Change orders are a common term in the construction world.
It means what it says: it’s a change to a project order and the original agreement of both parties. Change orders occur for several reasons: incorrect estimates, the homeowner has changed their mind, or unforeseen circumstances could arise.
Change orders can delay timelines and erode profitability for jobs if not managed efficiently.
We’ll explore what a change order is, what types exist, and how to protect yourself as a contractor, should you need to create a change order for a construction project.
What is a Change Order
Change orders are official amendments to the original contract. They are issued by the contractor and become legally-binding with the signature of both parties. Either party can initiate the change order process if they feel it’s warranted. The contractor will issue a change order when they believe that there will be a change to the project that impacts the timing, cost, or materials.
The change order will detail what alterations are being requested, why they are needed, and how much they will cost.
Types of Change Orders
There are different types of changes orders that contractors will use depending on the situation. Knowing when to use each in situations will help make the change order process smoother.
- Lump-Sum – A lump sum contract in construction is one type of construction contract, sometimes referred to as stipulated-sum. The contractor must carry out all the work necessary for a specified sum of money or a fixed rate per unit of work done. Typically used in large-scale projects.
- Zero Cost – Similar to a lump sum. But the zero-cost change order does not alter the contracted price for the project. This means that if you are requesting a change in scope, time, or price, then you will need to pay for it.
- Time and Materials – This is a change order that occurs when the entire cost of the proposed change cannot be estimated. This is because the scope of work is not yet known, and it isn’t easy to estimate how much time will be needed to complete the job. It’s usually when the project is expected to have additional costs that are unforeseen.
- Unitary Cost – A unitary cost schedule is vital for controlling the cost of extra work units where the quantity of work is out of the project. This type of change order is for unitary cost schedule values. These often occur when the cost of a project is easy to predict.
When Do you Need Change Orders
We’ve gone through some of the types of change orders. Now, let’s look at reasons why you would need to amend an original agreement. Several factors could change the arrangements of the project.
Here are a few of the main reasons for a change order:
- Changes in the scope of work – “scope of work” means the entire overview of a project. This includes any changes to the amount of work at a specific cost and within a timeframe. For example: a client wants to add requirements to a project such as replacing the type of countertops installed during a kitchen remodel.
- Changed site conditions – A project has a site where the project will take place. If any details change about the site, this will warrant a change order. For example: a client wants to move the location of a shed from an area with flat ground to an area with a slope. This move causes additional time to level the ground.
- Design changes – All aspects of a project are decided upfront for cost estimates, this includes designs. The design can include structural or aesthetic changes. For example: the client wants to make design changes like adding a window to a house.
- Inaccurate estimates – A contractor first evaluated the scope and cost of materials to create an accurate estimate. If the time or material cost is off, it could lead to an inaccurate cost analysis. For example: the contractor predicted how much time was needed but it took longer than expected.
- Material costs – When creating a plan, a contractor will estimate perceived costs for the project. It might be more or less than previously anticipated. For example: the contractor underestimated the amount of materials needed for the project or the cost of raw materials has increased since the proposal.
- Failed inspections – Construction requires permits. Without permits, the project’s timeline could be delayed. For example: a contractor might need permits aligned with the city before work can be done and everything is up to code.
- Disruptive events – Construction is unpredictable. This includes any unforeseen events that can disrupt the project. For example: if a natural disaster causes problems to delay work.
What to Include to Turn Change Orders from Liabilities to Assets
You need as much detailed information with a change order. Since it’s an amendment to an original contract, you want to have as many specific details and signatures on everything for the document to be legally sound.
The most crucial details needed:
- Project and contact information: phone numbers, email, address, etc.
- Scope of Work: what is the expected outcome? Provide as much detail of expected work as possible for clarity.
- New schedule – Outline the new timeline with changes and expected dates. Include all date changes and include the dates when both parties agreed to a new contract.
- Changes in cost – it’s crucial to be transparent about price changes. The customer must know what the expected final cost will be.
- Update payment method – the contract is created for payment, so verification is crucial.
- Total cost of the change.
- Statement on the change’s impact on the project’s timeline.
- The signatures of the client, the contractor.
To sum up, you want everything about the new change order to be clear and concise with little room for error. This will reduce conflict or cost of either party. Furthermore, there’s a reduced risk for the contractor to not receive payment.
Lastly, make sure all changes are in writing, dated, and signed for further protection of both parties.
Why Change Orders are Important for Contractors
Construction contractors need to know how to deal with change orders because they are a regular occurrence in the construction industry.
Change orders keep communication transparent between both parties. They serve as documented protection for the work delivered, within a timeframe, and budget.
It ensures that there are no misunderstandings about what has been agreed upon, and it provides evidence to show what has been agreed upon if there are disagreements down the line.
- Benefits of change orders:
- Provides clear communication and mutual understanding amongst both parties
- Protects the contractors from doing more work than initially agreed.
- Keeps everyone accountable to the agreement.
Avoids legal action
- Gets contractors paid on-time
- Keeps projects on track
Since change orders rely on a set agreement between two parties, it’s imperative to manage paperwork and documentation.
Luckily, there’s an easier way.
Create a Bullet-Proof Change Order
As you can see, change orders can be complicated due to the legal nature of contracts.
However, one of the best options you have is to utilize software to maintain compliance, transparency, and proper documentation. That’s why we recommend Trak Changes.
Trak Changes keeps it simple when it comes to change orders. As a contractor, you can focus on your business and construction jobs instead of corralling paperwork and signatures, enabling you to turn change orders from liabilities to assets.
With a focus on small contractors who aren’t leveraging complex and costly construction management software, Trak Changes’ simple change order process is online-driven.
The contractor can have a verbal or written discussion with a customer highlighting the need for a change. From there, the contractor submits a change order via the online platform with detailed information about the alterations.
Once submitted, the customer receives the change order proposal via email or text and can then approve the change given legal approval to the contractor to proceed.
It streamlines a typically tedious process of change orders and alleviates the stress for contractors to rely on automation to process change orders promptly.
Manage Change Orders with Trak Changes
Changes within a construction project are inevitable but don’t have to be detrimental. You can protect yourself in advance with preparation and expectations of unforeseen circumstances.
The cost could be on the contractor if they do not take precautions to protect their work.
While any contractor can manage a change order, it’s much easier and less vulnerable to risk if a contractor relies on software to manage the alterations.
Utilizing software like Trak Changes can be a game-changer. Contractors don’t have to fret about the potential of change orders. Keep documentation, signatures, and payments organized.
When change orders are necessary, Trak Changes keeps the process on track with automation, transparency, and efficiency.
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