It has long been said that the only thing constant in life is change, and that is particularly true when it comes to a construction contract. Because changes are such a common occurrence in the construction industry, anyone handling a home remodeling project needs to be prepared to complete a change order. These documents are important because they specify what changes will be made to the original contract, protecting both the homeowner and the contractor.
Ready to understand the change order process? Here's everything you need to know before something inevitably changes in your remodel.
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A change order describes changes to the scope of work that the contractor and homeowner have agreed on — as well as how those changes will impact the contract price and the completion date.
What Is a Construction Change Order?
A change order is a way to adjust the terms of a contract between a construction project owner and the contractor they hired. Change orders are necessary because the construction industry is so complex, and few projects can fully account for every potential challenge or possible variable ahead of time. When mistakes are made in plans, when homeowners want to make changes after a construction project has already started, or when a complication arises in the middle of a project that affects the schedule, these matters can all be addressed in a change order.
The most common types of project changes are those that require additional work, which will increase the overall contract price. Change orders are sometimes created when modifications to the plans mean the project will take longer than originally intended. Orders that increase the cost of the project are called additive change orders. Deductive change orders are those that reduce the contract amount, the amount of work to be performed, or the amount of time the project will take. Essentially, whenever there will be a change to the original scope of work detailed in the contract between a homeowner and a contractor, a change order may be required.
Most companies have a standard form they use for change orders, though some small operations may actually write out the information required in each change order from scratch. Regardless of how they are created, a formal change order should include the following:
- Contract number
- Name and contact information of both parties
- Project address
- Change order number (this will be #1 if it is the first change order on the contract)
- Important dates, including when the change will take place and when the change order was submitted
- Scope of the changes
- Any updates to the contract dates
- How much the changes will cost
- Signature area for both parties
When Are Change Orders Required?
Not every change requires a change order. If a minor change is made that will not affect the deadline of the project or the overall cost, it does not require a change order, though some contractors may issue one to simply document the changes anyway. For example, if a homeowner changes their mind about a paint color, as long as the two hues cost approximately the same, this change will not require a change order.
Changes that adjust the cost or deadline need to be approved through a change order. For example, if a homeowner decides to move a wall to increase the size of their living room, that would require a change order. Alternatively, if a homeowner wanted to change the material used for a tile floor from Italian marble to glazed ceramic, a deductive change order would be necessary since it would dramatically lower the cost of the project.
Contractors may also request a change order. This could occur if a building inspector finds a problem that needs to be resolved (like a needed additional support beam, for instance). They can also be added if something unexpected comes up during the construction process, like the contractor discovering decayed wood in the walls, or if something in the plans doesn't work properly (like a staircase on an outdoor deck being too long to connect to the sidewalk).
A contractor cannot issue a change order simply because they underbid on a project nor can they submit a change order requesting more money if they eft something out of the bid that they should have included from the start.
How Change Orders Are Created
Change orders are permitted as part of a construction contract because these contracts typically contain a "changes in the work" clause. This clause describes the process and terms for making change orders, including how those changes should be priced and when the payment will be due.
For example, some contracts require payment for change orders to be made in a lump sum before the work begins. Some require a down payment of 50 percent, and others add the balance to the total sum due at the end of the project. Before creating a change order, check your contract documents to review the specific process upon which you and your contractor have agreed. Following the proper procedure is the best way to ensure that both you and the contractor are legally protected, minimizing the chance of disputes arising.
The process for a change order begins when either party contacts the other to request a change to the initial agreement. The contractor is responsible for preparing a change order proposal that includes the price for the additional work as well as any other details, such as how it will affect the project schedule. The owner and contractor must then agree on the details of the change before the contractor creates a formal change order to be signed by both parties. Only then will the work detailed under the terms of the change order be completed.
While it's best to complete a signed, formal change order before the work starts, sometimes, a change needs to be made quickly, and there is no time to follow standard change order procedure. In these cases, a verbal agreement is considered legally binding even if it does not follow the procedure detailed in the contract.
For example, if the contractor breaks a pipe that was not shown on the original plans and needs to hire subcontractors to pump out water that flooded the work area and fix the damage, you should agree that the contractor fix it immediately. In this case, the change order document will be submitted later, stating the cost for the additional work and whether the water damage may add time to the original project timeline. The responsible party cannot get away with not paying for these charges simply because there was only a verbal agreement before the work was completed.
If a contractor ever performs additional work without obtaining even verbal permission ahead of time, do not sign the change agreement or pay these charges.
Disagreement Over Change Orders
The main cause of disagreement over change orders involves disputing whether something is a legitimate "extra." This is why project proposals, bids, and contracts should be as detailed as possible to prevent disputes later. Plans or job specs do not always specify every possible detail of the job (such as how many layers of paint should be used), so the contractor and homeowner may have different ideas of what work should be included.
This is why most contracts require work to be done according to either the manufacturer's written instructions, construction industry standards, or a similar specification. This means the contractor must do what is standard in the industry or what the manufacturer specifically recommends. In other words, if the manufacturer suggests at least three coats of paint, then the contractor should use at least three coats of paint. If a contractor attempts to get away with using only one coat of paint, the homeowner does not need to complete a change order or pay extra to get the contractor to put on two more coats.
When disputes over change orders cannot be easily resolved, it is important to follow the contract's terms on dispute resolutions to solve the issue. This will not only help you resolve the matter in the easiest and quickest manner but will also ensure that you are legally covered if the issue ends up going to court.