What is a Change Order in Construction?

What is a Change Order in Construction?

A change order in construction is a formal, written modification to the original contract between a project owner (client) and a contractor. It specifies adjustments to the scope of work, cost, schedule, or other contract terms that weren’t included or fully detailed in the initial agreement. Change orders are typically initiated when unforeseen issues arise, new design elements are added, or project requirements evolve after the contract has been executed.

Key Points About Change Orders

1. Scope of Work
   • A change order clearly states what additional work is required or how the existing scope is to be altered (for example, adding a new room design or modifying materials).
   • It may also remove certain tasks if they are no longer needed.
2. Cost Adjustments
   • Changes to the scope often involve extra costs or potential cost savings.
   • The change order details how much the cost will increase or decrease from the contract’s original price.
3. Schedule Impacts
   • Completing new tasks or waiting for additional approvals can affect the project timeline.
   • A change order should document any resulting changes to milestones or the overall completion date.
4. Authorization Process
   • All relevant parties—usually the owner, contractor, and possibly the architect or engineer—must review and sign the change order.
   • This ensures there is mutual agreement about the adjusted scope, cost, and schedule before additional or revised work commences.
5. Documentation
   • Change orders serve as part of the official project record.
   • They are crucial for clarifying responsibilities, avoiding disputes, and enabling transparent tracking of budget and schedule changes.

In short, a change order provides a structured way to handle any shift in project requirements after the initial contract is in place, helping both the owner and the contractor maintain clarity and fairness in managing construction projects.

Do Contractors Over-Charge for Change Orders?

Yes, it can happen—some contractors might charge higher-than-reasonable prices for change orders, often referred to colloquially as “price gouging.” However, this isn’t always the case and may be preventable with a well-structured contract, clear communication, and proper oversight.

Why Might Change Orders Seem Overpriced?

1. Project Disruption
   • Adding or altering work can disrupt the construction schedule and workflow. Contractors factor in the cost of reorganizing trades, reordering materials, or other delays—sometimes adding a premium for the additional complexity.
2. Limited Competition
   • Once a project is underway, the owner is often reliant on the same contractor to perform change-order work. This lack of competing bids can lead to higher pricing, as there may be few alternatives to get the work done quickly and consistently.
3. Uncertainty or Rush Requests
   • If the owner’s change needs to be done urgently (e.g., to avoid delaying subsequent tasks), the contractor may charge more due to overtime labor or expedited materials.
4. Overhead and Markup
   • Contractors typically charge overhead and profit (markup) on all work, including changes. While a 10–20% markup is common, some contractors may inflate these percentages—or add multiple layers of markup—to increase profit on changes.
5. Lack of Transparency
   • If a contractor does not provide itemized breakdowns for labor, materials, or overhead, it becomes difficult for the owner to judge whether costs are fair or inflated.

By setting up a clear change-order process in your contract and proactively managing any changes with thorough documentation and open communication, you can minimize the risk of excessive pricing.