What is a Change Order?

By Lexi Wood • Updated on January 15th, 2021
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A change order refers to any modification made to a contract by a project manager. Commonly found within a construction software environment, change orders can also be referred to as variations or change directives. There are three main reasons a change order is made:

  • Additions beyond the original scope of the project are needed
  • Substitutions or alterations are requested
  • Omissions to the original project are necessary

Whatever the reason for a project is changing, a variation order is necessary to document all adjustments to the original contract which influence the scope of work.

Who Controls Change Orders?

Change orders are controlled by project managers and their clients. In theory, they help clients communicate their expectations with the experts working on their order. In practice, these orders can prevent delays and misunderstandings from informal requests. As such, it’s vital to keep detailed records of all variations, whether they are approved or denied, until the project is complete.

Change orders are primarily used in the construction industry, though there are other industries which use them as well:

  • General contractors and subcontractors
  • Architects and builders
  • Manufacturers
  • Banking institutions
  • Healthcare facilities
  • Government contractors
  • Legal firms
  • Freelancers and independent contractors

Any industry which heavily relies on detailed contracts will benefit from change order management systems. As previously mentioned, this mostly applies to construction projects. Yet regardless of industry, change orders ensure smooth communication between project managers and their clients about the scope of work. For instance, a client may make an informal request for additional work beyond the scope of the original contract. Simply sending an email asking for more is not enough. A formal change order ensures the project manager has an opportunity to calculate a new estimate based on the additional labor and material necessary to complete the project.

What Causes Change Orders?

As mentioned above, there are three main reasons for change orders happening:

  • Additions
  • Substitutions
  • Omissions

In addition to these general variations, there are also change orders made when mistakes are discovered. For example, an incorrect estimate being recalculated. The scope of the project doesn’t change in this case, just the associated costs.

Each one of the main three occurs for several practical reasons:

Project Additions

Once a project contract has already been signed and agreed upon, clients may request additional work. The project manager will need to review all the factors necessary to accommodate this new request, such as bringing in more materials or laborers to complete the job. Before any new work outlined in this variation order can begin, client and project managers alike have to agree on all new costs and timelines.

Common reasons for additions to the scope of work occur largely stem from the client side of the project. In construction, this often falls to changing popular styles between the start of the design process and the build itself. However, there are reasons for the project managers to request variations in order to make a project more feasible or affordable.

Finally, extra work cannot be done for free. Additions allow project managers to calculate the cost of any new work.

Project Substitutions

Occasionally, the original plans of the client prove to be impossible to make happen for a number of reasons. There may be material shortages, labor delays, or a lack of funds. When these situations arise, substitutions are necessary to fix the problems.

A common cause for substitutions is pricing. A client may realize there are substantial savings if they change their expectations for the final project. One example would be substituting custom-built light fixtures for mass produced units instead. These substitutions could be at the request of the client or the project manager.

Project Omissions

Some project requests may be impossible to achieve. Unfortunately, this may not be evident until after the contract has already been agreed upon. This is when omissions are necessary, to remove unwanted or unnecessary work from the original order. As with substitutions, this can happen due to costs or labor-related issues.

One of the most frequent scenarios for omissions comes from clients changing their mind about what they want. For instance, a construction company building a house may originally be contracted to build a storage shed in the backyard. Since the new structure requires an additional permit to be built, the client may decide to keep costs down by temporarily skipping that piece of construction to keep work focused on the home instead. A project manager can also decide on omissions if site conditions, such as a poor foundation, may make building too costly or unsafe.

All of the Above

Finally, project additions, substitutions and omissions often overlap. For example, a client building a new home may change their mind about what they want for the kitchen design and request changes to their construction contract. The first new idea, custom tile backsplash, is an addition to the original request. The decision not to use stainless steel appliances is an omission. Since ordering new fixtures for the sink is an extension to the construction timeline, this may be noted as a substitution.

While it may seem obvious that an addition will lead to a substitution, it is always important to clearly mark all adjustments with a change order. Otherwise, it’s entirely possible for mistakes to happen. Using the above scenario, failing to note the omission of stainless steel appliances could lead to two sets of appliance deliveries to the new home. A comprehensive change order can prevent these costly and time-wasting errors by keeping all contractors and subcontractors on the same page with the client.

What’s included on a Change Order?

A change order has to include several elements, starting with the work outlined in the construction contract which is now altered. Next, expected delays or extensions to the schedule are added, particularly if the final completion date is moved. Any changes to materials required are necessary as well, along with associated costs from those differences.

Change orders also need to include information about who approved or denied the variations and when. This information provides a trail for the client and project manager alike to review in the event of disagreements about work done. Both parties need only consult the contract documents with all approved change orders to know who is right.

What Makes Change Orders Easier to Manage?

The change order process is somewhat complicated, since so many different elements need to be tracked simultaneously. Manually keeping track of change orders is taxing, especially since a single project can generate multiple variations. Clients may try to request variations to the original scope of work through all sorts of methods, from emails and text messages to handwritten notes and voicemail messages. These informal agreements can lead to different interpretations of the job to be done.

Most construction companies, architects, and other project managers use construction management software to automatically manage and share change orders with clients, contractors, and subcontractors. All changes and variations are recorded in one easily accessible location to prevent miscommunication. And project managers can even set automated notifications to alert everyone involved whenever new change orders are made.

Further, software with change order tools can include templates for change order forms which can be used again and again.

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