Change orders are a vitally important tool for contractors. By definition, a change order is any modification or change to the original scope of work of a contract, affecting the cost, schedule, or both. Upon execution, a change order modifies the terms of the original contract. By issuing a change order, the owner and contractor agree to modify the contract to incorporate changes requested by either party.
These modifications can be divided into three main categories:
Additional scope of work
Reduced scope of work
Substitution or alteration in the scope of work
Change orders are common for most projects, especially large projects. After the original scope is defined and the contract executed, a client may decide the original scope no longer represents what is best for the project. Accordingly, the project team works towards a new solution, potentially driving the need for a change order.
Common Reasons for Needing a Change Order
The original project scope was incorrectly communicated in the contract documents
The project team discovers obstacles or possible efficiencies that require a change from the original plan (Unforeseen conditions)
A portion of the project is unable to complete the required deliverables within budget or schedule and additional money, time, or resources must be added to the project (if caused by forces other than contractor neglect or incompetence)
Substantial modifications to the original project scope
As mentioned before, change orders can affect the overall budget and schedule of a project. Once a change order is submitted and approved, it becomes part of the original contract. It is important to note that change orders are typically issued due to unforeseen circumstances and material changes to the scope of work. Examples of these items are unknown soils, errors in the contract documents, unforeseen material shortages, and owner-directed changes to the project. Change orders are rarely issued due to contractor negligence.
For contractors, contracts and change orders protect them from feeling pressured into performing work that’s beyond the agreed scope and outside of the anticipated budget for the project. Managing expectations is the most critical aspect of the change order process – the contractor and owner should always discuss the process in advance so they are aware that additional work will cost extra, and of the process for requesting those changes.