Managing Change Orders on Construction Projects
Quick Answer
Change orders on construction projects modify the original scope, budget, or timeline. Every change order should be documented in writing, priced before approval, and communicated to your lender. Unmanaged change orders are a leading cause of budget overruns.
Table of Contents
Types of Change Orders
Owner-Initiated Changes
Changes requested by the property owner or builder:
- Material upgrades or downgrades
- Layout modifications
- Additional features or scope
- Design corrections
Field-Initiated Changes
Changes required due to conditions discovered during construction:
- Unexpected soil or site conditions
- Utility conflicts
- Code compliance issues
- Structural modifications required by inspectors
Design-Initiated Changes
Changes resulting from errors or omissions in the original plans:
- Missing details in architectural drawings
- Engineering modifications
- Coordination conflicts between trades
- Specification clarifications
Change Order Process
Step 1: Identify the Change
Describe the proposed change in detail, including:
- What is being changed
- Why the change is needed
- Impact on the project timeline
Step 2: Price the Change
Before approving any change, get a written price that includes:
- Material costs
- Labor costs
- Markup or overhead
- Impact on other trades
- Net cost increase or decrease
Step 3: Approve in Writing
Both the builder/owner and the contractor must sign the change order before work begins. The document should include:
- Description of the change
- Cost impact
- Timeline impact
- Signatures and date
Step 4: Notify the Lender
Significant change orders should be communicated to your lender:
- Changes that increase the total budget
- Changes that affect the completed value
- Changes that extend the construction timeline
Step 5: Update the Budget
Adjust your schedule of values and cost-to-complete analysis to reflect the change order.
Controlling Change Orders
- Detailed plans: Thorough plans and specifications reduce field-initiated changes
- Pre-construction review: Have all trades review plans before construction begins
- Decision deadlines: Make material and design selections early
- Change order log: Track all changes with running cost totals
- Contingency allocation: Apply change order costs against contingency first
- Weekly meetings: Regular progress meetings catch issues before they become change orders
Related Reading
Key Takeaways
- ✓Document every change order in writing before work begins
- ✓Get pricing before approving any change
- ✓Communicate significant changes to your lender promptly
- ✓Track change order costs against your contingency budget