If you’re a construction contractor, you’re probably familiar with change orders. They’re almost a guaranteed part of the construction process.
Construction projects are unpredictable. Since they’re determined long in advance, changes are often needed, or people change their minds.
A change order is a document used to alter the original agreement on a construction project. It details the changes in scope and cost of the project. Either party can issue a change order, but it is usually initiated by the contractor or subcontractor.
This generally happens either because the worker discovers something they weren’t previously aware of – for example, hidden mold or water damage that needs to be repaired – or because the client changed their mind about something.
Let’s explore the main items needed to create a bullet-proof change order.
What You Need for a Change Order
A change order can seem stressful, but having a plan ahead of time will make the process easier and saves time.
These are the main parts to change orders that are needed to get approval for changes. Missing any section will delay the project.
A construction change order should contain the following:
- Basic Contact Information
- Overview Description: This is a written explanation of why the additional work is needed beyond the scope of the original agreement. In a nutshell: What changed and why?
- Major dates. These are the important dates involved, like when the change order was submitted for approval, and when the client accepted it.
- Itemized Costs and updated contract value: This is a line-item-level list of all of the additional costs (work and materials) resulting from the change.
- Total Change Cost: This is the sum of all of the line item changes and hence the total amount you expect your client to pay if they agree to this change order.
- Time Delays: Any impact on the timeline of the project as a result of this change order.
- Signatures: Digital or wet signatures of the original contracting parties (you and the client).
- Verification of Payment Method
Construction change orders can be either positive or negative.
A positive change order is when an additional cost is incurred by the contractor, such as an increase in material fees or labor rates. In these cases, you’ll need to communicate change order markups to the client.
An adverse change order is when a contractor receives a refund for work done but not paid for, such as when a customer cancels their contract before it has been completed.
Basic Contact Information
You should make sure you’ve included the following info:
- The owner’s name & contact information
- The prime contractor’s name & contact information
- The contract number
- The project name and address
- Information about job roles
- The change order number
- If you had multiple change orders, list the dates and details of when they were created.
- Other contractors and their contact information
This basic information is necessary, even though it seems obvious in some cases. You want to state all of this information clearly, to avoid assumptions or misunderstandings.
This should be a clear, written explanation of why there needs to be additional work, beyond the scope of the original agreement.
Basically: what changed, and why?
Extensive details and photos can be helpful for clarity.
Contractors can also add written descriptions, drawings, or any other evidence to demonstrate the reason for the change. Depending on the situation, these items might be necessary.
You might need to negotiate this part with the client (which is common). Change order proposals often involve additional labor and material costs, beyond what you had originally anticipated.
This should be an organized line-item list of any additional costs associated with the change order.
Construction change orders can also include overhead, profits, tax, and insurance costs associated with the project. These costs are usually calculated at the end of each month and added to the project’s total cost.
You want to outline any changes or approvals to the contract. Once the change order is drafted, you’ll need to document the date when you submitted the change order for approval.
For your records, document these when submitting the change order and your records. You can email the other participant so that you have a paper trail of information for reference.
The standard timeframe to notify the project owner or their representative of changes is 5 to 10 days.
Using a software service like Trak Changes can drastically reduce this time, and help you ensure that projects are done on time and on budget.
Total Change Cost & Updated Contract Value
The construction change order proposal should include an updated contract value for the project, calculated by adding up all of the costs associated with making the changes. This includes labor, materials, and any other expenses incurred.
You can break down the significant changes to the overall value, whether less or more. The change order form should include:
- The original contract value
- The value of all past approved change orders
- The cost of the current change order
- The new proposed contract value
Keep these separated and bulleted for visibility, and look at the overall costs.
Unexpected changes to the scope of work will extend a project’s timetable. You should document how the change order is going to affect how long things are going to take, and when the project can be expected to be completed.
You’ll need digital or wet signatures from both original parties involved in the contract: you, and the client.
Verification of Payment Method
The change order must follow a similar format as the application for payment or schedule of values, to compare to the original.
If the payment arrangement is T&M or zero cost, it’s essential to be consistent with payment methods or schedules to avoid confusion or mismanaging the price.
3 Tips for Keeping Your Documentation Organized
We have another article with more tips on preparing the proposal for your change order, but these are a few tips to keep all the documentation organized. You can’t afford to delay the project or take more time than needed. These tips will help keep everything organized.
Create a Filing System and Save Everything
Construction change orders are a document used to communicate changes in the construction project. Every contractor should keep a copy of every document they provide to the project owner and save it if disputes arise.
If you’ve adopted software like Trak Changes, you’re already one step ahead of the curve as Trak Changes keeps your documents digital and creates the paper trail you need to handle disputes.
Once your change order is prepared, have another person look over the information, if possible.
If you have a subcontractor that can interpret a change order, it’s best to have someone check over the numbers and details, and provide feedback.
If you don’t have anyone adequate to look over your change order proposal, give yourself some time to step away from the proposal and then check your work again to ensure it’s sound.
Using Software is Key
Construction change orders can be time-consuming and tedious to manage, but with change order software, it is possible to manage them more efficiently.
Change order management software can help you keep track of all the changes that have been made and what needs to be done next.
Don’t Worry- You’ve Got This!
Construction change orders are a necessary part of the construction process. They are used to document and manage any unexpected changes that might come up while a project is already underway.
One of the best ways to handle change orders is to use dedicated software. Trak Changes simplifies and streamlines the change order process for small contractors.
Start your free trial of Trak Changes today, and discover how simple the change order process can be when you leverage modern software.
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