When a project begins, the contract serves as the foundational agreement, outlining the scope of work, timeline, and budget. This document represents the shared understanding between a client and a contractor. Since projects rarely proceed without adjustments, a change order is the formal process used to modify the original contract when an alteration to the plan is required.
What is a Change Order?
A change order is a legally binding amendment to an existing contract. It is a formal, written document that officially alters the terms of the initial agreement, ensuring any modifications to the project’s scope, schedule, or cost are clearly defined and mutually accepted. Its purpose is to act as a legal protection for all stakeholders.
By requiring signatures from authorized representatives, it confirms that everyone understands and consents to the new terms. This process prevents misunderstandings from verbal agreements, which can lead to disputes over payment or project expectations.
Common Reasons for a Change Order
Changes during a project can be triggered by several factors. Common reasons for a change order include:
- Client-requested modifications, such as using higher-quality materials, adding a new feature, or accelerating the project schedule.
- Unforeseen on-site conditions, like poor soil quality in construction or unexpected technical hurdles in software development that could not have been reasonably identified beforehand.
- Design errors or omissions in the original plans and specifications that require correction to the design and work.
- Issues with material or labor availability, such as a product being discontinued or facing supply chain disruptions, which requires selecting a substitute.
Key Elements of a Change Order Document
A change order document contains several components to ensure clarity and legal standing. These elements include:
- A detailed description of the change, articulating the new work being added, work being removed, or specific alterations to project requirements.
- The adjustment to the total contract price. This can be an additive change (cost increase), a deductive change (cost decrease), or a zero-cost change.
- Any adjustment to the project completion date or overall schedule. If the new work requires more time, the document formalizes a time extension.
- Signature lines for all authorized parties, like the client and contractor. These signatures indicate mutual agreement and make the change order a binding part of the contract.
The Change Order Process
The change order process begins with identifying the need for a change. This can be initiated by any project stakeholder, such as the client, contractor, or design team. For instance, an owner might request a new feature, or a subcontractor might identify a conflict in the documents.
Once the need is identified, the contractor prepares a formal proposal. This document details the proposed modification, including a full description of the change, its impact on the project’s cost, and any necessary schedule adjustments. This proposal serves as the basis for review.
The client and their team then review the proposal, which may lead to negotiations over cost, timeline, and scope. Work on the modified scope should not proceed until the change order is formally approved. The final step is approval or rejection, where the client signs the document to authorize the change, making it an official amendment to the contract.
How a Change Order Impacts a Project
An approved change order directly affects a project’s cost, schedule, and scope. The most immediate impact is on the budget. Additive change orders increase the total contract sum, while deductive orders can decrease it if work is removed. These financial adjustments must be tracked to maintain control over the project budget.
The project timeline is also frequently affected. Changes often require additional time to implement, which can extend the completion date. Even a small modification can have schedule implications if it affects other dependent tasks.
A change order formally alters the project’s scope, which is the defined work and deliverables. Each change modifies the original agreement and the final product. If not managed carefully, a series of small changes can lead to “scope creep,” where the project gradually expands beyond its original objectives, straining resources and timelines.
Best Practices for Managing Change Orders
Effective change order management begins with the initial contract. The agreement should include a clear process for how changes will be handled, outlining the steps for submission, review, and approval. This proactive approach ensures all parties know the procedure before any changes arise.
Open and prompt communication is also important. All stakeholders should raise potential issues as soon as they are identified. Discussing changes early allows teams to assess impacts and explore options before significant time and resources are invested.
Finally, document everything in writing. Verbal agreements regarding changes to the scope, cost, or schedule should be avoided. Insisting that every modification is captured in a formal, signed change order creates an official record that protects both the client and the contractor. Maintaining a log of all change orders provides a clear history of the project’s evolution.