What is a change order?
In the construction industry, a change order is the written agreement between contractor and client about the execution of work added to a given construction project. There are no requirements for change orders dictated by regulation, but it is considered best practise by the industry.
Because unforeseen challenges often emerge continuously throughout a construction project, it is rarely realistic that the content of the initial contract is sufficient for the project until completion. Most often, new tasks that affect both time and economy will emerge. These tasks can emerge from unforeseen circumstances and/or from the client requesting extra work from the contractor. In situations such as this, the added work and its scope is documented through a change order.
More often than not, a change order will be included in construction projects, and the larger the scope of the construction project, the larger the importance of the change order and its documentation is. Ensuring that one’s own documentation is done properly is important, but the most essential aspect is using the change orders as a tool to continuously align expectations between the contractor and the client in order to avoid any disagreements to begin with.
Who uses change orders?
Change orders are used by both the contractor and the client in the construction industry to formalise agreements concerning added extra work. The signed change order benefits both parties as it aids in aligning expectations, while also ensuring that the agreement is formalised and that the parties thus can abide by the change order.
In the case that disagreement concerning the extra work should emerge, both the contractor and the client are better off with the existence of a signed change order. With a thoroughly prepared written agreement that sufficiently describes the extra work to be done, the costs of the extra work, as well as the time frame, it is much easier keeping an overview of where responsibility should be placed. Additionally, it also reduces risks for disagreement in the first place.
Why are change orders used?
In accordance with many emerging regulations, it is recommended that any changes, and thus change orders, should be communicated as soon as possible. It is also recommended and that these changes are added to the existing enterprise contract in the form of a change order. For the client, it is usually a requirement that changes made to the initial contract must be documented. However, documenting these changes is just as important for the contractor as well to ensure that the contractor always has access to written documentation of the additional time and costs that the changes bring with them.
Proper documentation for improved communication
With the usage of change orders, it is generally recommended in the construction industry to ensure that work, agreements, and changes are properly documented and journalised. This will in turn aid in aligning expectations between the parties and ensure traceability – consequently meaning that potential risks concerning the parties having different perceptions of the reality of the construction project can be reduced.
Change orders secure all parties
To both client and contractor, the purpose of change orders is to ensure that between the parties, expectations concerning the impact on economy and time that a change to the project would bring with it are aligned. Because construction projects often adhere to strict time schedules, it is likely that a contractor, in the midst of a busy workday, could end up doing extra work without the support of a signed change order.
The absence of a signed change order can result in finished work having to be demolished again because it had not been accepted as a change to the project to begin with. In this case, the contractor would have spent time doing the work as well as supplied materials, all of which would be wasted – and this waste could likely have been avoided with a signed change order at hand.
The contractor secures payment
For every involved party it is ideal that the project runs smoothly according to the initial project plan. For the contractor in particular, utilising change orders is of great interest. The contractor expends work hours and materials for the change, and it is therefore also important to do as much as possible to ensure that once the project has finished, the contractor will be paid in full.
The process behind a change order
A change order is used as the written agreement between contractor and client for extra work. The process behind a change order would typically look like this:
- A change order is created in one of the following ways:
1A: a problem or unforeseen circumstance emerges
1B: the client wants to make a change to the initial project contract
- The altered requirements are described and documented
- The contractor forwards a change order for the task, i.e. altered economy and time schedule as well as additional relevant documentation
- The client comments
- Changes are processed
- The change order is approved by the client
- Work commences
It is essential to highlight step 4 and 5 since it is in these phases that the dialogue between contractor and client takes place. This dialogue is a continuous process and takes place until both parties are in agreement about the extent and content of the change order.
In an organization in which change orders are based on analogue solutions or perhaps MS Excel, this communication between contractor and client can be difficult to manage and log properly. This is problematic as the dialogue that takes place in the process is an immensely important aspect of the total understand of what the change order covers. It is thus recommended to utilise digital solutions that support each of these aspects.
Change orders and requests for information
The two concepts of change order and requests for information (RfI) are in practice closely related to one another. A request for information is a request, from contractor to client, for more information about a particular aspect of the construction project or process.
This can be the tender material in the initial phases of the project conception, or project material during construction itself. A request for information is utilised if the contractor requires more information to complete a task – for example if the project material is insufficient in its description of a given area, or if the contractor during the construction process discovers an unforeseen problem which must be taken into consideration. If it turns out that the request for information results in the need for a change to the original contract, this is where the change order is utilised.
The benefit of digital change orders
Generally, there are clear advantages to digital solutions compared to analogue/manual ones. This is evident in comparing physical letters to emails, where the digital solutions clearly simplify the communication process and makes it faster, easy and more accessible. This is also the case for change orders.
The change orders and relevant communication are journalised in one place
With a solid platform for journalising change orders, it is easy to manage information and keep it updated at all times. When change orders are journalised centrally in one system, you gain a complete overview. This increases the accessibility of the documents and ensures that all parties are working based on the same revisions of the change orders, and thus also the same information basis.
A digital platform will also support the concurrent dialogue between contractor and client, which is journalised along with the change orders themselves. If the client wishes to communicate through email, it is essential that the contractor utilises a system that supports the journalising and logging of this email correspondence.
Risks relating to loss of information are reduced
No matter how you manage your change orders, it is essential that it is done systematically and that the relating dialogue and communication is properly logged. If a change order is stored only in an individual employee’s inbox, chances are it might end up forgotten. Continuing along this path, considering the scenario in which the employee is let off or leaves the position, and the inbox is thus deleted, the consequences can end up being catastrophic.
Because the change orders are journalised on the platform, it is ensured that the change orders are not lost – and consequently the challenges with access to or loss of information are heavily diminished.
Journalising enables better traceability and follow-up
The systematic journalising that a digital platform enables creates a natural structure and order in the management of change orders. With this structure you will gain a complete overview which allows for much better traceability and follow-up.
A digital platform for change orders gives the complete overview, and thus it is always possible to see how far along the process an individual change order is. This is especially useful in larger projects as the number of change orders usually sharply increases with project scope, and without a systematic overview, managing the change orders quickly becomes chaotic.
It is especially important to stay on top of the statuses of the change orders – that is, being fully aware of which ones have been approved and which ones have been declined. Likewise, it is important to stay on top of which change orders are awaiting action from the contractor as well as having the tools to press the client for action in these cases.
By having the full overview over status, it is much easier to stay on top on knowing which change orders require action from whom, and this thus ensures that every single change order will be followed up.
With a digital platform to gather all change orders and related communication, it will also be possible tracing the communication from start till finish. It is therefore easy keeping track of the parties working with the change order, as well as any changes made, by whom and when.
Consistent layout and formalities
For the contractor, in the midst of a busy workday, finding time for administrative tasks can be a challenge. With many emails, phone calls and other administrative tasks, managing the change orders can quickly become a challenge, and thus minimising the quality of the completed work. To combat this, purchasing the correct digital tools can prove very useful.
A challenge could also be to get standard terms and other important information included, as this information is easily overlooked when creating a change order. A digital solution ensures that the relevant information is automatically included in each change order, and that all dialogue and communication are coherent in expression and content.
When is a digital solution for change orders worth it?Loss of income due to the absence of change orders
Missing written documentation related to completion of extra work tasks is a very significant problem in the construction industry that often results in losses for all involved parties. It is therefore in the interest of every party to align expectations regarding the changes to time and economy that a change order brings with it.
With the large sums of money as well as the amount of time and materials a contractor spends on the extra work, it is important that the agreement is thorough, and that the history has been logged. This helps to ensure that the parties are in agreement of the extent of the work to be done, the quality, the deadline as well as the price.
For the contractor, it can quickly turn into a costly affair no to utilise change orders or, or to create change orders with inadequate information, as the contractor risks not receiving payment after the work has been completed. If this happens just once or twice, a digital solution to ensure that the change orders are sufficient will have paid for itself.
This is why a digital solution is ideal
With all the benefits that a digital solution for change orders brings with it, including a central platform for easy change order management as well as easily logged communication with the client, it can rather quickly become well worth the cost of purchasing a digital solution.
Inspectly’s module for change orders offers these benefits – if you are interested, you can read more about the module here, and you are naturally always welcome to contact our advisers.