Construction Change Orders 101: Why They Happen and How to Avoid Them

Finding construction projects to join is a challenge in and of itself at times, but learning how to manage major changes within said projects in the middle of production is an important skill to develop. Change is inevitable, both in construction and real life. In fact, estimates say that up to 35% of construction projects have at least one major change. Change orders are documents that officially change, add, or subtract work from the construction contract. They can be caused by a number of events but can often be limited through good design. This article will serve as a primer on construction change orders: what they are, terms you should know, why they happen, and how to avoid them.

What is a change order (CO)?

A change order (CO) is a change to the scope of work or schedule that has been approved by the owner and contractor. Change orders may also be issued between the general contractor and a subcontractor. It is an approved change to the construction contract and may affect the contract price (either up or down) and/or the project schedule. It’s also possible that a construction change order can change the scope of work without affecting either the price or the schedule.

The process for approving and issuing a construction change order is usually included in the project contract. Because change orders are so common, most all contracts have a section dealing with them. For example, in the American Institute for Architects A201 document, General Conditions, article 7 deals with changes in the work. The same article in the ConsensusDocs Document 750, Agreement Between Constructor and Subcontractor, deals with changes between a general contractor and subcontractor. Usually, the contract language from the prime contract, the one between the GC and the owner, is passed down to each subcontractor.

COR versus PCO

There are a few acronyms that are commonly used when referring to the change order process. A couple of the most common are COR and PCO.

A change order request (COR) is a document requesting a change to the construction project’s scope, cost, extra work and/or schedule. The document should include a description of the change, the reason for the change, and the effect of the change, including costs and schedule changes. CORs can be approved or rejected by the project owner or general contractor. If approved, a COR will be confirmed by issuing a change order or CO. Multiple CORs may be included in a single change order. If a COR is rejected, nothing further happens.

In some cases, the term potential change order (PCO) means the same as COR, and the terms are interchangeable. However, some owners or contractors may use PCO to refer to a notice given to subcontractors that there has been a change in the scope that may affect their work. If a subcontractor is affected by the PCO, they submit a change order request to the general contractor who then passes it on to the construction project owner.

Which acronyms get used often depends on the project management or accounting software that a company is using. Other acronyms that are used include PCCO (prime contract change order) and CR (change request). Both terms may be used to refer to a CO.

Reasons for a CO

There are many reasons that a change of scope may occur on a construction project:

• The owner may request a change in scope.
• There may be unforeseen conditions that cause a change in scope.
• The architect or engineer may direct the contractor to make a change.
• The architect, engineer, or owner may issue a field directive asking the contractor to vary from the designed scope.
• The  construction contract documents, including drawings and specifications, may be revised, changing the scope of work.
• A schedule delay may postpone the completion of a construction project.
• There may be a significant price increase or cost for certain materials or labor that couldn’t be foreseen when the project was bid.

How to avoid changes on a project

Some changes may be unavoidable, especially those caused by unforeseen conditions that are only brought to light as the work progresses. However, for the rest of them, there are some steps project teams can take to minimize the number of change orders.

1. Ensure that the project documents, like drawings and specifications, are complete and the owner has reviewed and approved them. A general contractor can also review these documents during the design process to ensure that there isn’t any missing information and the work as designed is constructible.
2. Review all contracts, including with subcontractors, to ensure that there are no gaps in the scopes of work and all the work needed for the project is included.
3. Create a detailed schedule for the project, inviting input from all contractors and suppliers. Plan for long lead items and eliminate as many delays as possible. Using pull planning, a lean construction scheduling technique, cuts down on delays and creates a more accurate schedule.
4. Order material and equipment as soon as reasonably possible after the bid has been approved. This will help ensure that bid prices are honored, and the material or equipment will reach the site when its needed.

Dealing with change on the project

Changes happen. Contractors need to be able to effectively deal with them without losing time on the schedule. They can do this through effective tracking of cost potential and approved financial/schedule changes. The most important key to remember is to never proceed with a change until it’s been approved by the owner and/or architect. Doing so can lead to disagreement about costs or schedule impacts, which can form the basis for a contract claim or lawsuit.

Handled correctly, change orders are an efficient way to make changes to the contract, helping to ensure that the owner gets the project outcome they want.

Planhub, a construction bidding website, serves as a helpful learning guide for not just understanding the nature of a construction change orders but how to effectively avoid, and if necessary, manage them on job sites. Visit our site today to learn how to get started using general contractor software for free, and if you have any questions don’t hesitate to contact us.