Change orders shouldn’t be a pain to create and submit during a construction project. In fact, if you create a repeatable process and use a change order template, submitting these requests is easy. Even so, there are still a few things to keep in mind.
When it comes time to submit a change order, it’s important to understand what change you’re making and how it will affect the project. Change orders exist so you have documentation of both how a project will change and who approved the modifications.
But with so many potential reasons for a change, how do you know when it’s the right time to submit a request?
When Do You Need A Change Order Request
Change requests typically come after the construction contract has been finalized and work has begun. There are a few scenarios in which you might receive a change order before work starts, but this is rare.
There are a number of different circumstances that can trigger the need for a change:
- Incomplete or incorrect project drawings
- Change to the project design
- Cost adjustments for items such as weather delays or uncontrollable material cost increases
- Difficulty with delivery of the project according to the original plan
Although these are some of the most common reasons, it only scratches the surface of what might cause the need for a change order.
When anything changes on a project, your change orders will help you track the adjustments over time to ensure you’re being properly paid for the work you’re performing and still reaching your profitability goals. Remember that change orders can reflect price increases or decreases, depending on the change in scope and duration of your project.
Submitting a change order can cause tension between contractors and the project owner. To help you navigate this situation effectively, here are five tips to keep in mind when requesting a change order.
Tip #1: Have the Contract in Hand
Your project contract tells you all of the requirements of the job and the expectations for you as the general contractor or subcontractor. It will outline the job type, contract type, timeline, contract value, scope of work and terms and conditions for the job. In short, it has all the details you need when requesting a change order.
Before submitting your request, consult the original contract to ensure the changes don’t violate anything that was previously agreed upon with the owner. You should still meet all expectations and deliver the same quality project with the proposed changes. The contract will likely also include a clause that explains when a change order is warranted and what cannot be changed.
Only submit a request once you’ve ensured that the change is allowed. Usually, the owner will approve if you can explain your reasoning and demonstrate that the adjustment is truly necessary. If the owner pushes back, however, you can use the contract to show that you are within your rights as the contractor to adjust the project as needed.
Tip #2: Don’t Delay
Construction timelines are notoriously fickle. They’re always changing and rarely for the good of the owner or other contractors involved. If you need to request a change order for a project, don’t delay. The sooner you get it submitted, the sooner the client can sign off and adjustments can be made. This helps you continue moving the project forward, even when the plan changes.
Don’t forget that the client can request changes too. They might want to add another section to the project or reduce the scope. Keep this in mind if situations pop up that could cause this to occur, such as a sudden increase in materials prices or significant delays due to uncontrollable circumstances. For example, the COVID pandemic caused mayhem in the construction industry and many projects were canceled, reduced or put on hold at the client’s request.
The further ahead of these situations you can stay (when possible), the more you’ll be able to protect your business, team and profits.
Tip #3: Consider Costs
Anytime you need a change order, there are going to be costs associated with it. Normally, your material and labor budgets will bear these costs, but changes can also affect the time you spend on a project. (And time is money, after all.)
Before submitting a request, consider what costs come with your change order. Ask yourself:
- Are you going to need extra labor hours to accommodate this change?
- If so, can your crew work those hours?
- Do you have the cash flow to support the increased labor before you get paid for the change?
- Will you need to buy more materials that are expensive or difficult to find?
Once you’ve calculated all the extra costs that come with a change order, you need to add in your overhead and profit allowable to ensure you earn the profit you need from the job. Keep in mind, the project contract might dictate the amount of overhead and profit you add to a change order. So be mindful of your contractual restrictions before submitting a request.
You should also consider the costs from your client’s perspective. They may not have the budget to make expensive adjustments to their project, even if they’re necessary.
Tip #4: Document Everything
Documentation is a critical business skill in any industry, but particularly in construction. It creates a written log of how the project is progressing and if there are any issues that need to be addressed. As projects change over time, there are many opportunities for confusion to arise among everyone involved. Documentation is what keeps all parties on the same page.
A formal change order request is a document that explains the what and why of your decision. It details exactly what you need to change about the project, why you’re proposing those changes and the costs associated with them. That way, if someone new joins the job or someone has a question about a previous decision, you have everything you need to explain or defend your work.
Start documenting every job — not just change orders — from the very beginning of the project. You can use project management software or a database to keep your information organized and secure. This is where you’ll keep change orders, daily field reports, weekly meeting notes, and any other correspondence. Be sure to get any discussions or decisions about the project in writing in case you need to reference them later.
Some people organize their documents based on type — all change orders together, all meeting notes, etc. — but this can make it difficult to find what you need. We suggest you organize your files by project, so everything relating to one job is in a central location.
Tip #5: Keep a Consistent Process
Construction projects have a lot of moving parts. There are many different people involved, both inside and outside your organization, plus documents, plans and work schedules that all need to be evaluated. The best way to manage everything and ensure your change orders are on track is to create a consistent process for management and approval.
Your goal should be to create something that’s easily repeatable, in case someone leaves your organization or you bring on a new team member to handle change orders. Build a standard process for creating, communicating, submitting and approving change orders, as well as a method for tracking them during their life cycle.
Write down the process and include it in your personnel documents so that anyone can find and access it. This ensures no matter who is handling a change order, they’re following the same procedure as the person before them. That consistency improves communication with clients and keeps change orders from slipping through the cracks.
Construction Software Can Help
Creating, submitting and tracking change orders can be a time-consuming process if you don’t have quality construction software to help. At Crewcost, we help contractors manage their business and improve their accounting through processes like change order management. Try Crewcost FREE for 30 days to see how it can help your business.