What is a Contractor Change Order?

In our last post, we discussed contractor punch lists. Keeping on the theme of industry terms, this post will cover the term "contractor change order". The term “change order” is common to those that have built a home and also cause heartburn to those thinking of building.

What is a Contractor Change Order?

In its basic form, a contractor change order is an amendment to the construction contract. Change orders are necessary any time there is a change to the scope of work, contract price, project schedule, or any other term of the construction contract. Change orders are an invaluable tool during a construction project because they allow for flexibility as the project progresses. Even the most well-planned project will have changes to the plans, scope, or finishes and that will require an adjustment to the original contract. Over the years we have found that when a contractor has been chosen from the beginning of the project and can work with the client, architect, and designer at preconstruction, change orders are minimized throughout the construction phase.

Proper planning and teamwork will not only expedite the build but also lessen the unforeseen costs. Here at AFT Construction, contractor change orders are used most often when our clients make changes to the original design of the home. As a construction project progresses, it helps our clients see how the design on paper is going to come to life. Many times, this leads to adjustments such as adding additional recessed lighting, outlets, cabinetry, trim carpentry, tile work, etc. In other instances, some final decisions regarding a certain finish, such as plumbing fixtures, has not been made at the time of executing the construction contract.

To solve this problem, AFT Construction will create an allowance with our clients that provide a set dollar amount in the contract price for a particular line item. This way, we can get the construction contract signed and start the construction and avoid holding up the entire project due to the final decision on a particular finish. For instance, if our client has not made final selections for light fixtures, we will set an allowance such as $15,000. Once our client makes the decision on the light fixtures and we have obtained those hard costs, we will prepare a change order to extend that credit or debit, based on the final price.

This change order will solidify the necessary adjustments to the contract price and schedule. A change order can be additive or deductive. In the allowance example above, if the price of the chosen fixtures comes in less than the allowance amount, our client will be credited back the difference. However, if the price comes back more than the allowance, the contract price will be increased.

In addition, we make sure to show the original contract price, the total cost of any previous change orders, the total cost of the current change order, and what the new contract price will be upon execution. Perhaps the most important goal of a written change contractor change order signed by both parties is to make sure both the owner and contractor are in agreement on the changes requested. Relying on verbal instruction in the field can often lead to disagreements on what was discussed. An executed written change order protects the owner by providing the owner with an opportunity to review the new pricing and details of the changes, and it protects the contractor by providing written documentation that the owner agreed to the change.

Conclusion

While contractor change orders can be great tools during a construction project, we still encourage our clients to make as many decisions upfront as possible. This helps keep project costs under control and keeps the project on schedule.