What is a change order?
Change orders are widely used in project management when an original work agreement between a buyer and seller is modified in scope. A change order documents makes an amendment to the original contract for additional work, substitutions, adjustments to work, or any other variation to the original agreement.
In residential construction, change orders are used by contractors to add, omit, or adjust work outlined in a construction contract. Change orders help home builders and remodelers keep a paper trail of all adjustments to the building project’s scope, schedule, and cost. Having this documentation is essential when building companies start billing clients.
Why are change orders important in residential construction?
Change orders in residential construction projects come from clients, the environment, or site conditions. As a project progresses, clients survey the work to see how their designs are coming to life. New ideas or adjustments to the original plan bubble to the surface, making their way to project managers and field supervisors. Clients then communicate these wishes to anyone they find on the project jobsite or associated with the building company. It’s then on the contractor to document the desired changes, implement them, and charge the client the additional cost.
Contractors also encounter unexpected site conditions or environmental factors that require changes to the original plan. From hitting rock during excavation to discovering rotten floorboards under the kitchen floor, builders risk increased costs outside their control. If not documented and tracked, building firms risk surprise bills from subcontractors and vendors that eat into their carefully crafted margins. Without a client signing off on these changes, contractors are forced to foot the bill and they lose any chance of additional profits resulting from the changes.
Change order documents offer an avenue for residential construction companies to accurately capture client changes and unexpected site conditions, plus obtain a client's approval for any additional costs or timeline changes. If every change gets documented in a change order, no matter how small, contractors can protect their margins and get paid for additional time spent working on these adjustments.
What should change orders include?
To successfully set appropriate expectations with clients about a change to a project, contractors should document the change in detail and evaluate the added cost. They can accomplish this by ensuring their documentation has all the following elements:
Project and contact information
Proper documentation should include all pertinent project and contact information to identify the specific project and client. Without this information, or if one client has two concurrent projects, change orders can be misplaced or accounted towards the wrong project. Including a full project address and a client’s name, address, and phone number is sufficient to help keep records organized.
Dates of the change
Documenting the effective date of the change order allows contractors to establish when changes are agreed upon should any questions arise later during the project.
Details of the change
Effect on project price
Change orders should clearly outline the specific changes involved, including materials and quantities when applicable, and how they will affect the overall price of the project so that clients know their additional cost.
Effect on project timelines
New changes to a project’s scope can have significant effects on the overall timeline of a project. Clients, however, may not be aware of these changes or how changes in scope can elongate a project. This is why it’s important to document and communicate the effect on timelines to clients. This can either involve including the number of days the change will take and add to the overall project timeline, or it simply be updating the overall estimated end date. Informing clients of new project timelines can help avoid difficult conversations later as projects progress.
Getting signoffs from clients is what makes change orders binding and ensures that contractors will be paid.
Change order process in construction
Once the need for a change is initiated, contractors need to document that change even if it is just a reminder on their phone to get to when they get back to the office. Then once a contractor can, they need to scope out the work, cost, and timeline changes this change would require. After that, contractors put all this information together in a document that they deliver to clients for their approval. Once the change is approved the new work can begin and contractors can rest easy knowing they are getting paid for their work.
How do home builders and remodelers handle change orders in construction?
Many home builders and remodelers hesitate to implement software tools in their businesses because these tools often require extra skills and knowledge from every employee in the field. It is common for them instead to track project changes by memory and spontaneously adjust the build’s schedule and financials. Although this method seems simpler and requires fewer forms and exchanges with clients, committing project changes to memory can cause big problems when it comes time to send an invoice. Without documented change orders, contractors cannot justify the amount owed by the client.
There are many resources online designed to help approach the change order process efficiently and effectively. Change order software services like PlanGrid and eSub allow builders to automate the change order process, thus speeding up the approval process. Going digital solves many of the issues faced with relying on memory plus solutions for communicating information to clients. These change order tools often operate outside of other project details, such as the schedule and project scope of work. Even if the exact scope change gets captured on the change order document, any client, building team member, or trade partner looking for project scope details must hunt around for the most recent details across disparate systems and tools.
Integrated construction management software
These disparate systems all come together with cloud-based construction management tools like CoConstruct. In these solutions contractors can process change orders, invoices, and make schedule changes all in the same system to save time and streamline their process. Rather than jumping between systems or ensuring that team members have the latest information, contractors create a single source of truth for their projects.