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Construction Change Orders: The Not-So-Dirty Word of Custom Home Building

In every custom home I’ve been involved, a modification (either planned or unexpected) is needed and that’s when construction change orders come into play.  Most likely there are several change orders.  A few years ago we looked at our past projects and the average was seven change orders per home.  Lets face it, custom home construction projects are complex endeavors that often involve numerous stakeholders, so even the most meticulously planned projects may encounter unexpected circumstances, design modifications, or unforeseen challenges that necessitate changes to the original contract. This is where construction change orders are so important.  In this article, we’ll explain in detail what change orders are, why they are important and get into some detail examples.


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construction change orders

 What are Construction Change Orders?

A construction change order is a formal document that outlines alterations or modifications to the original scope of work in a construction project. It is a written agreement between the owner, contractor, and sometimes the architect or designer, detailing changes in project specifications, plans, or other contractual aspects. Change orders can be initiated by any party involved in the project and are a vital component of effective project management.

 

Why are Construction Change Orders Important?

Construction change orders are a fundamental aspect of project management in the construction industry, serving multiple crucial functions that contribute to the overall success and smooth execution of a project. Here are further insights into why construction change orders are indispensable:

  • Risk Mitigation: Change orders act as a risk mitigation tool by formally addressing alterations to the project scope. They provide a structured process for assessing and mitigating risks associated with unforeseen circumstances, design modifications, or changes in project requirements. This, in turn, helps in minimizing the potential impact of these changes on project timelines and costs.

  • Homeowner Satisfaction: The construction industry is dynamic and your needs can evolve throughout a project. Change orders allow homeowners to express new requirements or modifications to the original plans. By accommodating these changes through formal agreements, construction professionals can enhance homeowner satisfaction, ensuring that the final deliverable aligns with the client's vision.

  • Transparency and Accountability: Change orders bring transparency to project modifications by documenting alterations in a clear and detailed manner. This documentation includes the reasons for the change, the impact on the project timeline, and the associated costs. This transparency fosters accountability among all project stakeholders, reducing the likelihood of disputes and misunderstandings.

  • Contractual Clarity: Construction change orders are legally binding documents that become part of the overall contract. This provides a clear and enforceable record of any adjustments made to the original agreement, protecting the interests of all parties involved. It helps avoid ambiguities and ensures that all contractual obligations are met.

  • Financial Management: Efficient financial management is crucial in construction projects. Change orders facilitate the tracking and management of project costs by clearly outlining the additional expenses associated with modifications. Project stakeholders can assess the financial implications of changes, enabling better budgetary control and financial planning.

  • Project Control and Coordination: Change orders contribute to effective project control by offering a structured mechanism for approving and implementing modifications. They help in coordinating efforts among various project stakeholders, including contractors, subcontractors, architects, and owners. This coordination is essential to ensure that changes are implemented seamlessly without causing disruptions or delays.

  • Avoiding Disputes: Disputes can arise in construction projects, especially when changes are made without proper documentation. Change orders provide a formalized process for discussing, approving, and documenting modifications, reducing the likelihood of disputes. When all parties are on the same page regarding changes and their implications, the potential for conflicts is significantly diminished.

  • Adaptability to Evolving Circumstances: Construction projects are inherently dynamic, and unforeseen challenges are inevitable. Change orders allow the project team to adapt to evolving circumstances, fostering a culture of flexibility and adaptability. This adaptability is crucial for overcoming obstacles and ensuring that the project remains on track.

Construction change orders are indispensable tools that promote transparency, accountability, and effective project management. By embracing change orders as a routine part of the construction process, you can navigate the complexities of construction projects with agility, delivering successful outcomes that meet or exceed client expectations.

 

discussing a change order

When, Where and Examples of Construction Change Orders?

Construction change orders are employed in various situations throughout the life cycle of a construction project, addressing modifications to the original scope, design, or contractual agreements. The versatility of change orders makes them a crucial instrument in responding to evolving circumstances and ensuring the successful completion of construction endeavors. Here's a more detailed exploration of when and where construction change orders are commonly used:

Design Changes

  • When: During any phase of the project, especially in the pre-construction or early construction stages.

  • Where: Design changes often arise due to homeowner preferences, evolving project requirements, or unforeseen technical constraints.

  • Example: In the construction of a home, the homeowner decides to modify the layout of the master bedroom to include a walk-in closet. The change order request details the updated design, providing revised floor plans and specifications for the master bedroom with the walk-in closet. The change order documents the agreed-upon design changes, associated costs, and any impact on the project timeline for both the homeowner and builder to approve.

Unforeseen Site Conditions

  • When: Typically discovered during the site investigation or early construction phases.

  • Where: Change orders may be used when unexpected conditions arise, such as the discovery of contaminated soil, unstable ground, or other geological challenges. Adjustments to the project plans and costs are made to address these unforeseen circumstances.

  • Example: Excavation for the home reveals unexpected groundwater, requiring adjustments to the foundation design. The geotechnical engineer proposes modifications to the foundation design to address the groundwater issue. The change order documents the necessary adjustments, including any additional costs incurred due to the unforeseen site conditions.

Owner-Requested Changes

  • When: Throughout the construction process, but commonly in the middle to later stages.

  • Where: Owners may decide to modify project requirements, adding or removing features based on changing needs or preferences.

  • Example: During the construction of a luxury residence, the homeowner decides to upgrade the kitchen countertops to a higher-end material. The change order request outlines the desired upgrades, specifying the new countertop material and design requirements. The change order documents the agreed-upon changes, associated costs, and any adjustments to the project timeline.

Regulatory Compliance

  • When: At any stage, especially when there are updates to building codes or other regulations.

  • Where: Changes in local building codes or regulatory requirements may necessitate modifications to the original plans. Change orders are used to incorporate these changes into the project, ensuring compliance with the latest regulations.

  • Example: After initiating the construction of a residential addition, local building codes are updated, necessitating modifications to the original plans. The change order request to address the code updates, including revised drawings and specifications to ensure compliance. The change order documents any associated costs and adjustments to the project timeline to meet the new regulatory requirements.

Material Substitution

  • When: Material substitutions can occur at any point in the construction process.

  • Where: If specified materials become unavailable or there are changes in the market, a change order may be initiated to substitute materials, accompanied by adjustments to the project cost.

  • Example: In the midst of constructing a custom home, the selected roofing material becomes unavailable due to manufacturing delays. The contractor proposes a change order suggesting an alternative roofing material with similar aesthetic and performance qualities. The change order documents the agreed-upon substitution, including specifications for the new material and any adjustments to the project cost.

Scope Expansion

  • When: Typically requested by the owner during the construction process.

  • Where: You may decide to expand the project scope by adding more rooms, floors, or features. A change order documents these expansions and outlines the associated costs and adjustments to the project timeline.

  • Example: A homeowner decides to expand the scope of a home renovation project by adding a sunroom to the original design. The change order request detailing the scope expansion, providing architectural plans for the new sunroom. The change order documents the agreed-upon changes, associated costs, and any adjustments to the project timeline.

Structural Modifications

  • When: Discovered during the construction phase, especially in cases of unexpected challenges.

  • Where: Unforeseen structural issues may require modifications to the original plans. Change orders are used to document these alterations and outline the necessary adjustments to the project scope and budget.

  • Example: During the construction of the new home, a structural truss will not work as drawn in the plans. The structural engineer proposes adjustments to the truss layout. The change order documents the necessary modifications, including updated engineering drawings, and outlines any changes to the project budget for each affected home.

By understanding when and where construction change orders are most applicable, you can proactively manage changes, ensuring that the project remains adaptable and responsive to evolving circumstances. Embracing the use of change orders as a standard practice enhances communication, reduces disputes, and contributes to the overall success of construction projects.

 

change order review

How much are Change Order Fees?

In addition to the actual material and labor to perform whatever change that may be needed, the builder often has a variety of other costs both administrative and otherwise. On the administrative side is the builder's staff time to assist with documenting the change and obtaining quotes from the various vendors for the change. Often a builder's insurance is calculated based on the cost of the material and labor, so that's an added expense. The most challenging and often hard to grasp cost is the impact that the change has on the project schedule. Most change orders delay the schedule in some way. This can add additional costs to the project in completely unrelated areas. Lets say a change causes a 2 week delay. All the remaining scheduled activities are pushed back accordingly and many will have cost increases due to the delay that will be passed on to the builder as a result. There is also a good bit of additional administrative expense because the project manager has to reschedule the upcoming tasks in addition to the scheduling of the tasks to be done for the change order.


So with all that background, what do change orders cost? Each builder's contract will handle this differently. Some will charge a change order fee as a flat percentage (e.g., 15-25%) of the material and labor cost. Others will charge a flat fee (e.g., $250-500). Yet others like myself, will vary the cost based on a variety of factors such as the number of vendors involved in the change, complexity of the change, and what point in the project timeline the change is requested. If it's a simple change involving one vendor early in the schedule, the fee may be 10%, but if it's a complex change involving 8 vendors at the end of the schedule, the fee may be 40%. It's not that a builder does not want to do those changes. Very simply the effort and time to do them is vastly different. Bottom line, make sure to ask your builder how his change order fee is calculated.


Conclusion

Construction change orders play a crucial role in navigating the dynamic nature of construction projects. By providing a structured and transparent process for documenting modifications, they contribute to successful project outcomes, ensuring that the final result meets the client's expectations while managing costs and mitigating potential disputes. Effectively managing change orders is an essential skill for construction professionals, promoting collaboration and adaptability in an industry that continually faces evolving challenges.

 

 

Additional Resources

Here are some additional resources that can provide further information and insights into construction change orders:

 

Books

Construction Change Orders - by James O'Brien


 Websites and Online Platforms

Change Order Template - A simple form from eForms

Discussion Forum - A forum on Change Orders at Contractor Talk

American Bar Association - Article from the ABA that provides some good basics


Remember to check for the most recent and relevant information, as the construction industry is dynamic and subject to changes in regulations, technology, and best practices.

Comentários


“I have known Jon for many years. He and his team at Owners’ Ace are an invaluable resource to anyone looking to design and build a custom home. Having their assistance makes a complex process so much easier and successful. I recommend Owners’ Ace to my clients and to anyone looking to build their dream home.”

BG Holmberg, Top Custom Home Realtor in Tampa Bay Area

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