Handling Project Changes

It’s almost impossible to finish a project without at least some changes during construction. While you’ve done your best to eliminate errors, omissions, and allowances, there could still be some unknown conditions or changes you want to make during construction.

If you don’t want to pay for something you did not want, be very careful in talking with the contractor. If you make changes during construction, you want to figure out what it will take before letting your contractor charge ahead or you may be shocked by the cost. If you ask the contractor to do something and they do it, you’ll be expected to pay for it, even if you don’t like the price or the result.

The Change Order Process

Handling a change order is a simple process involving the following steps:

• You or the contractor requests a change
• You both figure out what you think it will take.
• Compare and negotiate the change
• Approve and sign the change order form.

Often, people want to forgo ‘formally processing’ a change order form to expedite changes. This is a mistake because the change will affect the project cost and the schedule, and you both may forget the details of the change agreement by the time the contractor invoices you for it.

On most projects, you and the contractor are the only people that need to approve the change. If a lender is involved, check with them to find out if you require their approval and how long that takes.

Avoid misunderstandings between you both by issuing a change order documenting the agreed change, along with the change in budget and schedule. The change order form is a contractual tool that legally modifies the construction contract—ensuring that both parties fully agree to the same changes.

If required, make sure you get the lender’s approval before making the change, or you may end up having to come out of pocket to pay for it.

Use the Change Order form to record changes to your project and contract.

Evaluating Contractor Change Orders

To evaluate a contractor’s change order, first decide if it’s valid. Change orders resulting from a bid package errors, omissions, bid allowances, previously unknown condition, or things you’ve asked for; are generally valid.

Review change orders the same way that you created the cost estimate and performed the bid evaluation, because change orders initiated after the contract is executed will affect the total contract price. Contractors always add overhead and profit to change orders.

Compare the requested change amount to the original bid documents to estimate the value of the work. This comparison helps you negotiate the price.

The following questions are common questions you should ask when reviewing all change orders. Once you have answered these questions, you can determine whether the cost requested to implement the change is fair. If not, your evaluation will give you what you need to present your position to the contractor and negotiate a lower cost.

• Is the value of labor and materials in line with industry standard and/or the bid?
• How much is overhead and profit, and is it in line with the contract?
• How much time will the change add to the project duration and is that time reasonable?
• When is the change being initiated or requested: before, during or, after the related activities? If during or after, what amount of work has to be undone in order to make the change and what is the value of that work?
• Is there any amount of change that was already part of the contracted scope of work? If so, what is the value of that work?
• Can any part of the change order amount be considered already included in the contracted scope of work and what is the value of that work?
• What is the difference between the total work claimed in the change order and the work already contracted?

Once the change, cost, and project duration is agreed upon, issue the change order, send it to the contractor for execution and authorize it. Make sure to update your project budget in order to ensure that you know where you are financially. Contractors should request payment for the change order work with the contractor’s regularly scheduled invoice following the completion of the change order work.