Change orders—they’re part of the normal course of a construction project, but they’re are also a major pain point—the cause of disputes among contractors, owners and designers, and a reason for cost overruns and completion delays.
The industry will never not have change orders, and they will always be a source of disputes. But contractors would find their pain considerably lessened by putting clear, systematic procedures in place for managing change orders from the get-go.
Of course, there are various reasons for change orders. Drawings and design changes, inaccurate specifications, and lack of coordination between contractor and consultant can result in significant change order requests, requiring materials substitutions that can become problematic. Responding in a way that keeps the job moving may also add to material and labor outlay.
They can result in substantial cost to the contractor. Industry data suggests change orders account for 8% to 14% of capital construction projects. One study indicated that they led to project cost overruns of 11% to 15% on average, while they pushed work as much as 20% past scheduled completion dates.
Institutionalize your change order process into the fabric of your organization and operations to most effectively moderate the risks of disputes long term. If undertaken with a collaborative spirit, the process will run smoothly. That means making sure there’s shared buy-in to its terms before the project starts—by contractor, owner, subcontractors and consultants—and open lines of communication.
Taking the following five steps will help contractors shape change order management process and improve outcomes.
1. Review Your Contract Anticipating Change Orders
Specifications for managing change orders should be spelled out clearly in the contract. Establishing expectations for initiating, authorizing, performing and paying for work required by change orders may slow the number of unauthorized change orders and also deter unnecessary requests. Be sure to identify who receives change orders. The submission timeframe should be specified and likewise reflect the importance of timeliness. Documentation to be included with change orders also should be stipulated.
2. Review All Plans
Before work starts, a review of the project and its scope will ensure you are on top of any ambiguities, errors or omissions that might pose problems. Delays due to document revisions are less complicated and less costly to manage at the start of the process, rather than when construction is already well underway.
3. Write It Down
Each change order should be specified in writing, written clearly and in detail, with a strict protocol for signoffs by all parties. If change orders aren’t executed in writing, there may be difficulty collecting the full amount for the changes, though the legalities vary by state and type of work (residential versus commercial). Even if your construction contract is silent on written change orders as a condition of payment, your process should not be if you expect to stave off disputes.
4. Set Communication Procedures
A change order can have a significant effect on the project overall, the timelines set and being followed and other issues that figure into the broader schedule, like work phases and worker requirements. A communications protocol should be put in place so that all contractors on the job, whether they have direct or indirect involvement with the changes, know about the change orders and can provide input on their potential impact.
5. There’s a Solution for That
There’s been an explosion of tech solutions and applications for the construction industry, and project management software with change order functionality may be one of the smartest investments a contractor can make. Today’s systems offer templates for change orders and capabilities to track their approvals, making the process less cumbersome and more efficient than paper logs and email.
Upping your game for change order procedures doesn't mean disputes won’t happen. However, when the facts are well-documented and the process done right, your business and each project will be better protected, risk will be mitigated and you will have fewer surety and professional liability issues as well. Then, everyone is more likely to come out ahead.