Make change orders a part of every job

Change orders can be a source of friction between all parties involved. Establish the process that will be used when issuing change orders before work begins, the job, approvals, and payment should go more smoothly.

A few basic reasons for change orders:

• The owner or architect decides that what the original bid documents show is not what they want to build.
• A building official has reviewed the plans or the actual work in place, and requires that something be altered to meet code or other municipal requirements.
• The bid documents did not fully reflect a required detail or condition.
• Existing conditions are not properly reflected in the bid documents, i.e. soil conditions, below grade obstructions, and/or hazardous or contaminated materials are encountered after construction has begun.

Regardless of the cause, the initial step in the change order process is to properly price the impact of the change. This takes experience because the contractor must anticipate every possible impact of the change. A typical change order might document and approve changes to the work your subcontractors will do, material required from vendors, work you will perform, or equipment required to do the work. These details must all be considered so the complete impact of the change can be fully documented in terms of cost and time.

Many owners require a detailed breakdown for every item included in the change order. This breakdown should indicate all labor, material, equipment, taxes and markup costs for everything that is changing. Homeowners are typically less sophisticated, and as long as they understand what they are getting for what they are paying, the change order can be simpler. However, providing more documentation is usually better.

A clearly documented change order protects you by minimizing confusion and disagreements later. Never rely on your memory and a handshake. Neither one will do you much good in court.

Approvals

Once the change order has been priced and documented, it should be reviewed and approved by all concerned. Your customers are less likely to suffer “sticker shock” if they see a detailed breakdown instead of a lump sum. An item-by-item recap helps them to understand the complete cost impact of the change and will expedite the review and approval process.

Timing is often critical. Many change requests come up as work is proceeding, and there is limited time to price, review and approve the change. Many contractors will go ahead and proceed with the revised work because they think they have a good working relationship with the customer and a delay in the work can be costly. Avoid this whenever possible. Most contracts include language that states that if the contractor proceeds with any additional work without a signed change order, the owner is not responsible for the added cost.

A change order form should include:

• The name of the owner, builder/contractor, architect and project.
• The date and amount of the original contract.
• A change order number and the date of the change order.
• A recap of the original contract value, the cost impact of previous change orders to date, and the impact of the current change being documented. All of these add up to the new contract total.
• A recap of the original contract’s completion time, the time impact of all previous change orders, and the impact of the new change order.
• A place for the owner, architect and builder to sign, which indicates their approval.
• A supplemental sheet can be attached that recaps the various price components and details how the total cost of the change order was determined.

A final important aspect of the change order process is billing. Until a change order is approved, you can’t bill for the added work, so it is vital that change orders are documented and approved as soon as possible.

—By Bruce Webb