In a perfect world war, divorce, and change orders wouldn’t exist. Sorry, we live in an imperfect world. As for war and divorce – I got nutten. Yet, I can provide some information concerning how to deal with the inevitable change orders that are going to arise during many construction projects.
Change order basics
Construction change orders are used for altering a construction contract. They are contract documents both parties agree to, signifying they understand there is a change to the original agreement. Further, a change order defines the costs and time factors which will affect and alter the original construction contract. That being said, it is well to develop a proactive change order management strategy.
The first way to diminish the use of change orders is to create the best initial contract. And, because unforeseen conditions, designer error or omission, or a change of heart can all be starting points for change orders it will serve you well to have a formal change order request process addressed in your original contract.
Building your change order process
These 5 steps are a good foundation for building your change order process.
Develop the timeframe requirements concerning initiating a change order request
Determine what specific information and documentation will be required
Note who the authorized agents will be concerning the approval of the change order
Lay out how communication between all parties involved will be handled
Negotiate terms concerning scope, costs, and timeframe
It is also a good idea to let your clients know that submitting a change order request does not immediately cause work to change. There can very well be time involved in your research concerning the costs of labor and materials as well as other factors.
Other change order considerations
If one phase of the construction must be torn out in order to accommodate the requested changes the costs and time constraints are likely to be considerable. That is probably the easy part for your client to understand.
What they may not know is the other costs you’ll be considering concerning what must be changed. I asked our team here at Schulte and Schulte to give me some ideas concerning what monetary factors you, the construction contractor need to consider when negotiating a change to your original contract.
Depending on which trade you’re a part of, all or only some of these items may be factors.
Labor
Materials
Equipment usage
Restocking fees
Shipping costs
Taxes
Be sure to include each item in your calculations concerning the costs associated with the change.
Change order forms
You can get a general idea about a change order form here. Of course, this site offers this disclaimer should you choose to use their form. “The forms on this site are provided ‘As-Is.’ By using these forms you agree that you are using them at your own risk. Most of the free forms are not prepared by an attorney and may need substantial modification.”
You can see another example of what your change order form could contain here.
Better yet, (and, this is what we recommend) if you’re using Knowify, there is a simple way to deal with the change order form. Check out the video here.
We’re able to provide information concerning the use of Knowify in your construction accounting process as well as your change order process. Get in touch here or give us a call 480-442-4032 or 866-629-7735.