Change orders
You love them, you hate them.
But whether you’re a contractor, construction manager, project manager, or owner—you can’t avoid them. Change orders are simply a part of doing business in the construction industry.
While they may be inevitable, that doesn’t mean we must accept the status quo regarding managing change orders. In fact, there’s a lot we can do to improve change order management and increase efficiency throughout the process.
Table of Contents
Why Should You Use A Change Order?
- Provide a Clear and Structured Process
- Control Scope Creep
- Avoid Disputes and Disagreements
- Maintain Trust and Confidence
- Keep Project On Track
- Provide A Legal Record
Best Practices For Change Order Management
- Set Proper Expectations With Clients
- Review All Plans
- Plan With Capital Partners
- Define What Is Not In The Contract
- Choose Familiar Tools
- Deploy Smaller Releases
- Ensure Sufficient Budget
- Document From the Beginning
- Be Simple and Straightforward
- Use Data-Driven Risk Assessment
- Set Communication Procedures
- Leverage Your Change Order Policy
- Don’t Procrastinate
- Treat ITIL As Guidelines, Not Hard-And-Fast Rules
- Prevent Changes At Contract Execution
- Plan For Change Throughout The Project Life Cycle
- Outline Rates, Overhead and Profit
- Review the Original and New Contract
- Resolve Quickly
What is a Change Order?
A change order is a document that outlines modifications to an existing contract or agreement between a project owner and contractor. These modifications can include additions or deletions to the scope of work, project schedule changes, or cost changes. Change orders are commonly used in the construction industry to account for unforeseen changes or circumstances not included in the original contract.
This document specifies the changes to the contract, along with any potential impacts on the project’s schedule or cost. It will also specify who is responsible for the additional work or cost associated with the change. The change order will be reviewed and approved by all parties involved in the project, including the owner, contractor, and any relevant subcontractors.
Once a change order is approved, it becomes a legally binding document that outlines the updated terms of the contract. This ensures that all parties involved in the project are aware of the changes and are in agreement about how they will be handled. Change orders are essential for managing construction projects and ensuring their timely and budget-conscious completion.
Why Should You Use A Change Order?
As a project manager, you are responsible for ensuring that your project is completed on time and within budget. However, even the best-laid plans can be disrupted by unforeseen challenges or changes in the project. In these situations, it is important to have a process in place for managing and documenting changes to the project. This is where a change order comes in.
1. Provide a Clear and Structured Process
One of the key benefits of using a change order is that it provides a clear and structured process for managing changes to the project. This can help ensure that any changes are made smoothly and efficiently without disrupting the project’s overall progress. To ensure that all team members are informed about any changes, project managers can establish clear communication protocols using change orders so that they can review and approve changes on time.
2. Control Scope Creep
Another benefit of using a change order is that it can help prevent scope creep. Scope creep refers to the gradual expansion of the scope of a project without a corresponding increase in resources or time. This can lead to delays, cost overruns, and other problems. By using a change order to manage and document changes to the project, project managers can help ensure that the scope of the project remains within the agreed-upon boundaries and avoid scope creep.
3. Avoid Disputes and Disagreements
Using a change order can help avoid disputes and disagreements between the parties involved in the project. If the scope of the project is not clearly defined, it can lead to misunderstandings and conflicting expectations. In order to avoid disputes and disagreements, project managers can use a change order to document and manage changes to a project.
4. Maintain Trust and Confidence
Maintaining confidence and trust among the project participants can be facilitated by the use of a change order. By providing clear and transparent communication about changes, project managers can demonstrate their commitment to transparency and open communication, which can help build trust and foster collaboration among team members. In addition, through the use of change orders, project managers can provide a clear and auditable record of all changes made to the project, which can help maintain trust and confidence among all parties involved.
5. Keep Project On Track
A change order helps keep a project on track by providing a clear and structured process for managing and documenting changes to the project. Using this method will allow any changes to be made smoothly and efficiently without hindering the overall progress of the project. Project managers can establish a clear timeline for reviewing and approving changes using a change order and set clear communication protocols to keep everyone in the loop.
6. Provide A Legal Record
The change order documents and outlines modifications to an existing contract or agreement between the project owner and contractor. Once approved, this document becomes a legally binding agreement, ensuring that all participants are in agreement about how the changes will be handled.
Best Practices For Change Order Management
1. Set Proper Expectations With Clients
Customers should be aware of the changes and their associated costs. Prompt billing is important to prevent any unexpected additional expenses for clients. Open communication between the business and customers can help ensure that all expectations are clearly communicated and understood before any changes are implemented.
Additionally, having a clear timeline for when changes will be completed can help set reasonable expectations with customers regarding when their projects will be completed. Regular check-ins with customers throughout the change order process can also ensure that all parties involved remain on the same page throughout the project.
2. Review All Plans
Whenever a process is being improved to be more effective, it is important to review all plans in order to anticipate potential issues. This allows the change order management process to better serve the customer, as any problems can be addressed in advance, avoiding costly delays down the line that could result from not doing sufficient due diligence.
The significance of reviewing the contract in relation to making the process more effective and owner-centric is that it allows both parties to be aware of their rights and expectations, thus avoiding any misunderstandings or unexpected expenses. By making sure all details are covered in the contract, both parties can be assured that the job will be done correctly and according to the agreed-upon terms. Reviewing contracts also ensures that any contractors hired have the necessary skills and equipment to complete their work properly.
3. Plan With Capital Partners
One best practice for using a change order when working with capital partners is to involve these partners in the change order process. This means keeping them informed about any changes to the project and seeking their input and approval before making any modifications to the contract or agreement. This way, all project changes can be recorded clearly, which will help prevent disputes and protect all parties’ interests.
To ensure that all parties are aware of potential changes and their associated costs, contractors should plan for change orders at the beginning of a project.
Planning also helps reduce the risk of unexpected delays and costly overruns and establish a clear timeline for when approvals might be necessary. By taking these steps early in the process, contractors can stay better informed about their obligations under the contract and be better prepared for changes that may arise later.
4. Define What Is Not In The Contract
It is important to define what is not in the contract for change orders to clarify and avoid misunderstandings. This can help ensure that both parties have a clear understanding of the scope of the project and the expectations for the final product.
One of the key reasons why defining what is not in the contract is important is that it can help prevent scope creep. The process by which the scope of a project gradually expands without an accompanying increase in resources or time is known as scope creep. As a result, delays, cost overruns, and other problems can occur. It is important for project managers to define what is not included in the contract so that the project scope stays within the agreed-upon limits.
A contract that defines what is not included helps to avoid disputes between the parties because it explains what is not included. This can help prevent surprises during change order management, allowing owners to control their budgets and timelines better.
5. Choose Familiar Tools
When choosing familiar tools for a change order, select tools that are easy to use and understand. Providing all involved parties with this support or training can help ensure that all tools are used effectively and efficiently without requiring extensive training.
Make sure to choose tools that are compatible with the systems and processes already in place within the organization. This can help ensure that the change order process is integrated seamlessly into the overall project management workflow without causing disruptions or conflicts.
In addition, it is important to choose tools that provide robust and secure data management capabilities. This is critical for ensuring that all changes made to the project are accurately documented and securely stored and that the privacy and confidentiality of all parties involved in the project are protected.
6. Deploy Smaller Releases
It is generally considered best practice to deploy smaller releases for change orders in order to minimize risk and maximize flexibility. There are several reasons why this is important.
Smaller releases allow for more frequent feedback and iteration. By releasing smaller updates more frequently, project managers can gather feedback from users and stakeholders more quickly and make any necessary adjustments based on that feedback. Keeping the project on track and meeting the requirements of users can be ensured through this method.
Smaller releases allow for more granular testing and quality assurance. Project managers can test and verify each update more thoroughly, ensuring that any bugs or defects are caught and fixed before they can cause significant problems. Having this process can help ensure that the final product is high quality and meets users’ expectations.
Smaller releases allow for more flexibility and adaptability. This allows project managers to respond more quickly to changes in the project, such as changes in the scope, requirements, or resources. Even when unexpected challenges arise, this can help keep the project on track.
7. Ensure Sufficient Budget
It is important to ensure a sufficient budget when making the process more effective and owner-centric to maintain both the project and the organization’s financial stability. Without budget or contingency, additional funding from an equity source may be needed for any change orders that arise. It is essential to ensure that a sufficient budget is available in order to make the necessary changes requested.
In the absence of a sufficient budget, the changes may not be able to be completed, resulting in delays and other problems. Having a sufficient budget can accurately assess the costs associated with the change order, avoiding overspending and other problems.
8. Document From the Beginning
When documenting a change order from the beginning, it is important to establish clear and consistent formatting and terminology. This can help ensure that all change orders are easy to read and understand and provide a clear and concise overview of the proposed changes.
Be sure to include detailed information about the scope of the changes, the reasons for the changes, and the expected impact of the changes on the project. By doing so, all parties involved in the project will be fully informed about the changes and can make informed decisions about whether to approve the change order.
At the beginning of the change order, it is important to provide a clear and concise summary of the changes. This can provide a quick overview of the proposed changes and help ensure that all parties involved in the project have a clear understanding of the proposed changes.
9. Be Simple and Straightforward
Change management is an important process for any organization as it helps to reduce incidents, minimize disruptions, and ensure that changes are made in a coordinated and effective manner. It provides a central point of truth and allows teams to automate processes so they can operate more quickly and efficiently. Change management also helps organizations evaluate the impact of changes before they are implemented, maintain data integrity during changes, track the progress of changes, communicate with stakeholders about the implementation of those changes, and contribute to the safety and success of operations. As such, change management is integral to any organization’s overall continuous improvement strategy.
10. Use Data-Driven Risk Assessment
Data-driven risk assessment is a systematic approach to identifying, assessing, and managing the risks associated with change management. It involves the use of data to assess potential risks associated with changes and then making decisions on how rigorous the approval process should be based on that risk assessment. Data-driven risk assessment can help organizations make informed decisions that are in line with their culture, risk tolerance, and regulatory requirements. With data-driven risk assessment, organizations can establish standard changes that can be automated and monitor performance over time in order to gain insights into how well their change management processes are working.
11. Set Communication Procedures
When setting communication procedures for change orders, consider establishing clear and consistent channels for communication between all parties involved in the project. Any changes to the project can be communicated to all team members in this way, allowing them to give feedback and input.
Another best practice is to establish a timeline for reviewing and approving change orders. The project’s overall progress can be maintained without interruption by making any necessary changes smoothly and efficiently. By establishing this timeline, project managers can make sure that all project participants are on the same page and that the project stays on track.
It is important to establish clear and concise communication protocols for sharing information about the changes with all parties involved in the project. As a result, all team members will be fully informed about the proposed changes and will be able to provide feedback and input.
12. Leverage Your Change Order Policy
A change order policy is a document that outlines the changes to be made to a contract. It helps set clear expectations with subcontractors and is important for ensuring effective change orders. A standardized template should be used and included in the contract language to help ensure that all parties understand their roles and responsibilities when it comes to changes. Additionally, communications surrounding change orders must be planned in advance, so workers are aware of any updates or alterations. Leveraging these best practices helps ensure that negotiations are handled effectively and allows owners to have more control over their projects by creating better contracts at the outset rather than relying on remedial measures later down the line.
13. Don’t Procrastinate
It is important not to procrastinate when trying to make a process more effective and owner-centric because delays in submitting a change order request (COR) can lead to high costs and angry owners. Submitting CORs during optimal times, such as peak work hours, gives the recipient more of an opportunity to read the request promptly, which can help minimize potential delays or misunderstandings. Project owners can avoid unpleasant surprises and costly delays by planning ahead and submitting CORs in a timely manner.
14. Treat ITIL As Guidelines, Not Hard-And-Fast Rules
To treat ITIL (information technology infrastructure library) as guidelines rather than hard-and-fast rules for change orders in construction, project managers should first understand the principles and best practices outlined in the ITIL framework. These principles and best practices can provide a foundation for managing change orders in construction, but they should not be viewed as strict rules that must be followed without deviation.
Instead, project managers should consider how the principles and best practices outlined in ITIL can be adapted and applied to their construction project’s specific needs and challenges. This may involve tailoring the change management process to fit the project’s unique requirements or developing custom tools and processes to support change management.
Additionally, project managers should encourage collaboration and input from all relevant stakeholders, including the project owner, the contractor, and other team members. This can help ensure that the change management process is tailored to the needs of the project and that all parties are aligned and in agreement about the changes being made.
15. Prevent Changes At Contract Execution
It is important to prevent changes at contract execution in order to minimize the chances of unforeseen consequences. Changes can lead to unexpected costs and delays, which can have a detrimental effect on the outcome of the project. Additionally, changes made after contract execution can lead to disputes between stakeholders and create additional hurdles that must be overcome in order for the project to be completed successfully. By preventing any modifications before signing a contract, all parties involved will have an understanding of what is included in the agreement and avoid potential disagreements or misunderstandings down the line.
16. Plan For Change Throughout The Project Life Cycle
It is important to plan for change throughout the project life cycle in order to minimize disruption and maximize efficiency. Change is inevitable in the construction industry, and having a clear plan for managing changes and communicating expectations with all stakeholders early on can help avoid disputes. Since change orders can have an immediate and long-term impact on the timeline, budget, and overall success of the project, it is important to plan for them throughout the project lifecycle.
17.Outline Rates, Overhead and Profit
It is important for the contractor to outline their hourly rates, overhead and profit in the contract in order to provide transparency about what costs will be incurred for change orders and how much profit will be made. This helps the client understand how much each change order will cost them and gives them a clear picture of what is expected from both parties throughout the project. Establishing these details beforehand also aids in trust between the owner and contractor; if there is a history of delay on the project, having clear expectations outlined up-front can help set realistic goals for completion dates.
18. Review the Original and New Contract
Owners should familiarize themselves with the original contract before making any changes to ensure that all modifications comply with existing agreements. A clause allowing for revisions to the scope of work and pricing should be included in all construction contracts, known as a “changes in the work” clause. In addition, all custom contracts should include a strict policy stating that only written change orders will be binding and that no oral modifications will be effective.
All change order requests must be initiated by one party and proceed through stages such as a proposal, written change order, and finally, contractor execution of changed work if accepted by both parties involved. If changes are not reduced to writing, they can still be legally binding on the parties involved according to their own contractual procedures or verbal agreements outside those particular procedures if accepted by both parties involved.
Having written, signed change orders is essential for avoiding disputes over changes made between the two parties later on. This makes it easier to track all changes made during construction projects more effectively while also keeping owners informed of any costs associated with modifications accepted during this process. In addition, written change orders help ensure that owners are aware of the services they are receiving every step of the way, in compliance with the original terms agreed upon by both parties.
19. Resolve Quickly
It is important to resolve change orders quickly in the construction industry for several reasons.
First, change orders can have an impact on the timeline of a project. If a change order is not resolved quickly, it can cause delays, leading to increased costs and potentially even project failure. By resolving change orders quickly, project managers can help keep the project on track and avoid costly delays.
Second, change orders can also have an impact on a budget of a project. It is possible to incur additional costs or even cost overruns if a change order is not resolved quickly. Project managers can help control costs and avoid budget overruns by resolving change orders quickly.
Third, change orders can also affect the quality of the project. In the absence of a quick resolution to change order, misunderstandings and miscommunications can lead to errors or deficiencies in the final product. A project manager can help ensure a high standard of quality by resolving change orders as quickly as possible.
Resolving change orders quickly is critical for the success of a construction project. By addressing changes promptly and efficiently, project managers can help keep the project on track, control costs, and ensure high-quality results.
Taking The Next Step
A successful change order management process is essential for ensuring that your construction projects run smoothly. Following these guidelines will improve communication between all involved parties and ensure that changes go as planned. If you’re looking to make a significant impact on your construction projects, check out Bauwise, the leader in construction management software. Whether you are managing change orders, forecasts, expenses or invoices, Bauwise can help keep your financials under control. Contact us today to see how your company can benefit.