If you’re a construction contractor or looking for construction work, it’s best to familiarize yourself with “change orders.”
Given the unpredictability of construction projects, liability, and investment costs for both parties, it’s crucial to have all project details outlined in a contractual agreement. Change orders are official amendments to this original contract. They can be requested by either party but should not be seen as a way to renegotiate the original agreement but instead as an amendment to the original contract.
We’ll look at examples of change orders in small, medium, and large jobs.
Examples of Change Orders
Construction projects range in size and capacity. The details will vary, but we’ll break down examples of change orders by the job size, small to medium to large.
Change orders in small jobs tend to be minor remodeling projects. If someone is redoing their kitchen and slightly changing the original plan that doesn’t involve significant repairs or alterations.
For a small job example, let’s say Janice is redoing her kitchen for a fresh look. Most of the kitchen will be renovated, and she’s replacing everything, including her 1970 cabinets.
She originally wanted to use a lighter wood, birch wood, for her cabinets, but since she decided on another paint shade, she feels darker might be better, and the investment will be worth it for a sturdier type of wood.
Her contractor sends her a change order after they discussed the changes in person. The change order is a unitary cost and relatively simple to process. The contractor submits the change order with an increased cost for the materials. There is no additional charge for labor as the installation is the same as previously bid on.
A medium-sized construction job is more than changing something as simple as the materials for your kitchen cabinet.
For example, Mark is a contractor redoing his client’s kitchen. He has everything planned and outlined. He will replace the dingy, old linoleum floors with something designer tiles.
After the job begins, his client decides he wants something neutral for the flooring if he decides to change the style in a few years, and he wants to make the space bigger to have more room in the kitchen. Therefore, he wants to remove the wall separating the dining room from the kitchen.
These changes are much more drastic than what Janice did in the small job example. She just swapped out the wood material for the cabinets, but aside from the cost of wood, nothing changed.
Mark needs to determine the difference in cost for the flooring material as well as the labor required to install the new choice.
In addition, removing the wall was not in the original plan. The change order also needs to include the costs associated with removing the wall. Adding this new project will extend the original timeline.
The change order would be a lump sum for the cost of materials and labor. The anticipated timeline should also be included in the change order as the flooring can’t start until the wall is removed.
This is a perfect example of a medium change order job. It’s not a tiny alteration but significant changes and additions to the original contract. Failing to get these change orders in writing could pose significant risks to Mark if his client decided not to pay for the alterations or complained about costs after the job was completed.
Large jobs go beyond simple home remodels and projects. Large jobs could be considered commercial jobs or a large-scale home remodel where aspects of the home are being revamped that require multiple trades with dependencies on each to complete their tasks.
In this example, Tony’s Pizza Parlor was recently bought by a new owner, Brad, and he’d like to refurbish the restaurant to attract new clients.
As the project begins, issues start to arise. An inspector looks over the kitchen appliances, and most need to be replaced. There are electrical problems that prevent the restaurant from staying up-to-code.
Also, Brad didn’t expect any issues with the parking lot until he spoke with his attorneys about liability and the potential for people to trip since the lot hasn’t been repaved in ten years, there are potholes throughout the lot, and no wheelchair ramps for accessibility. Therefore the entire lot will need to be redone.
For the change order process to start, Brad consults with his general contractor who is aware of the issues already and the budget that Brad was operating within. Because Brad feels that his original plans are required for his business to succeed, he accepts that he’ll need to invest more than he originally budgeted for and asks his GC to send him a change order that addresses the appliances, electrical issues, and parking lot.
To help keep things organized, the contractor creates three separate change orders. One for the appliances is a lump sum contract that includes the costs of the appliances and the labor required to install.
The second change order will be billed as a time and materials change order as the electrician can’t accurately bid the job as he doesn’t know what is and isn’t up to code. The change order is billed for time and materials that will include the cost of wiring, fixtures, and other materials needed to complete the job.
Finally, the third change order is to redo the parking lot. This change order is a lump sum change order as the contractor can estimate the time and materials required to complete the job.
Each change order is submitted to Brad for approval with updates to the timeline. These new dates also affect the overall completion date of the job as other trades must wait until these jobs are completed to start their work.
Using Software to Manage Change Orders
Change orders provide the framework for how alterations in a construction project will be done and who is responsible for what. If your change order process isn’t streamlined, change orders can quickly become a liability instead of an asset – costing you time, money, and your reputation.
Using forms is a quick but time-consuming and ineffective way to manage change orders. Using software like Trak Changes makes the process simple, effective, and fast.
Construction is already challenging enough to plan and time-consuming. Therefore, as a contractor, using software to manage changes to a project is imperative to stay on budget and plan your time.
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