A Change Order is a formal document used primarily in construction and engineering projects to modify the original contract terms. It provides a structured mechanism to adjust the scope of work, the total project cost, or the established timeline after the initial contract has been signed.
What Is a Change Order and Why Is It Necessary?
A Change Order is a bilateral agreement that functions as an official modification to an existing contract, outlining changes to the project’s scope, price, or schedule. It is a component of project management because nearly all projects encounter circumstances that deviate from the initial plan. These deviations often arise from factors not accounted for in the original contract.
One frequent trigger is the discovery of unforeseen site conditions, such as unexpected soil instability or hidden utility lines, which requires a change in the planned work. Modifications may also be initiated by the client, who might request a different material or an entirely new feature after the design phase is complete. Change Orders are also necessary to correct design errors or omissions found during construction, or to comply with new regulatory requirements enacted mid-project.
The Essential Elements of a Change Order
The structure of a Change Order is designed to provide a clear record of the contract modification, detailing exactly what is changing and the resulting consequences. This document serves as a standardized template that must be completed with specific, quantifiable information before it can be executed.
Identification and Reference Information
The document must begin with specific identifiers to link the change directly to the project and contract it is amending. This includes a unique Change Order number, which ensures the modification can be tracked and referenced easily. The form will also clearly list the formal project name, the date of issuance, and a direct reference to the original contract number. Additionally, it specifies any particular drawings or sections of the technical specifications that are directly affected.
Detailed Scope Description
This section describes the core of the change in non-ambiguous language, detailing the exact work being added to or deleted from the original scope. A thorough description is necessary to prevent future disputes over what was included in the change. This detailed explanation must clearly state the reason for the change, such as a client request for an upgrade or the requirement to remediate an unexpected site condition.
Impact on Cost and Pricing Method
The financial impact of the change is presented with a clear breakdown, showing how the new cost was calculated and the method of pricing utilized. The cost is typically itemized to show subtotals for labor hours, material costs, equipment rentals, and the contractor’s overhead and profit margin. Pricing may be presented as a fixed lump sum if the scope is fully defined, or as a unit price if the work quantity is measurable. When the full extent of the work is unknown at the outset, the cost may be estimated based on a Time & Materials approach.
Impact on Project Schedule
The Change Order must address any alteration to the project’s completion timeline, as a scope change often requires additional time to execute. This section explicitly states the number of calendar days that will be added to or subtracted from the original project schedule. If the change has no effect on the completion date, that fact is also formally noted. Formalizing the schedule impact protects the contractor from penalties for delays caused by the agreed-upon modification.
Authorization and Signatures
For the Change Order to become legally enforceable, it must be officially executed by the parties with the authority to amend the contract. The document requires the signatures of the project owner or client, the contractor, and often the architect or engineer who designed the project. Obtaining all necessary signatures confirms that every party has reviewed, understood, and agreed to the described change. Without this formal, written authorization, the change is considered unauthorized work and carries significant legal risk.
Different Types of Change Orders
Change Orders are often categorized based on whether they increase or decrease the contract scope, or by the method used to determine the cost of the work.
Types of Change Orders
Additive Change Orders introduce new work, resulting in an increase to the total contract price and often requiring an extension of the project schedule.
Deductive Change Orders remove work from the original scope, which typically leads to a reduction in the contract price.
Lump Sum Change Orders are used when the contractor can provide a fixed price for the work, as the scope and quantity are entirely clear.
Time & Materials (T&M) Change Orders are utilized when the scope is not fully defined or the cost is impossible to predict accurately, such as with emergency remediation work. In a T&M agreement, the client agrees to pay for actual labor hours, material costs, and equipment used, plus an agreed-upon percentage for overhead and profit.
The Change Order Workflow
The process for handling a contract modification begins with a request for change, which may originate from the owner, the designer, or the contractor in the form of a formal notice. Once the need for a modification is identified, the contractor is responsible for estimating the full impact of the change on both the price and the project schedule. This involves compiling a detailed breakdown of all associated costs and calculating any necessary time extension.
The contractor then submits a formal change order proposal, including all backup documentation, to the owner for review and negotiation. The parties often engage in discussions to reach a consensus on the scope, pricing method, and schedule adjustment before the final document is drafted. After all terms are agreed upon, the contractor generates the final Change Order document for formal execution. The final step is the official approval, where all required parties sign the document.
Contractual Importance and Documentation Best Practices
The executed Change Order is significant because it officially amends the original contract, giving the modification the same legal weight as the initial agreement. This process is the only way to legally adjust the scope of work, cost, and schedule while maintaining a clear and enforceable contract. Therefore, no work related to a proposed change should ever commence without a fully signed Change Order in hand.
Maintaining meticulous documentation is a best practice for managing these modifications and mitigating the risk of scope creep or payment disputes. Project teams should utilize a Change Order Log, which is a centralized record for tracking every request from initiation through final approval. This log provides a running tally of all approved changes, ensuring timely payment and a transparent audit trail.