Even the most meticulously laid construction plans are subject to change—which is precisely why change orders exist. Of course, managing change orders in construction is no easy feat, especially for trade contractors, as they carry the most risk during a project. This process becomes even more convoluted when managing multiple change orders across just as many projects, each with its own GC-specific requirements.
Without a smooth and efficient process for submitting and managing change orders (especially pending ones), subcontractors may experience cash flow issues—or even legal problems—down the line. With that in mind, we’ve created this guide to help you get up to speed on all things change orders, starting with the most fundamental question:
A change order is an amendment to a construction contract that alters the contractor's scope of work. It's important to note that you cannot simply submit a change order on an invoice. Instead, a change order request is an official document that:
Another way the project’s scope can change is through a change directive (or work request directive). Change directives are top-down requests from the owner that the contractor must follow—regardless of their input or approval. These often arise from disagreements between the owner and contractor, enabling the owner to override the contractor’s opinion to move the project forward.
Architects can also alter work on a project without the contractor’s consent through an Architect’s Supplemental Instruction (ASI). ASIs carry significantly less weight than a change directive or order, as it should not affect the project schedule or cost in any way.
All modifications to the project’s contract terms require a change order. These include:
There are also change orders that just change the schedule but might not add or deduct work. We provide an example of this in the next section.
Change orders don’t always mean a mistake was made on the job (although this sometimes happens). In reality, most change orders are caused by one (or more) of the following reasons.
These types of changes typically occur when:
The owner has discovered that there isn’t enough money to purchase the custom glass included in the initial drawing set. Consequently, they will issue a deduct change order to the glass and glazing contractor, which will allow for the replacement of the original glass with a more affordable alternative.
Setbacks resulting from events outside a team’s control, such as inclement weather, the discovery of hazardous materials onsite, workforce problems, and shipping issues, are all too common in the construction industry. These events can delay a project beyond the agreed-upon completion date, potentially leading to financial losses and additional costs. Liquidated damages clauses exist to help clients receive compensation (typically from the contractor) for such losses. In the event of a major delay due to an unforeseen condition in the field, contractors should submit a change order to extend the project’s completion date.
A trade contractor is working on a project to build a commercial office complex for a client. The original contract specifies a completion date of one year from the project start date, with significant liquidated damages for each day of delay due to the importance of the building's timely completion. However, the contractor discovered contaminated soil on the site, which will require extensive additional assessment and excavation, significantly delaying the project. The contractor must submit a change order to the client to secure additional time—and effectively remove the liquidated damages clause from the additional time granted.
Change orders are also necessary if work is redistributed among contractors during a project. This is especially common in larger projects where multiple contractors from the same trade are involved to speed up progress. In such situations, the GC would direct each subcontractor to submit a change order to document the change of scope to their specific workloads.
Two separate electrical contractors were hired to work on a large project, each with their own set of responsibilities. Halfway through the project, one of the contractors encounters a labor shortage, making it impossible to complete their upcoming job. In this scenario, the owner or GC may redistribute responsibilities from the struggling contractor to the other, ensuring the project continues without delays. To formalize this transfer, a two-step change order is required:
Predicting every potential roadblock from the beginning is impossible for most construction projects. This is especially true as projects grow in size and complexity; the larger the project, the more variables to which it’s exposed. As such, change orders are essential in helping all stakeholders (e.g., owners, GCs, trade contractors) adapt to the unforeseen with minimal negative consequences.
More specifically, effectively managing your change order process provides construction businesses with two primary benefits:
Changes to a project’s scope can significantly affect the costs and profits of everyone involved in the project. For trade contractors specifically, changes mean additional costs for the work you’ve either already done or will perform. You can’t bill for these additional costs until the GC approves the change order request, which can take weeks or even months. This can result in serious cash flow problems, which can adversely affect profits—and that’s without factoring in all that can go wrong during this process (more on that later).