Change Order: How They Work, What's Included

Change orders, also called variation orders, modify existing construction contracts and are agreed upon by a contractor or subcontractor and a client. In order to prevent legal snags, this legal document helps set forth the terms and conditions of each party. Learn more below about the change order and its key components.

What is a Change Order?

A change order, or variation order, is an agreement between a contractor or subcontractor and a consumer that makes modifications to an existing construction contract. These changes can consist of addition, omission, or substitution for the work, schedule, price, or other aspect of the contract.

A change order is only successful when both the contractor and client agree on the terms.

How to Write a Change Order

Contacting a construction lawyer is always a good idea when a contractor wants to write a change order. A change order is a legally binding document, and if the terms aren’t up to par with legislation, it could cause problems for the construction company. Construction lawyers use a multi-step process and their expertise to write change orders.

Here are a few steps lawyers take when writing variation orders:

1. Identify the Changes. The first step to writing any change order is identifying the changes that need to be made. Decide what you want your change order to communicate and document the changes.
2. Discuss the Changes. Once you have a map of needed modifications, it is time to communicate them to the client. Make sure to come prepared to answer any questions or concerns the client might have.
3. Create an Action Plan. Any changes in timeline or cost that arise from the changes should be discussed before a change order is formed. This ensures that no unexpected charges or changes are revealed in the paperwork.
4. Write the Change Order. With the help of a construction lawyer, it’s time to write the change order. Include all vital information such as the contractor’s contact details and name, the budget, the timeline, and any other project-pertinent information. It’s also important to include a summary of the applied changes.
5. Sign the Change Order. Now that the hard work is done, it’s time to sign the document. Make sure the contractor and the client both agree and sign the dotted line.

Here is another article about how to write a change order.

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How Change Orders Work in Construction

Change orders play a vital role in project management. They are great for making sure project management modifications can be implemented seamlessly for everyone involved. Change orders benefit consumers by itemizing modifications and they benefit contractors by creating a space where they can request extra funds or more time when needed.

What is Considered a Change Order?

A contractor or subcontractor and their client make an agreement when they decide to work together, which is typically called a construction contract. This contract includes information about the scope of the work . A change order goes into effect any time something about the original job agreement changes to modify the initial contract.

Who Prepares a Change Order?

Contractors make way for change orders by placing a “changes in work” clause in the contract. Construction lawyers help draft these special documents to make sure there is a clear pathway for all parties of an agreement to make any changes. The result is a smooth and simple workflow that helps to make changes stress-free for all involved.

Example of a Construction Change Order

Sarai hires a construction company to add a new roof and new windows to her home. She and the contractors agree that it will cost $20,000 and will take 6 weeks to complete the job. After the subcontractors start working they realize some needed materials went up in price, which makes the needed budget higher.

Since the contractor and subcontractor made sure to include a change order clause in their contract with Sarai, they have the freedom to make changes seamlessly:

• The contractor contacts Sarai to explain the increase in the price of the material
• Sarai decides that the new cost is acceptable and she agrees to pay more
• The contractor contacts his construction lawyer to give him the details about the higher price and his agreement with Sarai
• The construction lawyer documents the new agreement on a change order form, which outlines the new price and increased budget
• Sarai and the contractor are presented with the change order form, which they both review and sign
• The change order goes into effect, modifying the original price and allowing the subcontractors to finish the job

Types of Construction Change Orders

Construction variation orders are a vital part of making sure construction jobs run smoothly. They cover many different situations and are also helpful in ensuring that everyone stays informed about the unexpected.

Contractors enjoy the peace of mind knowing their customers agree on any deviations and clients can rest easy knowing that they will be notified about any changes.

Here are some examples of types of change orders in construction:

• Budget: When any changes are made to the amount of money a client can pay or the amount that a contractor or subcontractor needs to complete a project.
• Timeline: When a construction job is expected to take longer or to be completed sooner than expected.
• Cost of Materials: Sometimes, the cost of materials can change between the time an agreement is made and when the work is done. When this happens, the original contract must be modified with a change order.
• Changes in Scope of Work: It is nearly impossible to predict how a project can change from start to finish. When a client or subcontractor decides to make changes to the work being done, change orders allow for new terms to be established.

Key Parts to Include in a Change Order

One of the most important things construction lawyers do when putting a change order together is ensuring it includes any information regarding a modification to the original agreement. There are several key parts that construction lawyers must include in a change order.

Here are a few examples of the most important aspects of any change order:

• Contract number
• Name and contact details of contractor or subcontractor
• Name and address of project
• Important dates such as deadlines, dates when change order is proposed and when it’s approved
• Information about what change is being made
• Details about any difference in price or timeline caused by the proposed modification
• An outline of the original contract terms versus the proposed changes

For a more in-depth look at the key parts of any change order, check out this article.

Planning for Change Orders

One of the best things any contractor or subcontractor can do to protect their business is to plan for change orders. It is nearly impossible to predict whether something will go wrong on a project, so it’s always best to come prepared. Having a process in place to follow when a change needs to be made alleviates pressure for everyone.

Perhaps the easiest way for contractors and subcontractors to plan for change orders is to include a provision for them in the original contract. This ensures that all agreeing parties understand that change orders are a possibility. Including these provisions in the original contract also reduces the chance of any negative interactions, including a breach of contract.

Read more about how to prepare for a change order here.

Components of a Construction Change Order

A construction change order must include all necessary details concerning the modification. There are a few areas that are crucial for doing that. The following information should be included in all construction change orders, even if they may vary from one another.

• Office Communications: If one is working on numerous projects at once, knowing the name of the construction project will help them locate it. To distinguish this order from other construction change orders in the project, one must include the order number, add the change order date, and note if the change is internal or external.
• Defining the Change: One should take note of the change order type. There are four types of change orders for construction: unitary cost (based on unitary cost schedule values), lump sum (based on definable work scope), zero cost (does not affect the contracted price), and time and material (cost cannot be determined). After that, describe the change's cause and any connected opportunities.
• Explaining the Change: A thorough description of the request must be written so everyone is aware of the work that must be done to close the construction change order. The time needed to complete the work after accounting for labor and resources must be estimated. Here, pricing forecasting is also necessary.
• Changing the Date after Signing: The construction change order must be approved by all parties before moving on to the final phase, which is for everyone to sign and date. This ensures that everyone agrees with the terms of the contract and will uphold it.

Change Doctrine in a Change Order

The power of an owner to demand changes in the work is broad but not unrestricted. The cardinal change doctrine guards against overreaching by contractors. According to the cardinal change concept, if the owner insists that the contractor complete the job despite changes to the work, that would be considered a contract breach and grounds for legal action. For instance, even if an otherwise valid CCD directed the contractor to build the theater, the cardinal change doctrine would release the contractor from building the theater if an owner and contractor agreed to construct a hotel. Still, the owner later decided to build a movie theater instead. If all of the change orders on the project result in a significant departure from the initial work, the cardinal change doctrine may also be applied. Therefore, when assessing your client's stance, it's crucial to remember the project's overall scope and the modification orders that have been issued thus far.

Change Order Disputes

Construction lawyers have a lot of work to do because of change orders. The distinction between what is a change (which costs more money) and what is covered by the original contract scope (and is thus included in the original price) seems to need to be clarified to owners and contractors.

• Evaluation of Documents: It depends on whether a change order is appropriate. For this, pre-bid documentation, responses to RFIs, field work orders, and the parties' history of evaluating whether a "change" is a change must be considered. Terms that specify which comes first—written specifications or drawings should also be considered.
• Waiver: It's common for contractors to start additional work without first obtaining a formal modification order. Whether the parties may have waived the obligation through their words or conduct if the contractor lacks a written change order or CCD needs to be considered.
• Awareness of Subcontractor: Modifying one contract does not automatically affect the other. There can be a gap in the scope of work if the owner and the contractor sign a change order, but the contractor still needs to get one from its subcontractor. One needs to ensure that clients of subcontractors receive the change orders they are due.

Final Thoughts on Change Orders

Change orders enable owners to respond quickly and maximize project value by capitalizing on opportunities arising after construction, even though owners have a legitimate interest in minimizing project cost increases resulting from unjustified change orders.

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