Due to the multifarious nature of building projects, a change order is unavoidable in the construction industry. Additions and changes to the work specified in a contract may be necessary. A change order also referred to as a variation order, is a written order to a contractor that details changes to the contract, such as work, items and other types of changes.
A change order is executed if changes significantly alter the scope of the work or add items. Every client hopes that their project goes as planned. However, many projects in construction go through some form of change in order before completion.
In many cases, the changes are small and do not seriously affect the schedule or project value. In other instances, some major changes are necessary due to unforeseen circumstances. Some common reasons for initiating change orders include:
• Additional compensation to contractors for additional work outside the variations in the original contract
• Changes in the design and character of work due to incorrect estimations
• Compensation to contractors for costs associated with varying site conditions
• Discovering problems that cause changes from the original plan
• The project owner is unable to complete the necessary delivery within the budget necessitating the addition of time, money or resources
• Inadequate project objectives leading to design restrictions
Contractors have to learn how to correctly use the various types of change orders in order to collaborate with project owners. Generally, there are four types of change orders. These are Time and Material, Lump Sum, Zero Cost, and Unitary Cost change orders.
1. Lump Sum
A lump sum change order is used when the defined change in the work scope is quantifiable, and a definite price developed. It can occur when the contractor or project owner finds conditions that warrant a change in work scope.
2. Zero Cost
This is similar to a lump sum change order. The difference between the two is that a zero cost change order does not change the contracted price. It is used to document project changes that do not affect the contract value.
3. Time and Material (T&M)
This change order is utilized when the entire cost of the change cannot be ascertained. There are instances where changes in work scope cannot be defined or are unforeseen during a construction project. An example is conditions that warrant repairs before construction begins.
In such instances, a contractor will track the time and materials used to deal with the situation. The project owner can request labor and material breakdown to justify the cost of the change order. Factors affecting T&M tags are negotiated as part of the original contract.
4. Unitary Cost
This type of change order is based on unitary cost schedule values. The contractor negotiates the cost of work scope additions that are defined by specific measurement units. A unitary cost schedule is vital for controlling the cost of extra work units where the quantity of work is out of the project owner’s control.
Overall, knowing what is a change order in construction will help to manage each contractual change to best fit the interests of all parties involved. Change Orders are essential tools for managing the changes that occur during the construction process. They have the ethical responsibility of managing change order processes responsibly.