A construction change order is an essential document that allows project stakeholders to manage and track changes within a construction project. These changes can vary, from minor adjustments in project specifications to substantial modifications affecting project scope, budget, and timeline.
The document serves as a formal request and authorization for modifying the original contract, ensuring clear communication and preventing unnecessary legal action.
Change orders are subject to limitations to maintain project integrity and fairness. They should not:
- Exceed the original project scope: They cannot extend the scope beyond the initial agreement.
- Defeat the original contract’s purpose: They should not undermine its core objectives or intent.
These restrictions ensure that change orders serve their intended role within the project’s framework.
What to Include in a Construction Change Order
In a construction change order, several vital elements need to be included to ensure clarity and transparency in managing project modifications:
1. Project Information
This section typically includes project details such as the project name, location, and unique identifiers, facilitating proper project association.
2. Description of Change
This section provides a comprehensive description of the nature of the change. It elucidates the specifics, whether it involves design alterations, material substitutions, additional work, or other variations.
3. Cost Summary
Changes frequently influence project costs. This section delineates the financial implications of the change, whether it results in added or reduced costs. It includes a breakdown of the additional costs or savings associated with the change, including labor, materials, permits, and other relevant expenses. This helps project stakeholders assess the impact on the project’s budget and make informed decisions.
Before initiating a construction project, obtaining an accurate and detailed construction quote is crucial. It establishes an initial understanding of the project’s financial aspects, which is a reference point for assessing any changes through construction change orders.
In cases where the change impacts the project’s schedule, this section outlines the adjustments made to the timeline, allowing project managers to plan and allocate resources accordingly.
As for federal change orders, the U.S. Government Accountability Office (GAO) released a report emphasizing how delays in processing these orders disrupt cash flow for contractors and hinder project schedules. The GAO recommended that agencies improve data collection and address these issues.
5. Approval and Signatures
A construction change order requires approval from all pertinent parties involved in the project. This typically includes the asset owner, general contractor, subcontractors, and other relevant stakeholders. Signatures indicate agreement and authorization for the document to take effect.
When to Use
Knowing when to use a construction change order is crucial for maintaining project clarity. Here are the critical scenarios:
- Change in project scope: When specifications need to be adjusted due to design modifications, additional work, or other alterations, a construction change order provides a formal record of these changes.
- Material substitutions: If there is a need to change materials or products specified in the original project, a change order helps document the substitutions while addressing the impact on costs and timeline.
- Unforeseen conditions: When unexpected challenges arise during construction, such as unexpected site issues, change orders can be used to address necessary adaptations.
- Additional work: When clients request extra work not included in the original contract, a change order is essential to define the new scope and ensure appropriate compensation.
- Budget adjustments: To account for variations in the project’s cost, whether due to increased expenses or savings, a change order is used to document the financial implications and adjustments.
- Timeline modifications: If changes affect the project schedule, a change order helps manage the timeline by specifying adjustments and ensuring all parties involved understand the new milestones.
- Contractor or subcontractor changes: When changes involve bringing in or replacing contractors or subcontractors, a change order form outlines the new arrangements and their impact on the project.
- Quality improvements: If there is a desire to enhance the quality or features of the project, a change order form helps clarify the improvements and their related costs.
- Client-requested adjustments: When project owners request changes to align the construction with their evolving needs or preferences, a change order documents and approves these alterations.
- Compliance with regulations: To ensure compliance with regulatory requirements, such as building codes or safety standards, change orders can address necessary adjustments.
Effective communication with regulatory authorities is vital to ensure that any necessary permits or approvals are obtained promptly. Failure to address regulatory requirements can lead to project delays and potential legal consequences.
Change orders should always be executed with the agreement and approval of all parties involved in the project. This collaborative approach ensures that changes are well-documented and executed to benefit the project and all stakeholders.
Types of Construction Change Order
Construction change order can vary depending on the contract type and project requirements.
Fixed Price Contracts
Fixed price contracts, also known as lump sum or fixed-sum contracts, involve an agreed-upon price for completing the project. The contractor bears the risk of any cost overruns, and changes to the original scope of work require the approval of the general contractor and the asset owner.
When managing change orders in fixed-price contracts:
- Changes to the scope of work are generally more challenging to negotiate, as there is a contracted rate for the work.
- Any cost increases, labor issues, or material shortages are typically the responsibility of the general contractor.
- Change orders may not always impact the final cost and can be as simple as approving changes to architectural renderings.
Cost-plus contracts involve the asset owner paying the general contractor the actual costs for labor and materials and an additional fee for project management. The price can be calculated as a percentage of the total cost, a set fee, an hourly rate, or a combination of these factors.
Critical considerations for change orders in cost-plus contracts include:
- Changes are more common due to the less predetermined scope of work.
- Change orders are generally friction-free, as they extend billable time for the general contractor.
- Transparency between the general contractor and the asset owner allows for potential benefits from discounts from subcontractors or material suppliers.
Time and Materials Contracts
Time and materials contracts are characterized by flexibility, often involving ongoing changes throughout the construction process. The contractor is expected to be willing to adapt plans as needed, with payment reflecting the work completed.
How to Use
Here’s a step-by-step guide on how to use a construction change order to ensure project modifications are well-documented and approved by all parties involved:
1. Documentation of Changes
Orders are initiated when project changes are necessary. Describe the nature of the change in detail, specifying what aspects of the project are being altered. This step includes defining changes in scope, materials, timeline, costs, or other relevant factors.
2. Estimation of Financial and Timeline Impact
For each change, estimate the financial and timeline impact and specify the amounts if it results in additional costs or savings. Similarly, if it affects the project’s timeline, describe the adjustments.
3. Review and Agreement
Once the form is completed with all the necessary details, it’s time to review. All relevant parties involved in the project should participate in this review process.
The review ensures that everyone understands and agrees with the proposed modifications.
4. Signature and Approval
Obtain signatures and approval from all relevant parties participating in the review. For forms that need an architect’s signature, use industry-standard forms like the American Institute of Architects Form G701, widely recognized in the construction business.
Signatures reveal that the involved parties endorse and commit to the proposed changes. This step is essential for creating a legally binding agreement and ensuring accountability.
Once the document is reviewed and signed, distribute copies to all involved parties. This step ensures that everyone is informed about the approved changes and that all stakeholders are on the same page regarding the modifications.
6. Record Keeping
Maintain an organized record of all change orders, including the original project documents, correspondence, and signed documents. This documentation is invaluable for project history, dispute resolution, and financial accountability. It is also vital for monitoring the project’s progress and ensuring that the requested changes are implemented as agreed.
7. Consistent Communication
Throughout the construction change process, maintain open and consistent communication with all stakeholders. Address any questions, concerns, or additional details that may arise. Effective communication fosters trust and cooperation among all parties involved in the project.
8. Legal Considerations
Ensuring that change orders comply with all applicable laws, regulations, and contractual agreements. Legal counsel may be necessary for complex changes or disputes.
Additionally, construction invoices should be meticulously prepared to reflect the agreed-upon cost adjustments. Accurate invoicing is vital to financial transparency and serves as an essential record for project owners and contractors, helping maintain financial accountability and compliance with contractual agreements.
Project stakeholders can effectively manage modifications by including essential elements in the construction change order form, maintaining clear communication, and abiding by legal and regulatory requirements while minimizing disputes and delays.
The proper use of this document ensures that the project proceeds smoothly, remains on budget, and meets its objectives.
Construction Change Order Sample
Below, you can download a construction change order form in PDF or Word format.