractor runs into bad soil. The bad soil will need to be removed and replaced prior to proceeding with the foundation. In both cases, a change order will be generated to reflect the scope change.
Before the change order is finalized, the architect will refer to the original documents to see how the new change impacts the project. The original documents will need to be revised to reflect the desired changes. Once the changes are documented, all parties to the contract will sign the change order to indicate their agreement and acceptance.
Who is involved?
Any of the involved parties may propose a change to the contract. No one can simply issue a change order. Change orders are agreements between building owners and their contractors. But some projects also require the approval of others who have obligations affected by the contract you’re changing, such as guarantors, sureties, lenders, and insurers.
Once all parties agree to the project change and appropriate compensation, the change is documented and the parties sign a change order to formalize the agreement.
How much is it going to cost?
The building owner and the contractor work with the architect to determine fair compensation for the change. In our remodeling project example, the contractor will be compensated for the time and materials to create the window opening, modify the structure, and obtain and install the window. Perhaps the schedule will be extended a few days as well.
The project owner will also pay the architect for their time to redesign the structure, get the approval from the local code officials, produce drawings, and coordinate with the contractor. This is paid separately outside of the construction contract and is not included in the change order, unless the project is done under a design/build contract.
Change orders formalize project changes
Change orders may have a bad reputation, but they are actually very useful elements of the building process. They help move projects forward by serving as a formalized way of documenting and agreeing to desired project changes.
