A Guide to Addressing the Cost of Change Orders in Construction
The inevitable change order — Every contractor knows to expect them, yet we all still dread them.
In reality, change orders can be costly to a construction project, cause delays, and can even result in errors in construction when not done right.
What is the true cost of change orders in construction and how can expensive delays and mistakes be avoided?
In this guide, we uncover...
- The truth about change orders
- Why they cause so many headaches for contractors; and
- How to effectively eliminate the stress of record-keeping
...so that you can get back to the job at hand, and get paid sooner.
Reduce the Cost of Change Orders in Construction With Flexbase’s Automated Schedule of Values
One of the biggest headaches suffered by subcontractors today is payment — not just getting paid on time, but getting paid fairly and in full for work completed.
Change orders only add to this headache, often resulting in a cost increase to the original contract. It only means contractors have to fight harder for the money they’ve earned.
Flexbase, however, has taken the payment process for contractors to the next level by automating every step.
Simply upload your contract (complete with standard construction industry payment terms) to your free Flexbase account and let us take care of the details, including:
- Project tracking
- Applications for payment
- Change orders
- Legal reminders
- And much, much more
Our app not only increases transparency and collaboration when change orders occur, but it also decreases the costly back and forth that can lead to construction delays.
We’ve completely streamlined the communication process during change orders. All parties involved in the project are notified, in real-time, when changes and approvals are made to the original schedule of values (as seen in the image below).
Don’t let the cost of change orders in construction get you down — Flexbase has you covered.
And, our resources are 100% free to use. You don’t pay unless you get paid.
What Is a Change Order in Construction?
The term “change order” is the construction industry’s way of saying: “we’re changing the scope of work.”
Usually, a change order will:
- Modify the work originally laid out in the contract terms
- Adjust the time frame for which the contractor has to complete the work
- Or possibly both.
Change orders typically increase the original contract price, so for the change order to be valid, both the contractor and owner must agree on the new terms.
The cost of change orders in construction depends heavily on the change that must be accommodated.
A classic change order usually entails adding to the original plans or changing a design element, for example:
- Adding a window where there wasn’t one before
- Moving a door to another location in the room
- Moving a wall
- Adding pot lights or changing electrical outlets
- Changing countertops from granite to concrete
- Adding a skylight to the 2nd story bathroom
- Etc.
In the case that the owner wishes to eliminate or delete portions of the work, this is referred to as a deductive change order. The result is a decrease in the original contract price.
Why Are Change Orders a Necessary Part of the Construction Process?
Construction is dynamic by nature, which makes change orders an expected part of any project.
It’s virtually impossible to anticipate every variable or possible challenge from the start, which is why change orders are necessary.
By correctly completing a change order from the start, contractors not only minimize risk, but they also improve the chances of quick approval and ultimately faster payment for the job.
The original contract may provide specific details as to how a change order is to be submitted, and if a specific form is required.
These are the common forms used:
But, with a Flexbase subscription, the change order process is completely streamlined and free.
Through our app, every party involved in a change on a construction project can do so directly within the schedule of values already uploaded into our system.
All notes, changes, and approvals are done instantly within the app, and all parties are notified in real-time, making construction delays a thing of the past.
What Are the Different Types of Change Orders in Construction?
Above all, it is the responsibility of the owner to ensure that the contract specifies exactly how change orders should be processed.
Adequate documentation, such as...
- Revised plans or specs
- Daily reports
- Meeting minutes
- Correspondence
- Etc.
...should be included within the original contract documents.
Change orders involve various steps before they can be issued and received, so timeliness is essential to avoid delays.
These two types of change orders are common in construction:
- Fixed sum
- Time and materials
The cost of change orders in construction, regardless of the type, should be established upfront to avoid payment issues in the future.
Do Contractors Typically Budget for the Cost of Change Orders in Construction?
A recent study shows that approximately 40% of construction projects see change orders that amount to a 5 to 10% increase in the total cost of the project.
When drawing up contracts, both owners and contractors must factor in the potential cost of change orders in construction, and how it may affect the project as a whole.
Allocating an additional 15% of the total budget to account for changes or unforeseen existing conditions is a good general practice for any type of construction project.
How Often Do Change Orders Push a Project Over Budget?
In the same study, it was shown that only 26% of construction contracts showed no change orders, and only 11% were deductive change orders, meaning the cost of the project was reduced due to eliminating original plans.
It’s clear that change orders are just a reality of the construction industry, but some steps can be taken to minimize unwanted or excessive change orders.
Finances Aside — An Additional Cost of Change Orders in Construction: Delayed Completion
One of the biggest issues facing contractors is the potential for delays. Sometimes days — and even weeks — can be lost due to change orders.
It’s important to notify everyone involved in the construction project of a change as soon as possible so that the issue can be discussed and resolved.
Revised Project Drawings
Oftentimes the changes require the engineer or architect to revise project drawings, which can halt the construction while the contractor awaits these revisions.
If the changes are extensive, then the schedule of values may require extending to account for the additional time required to complete the job.
Permit Changes
Depending on permit laws, change orders may result in additional or revised permits before work can be completed.
Construction cannot continue without legal permits in place, and the process can take weeks in some cases.
Owner Approval
Small changes are usually dealt with quickly, and often on the spot, but when a big change is requested and architects or engineers require owner approval, the delays can be quite long.
If additional financing is required to accommodate the change order, construction may not continue until the banks or lenders issue approval of funding.
6 Ways to Reduce the Impact of the Cost of Change Orders in Construction
While change orders are inevitable, there are ways to reduce, and in some cases eliminate, the hassle of change orders on a project.
Here are our 6 top tips for reducing the impact of the cost of change orders in construction.
#1: Review Bids Carefully
As a contractor, one of the best things you can do to keep your costs in check is to spend plenty of time reviewing bids carefully.
Gather as much information as you can about construction materials, review the products, and get familiar with the designs. Making sure the bid is inclusive and complete can help you avoid costly construction change orders partway through the project.
Ensure that your bid includes a contingency budget of about 10% for possible changes to the scope of work.
Contractors need to have a clear understanding of the construction expectations, so ensuring that the schedule of value (or scope of work) is clearly defined will help reduce the potential for change orders.
Engineers and architects should produce plans and specifications that can be understood by subcontractors without confusion.
The project management team must establish RFI (request for information) procedures that allow contractors to ask questions and receive prompt responses.
#2: Charge a Fee for Change Orders
Contractors can add a charge for change orders within the contract to help deter owners from making constant changes.
Generally, a construction change order markup of 10% of the net direct cost is considered an acceptable and reasonable charge for change orders.
#3: Be Sure That All Required Infrastructure Improvements Are Accounted For
It’s important to ensure that the contract accounts for infrastructure improvements, such as electrical or plumbing.
Carefully review the schedule of values to make sure it’s complete with every detail of the project.
The last thing any contractor wants is to find out halfway through a project that major infrastructure improvements are needed before the project can continue.
The likelihood of costly change orders can be easily avoided with a complete and comprehensive scope of work.
#4: Adjust Your Schedule if Needed
Remain flexible and account for the possibility of change orders when creating your schedule of values.
You may need to extend your timeline on the project and this should be done in writing to avoid any disputes with the GCs or owners of the project.
#5: Communicate All Changes Clearly
Communication is the key to success when it comes to change orders.
Rather than letting the cost of change orders in construction be the cause of stress on the job, use the Flexbase App for free and streamline the communication process on your next project.
No more digging through:
- Emails
- Texts; and
- Written correspondence.
With your subscription, the Flexbase App, every person involved in the construction project can communicate on our platform.
Every...
- Change
- Note; and
- Approval
...can happen directly through our app within the schedule of values and all involved parties are notified in real-time, ensuring nothing gets missed.
Simplifying the change order process will decrease the delays that typically occur, and allow the job to continue with ease.
Schedule your free demo and see how Flexbase helps make the change order process painless, puts money in your pocket faster, and can help you avoid the headache of costly delays.
