Change Orders for Construction Can Be a Financial Lifesaver

Change Orders for Construction

You can probably count on one hand the number of projects you’ve completed without some kind of change along the way. Changes are a fact of life for contractors. However, how you document and deal with those changes can make a huge difference in your bottom line—and your sanity!

So the question is: Are you using change orders to your best advantage? Or are you even using them at all?

Exactly What is a Change Order?

You’re a contractor. Right in your job title is an indicator that you use contracts with your clients to document the details of your projects. The contract lays out the specifics of the project. It also specifies the dollar amount, the payment schedule, and the start and completion dates. If anything is altered from that original contract, from paint colors to major structural revisions, rather than write a whole new contract, you typically issue a change order.

Change orders for construction are every bit as important as the original contract and should be treated as such. Stock, preprinted change order forms can be ordered from most office supply stores and other retailers of forms. Sometimes, these may not provide exactly what you need. A better alternative is to have your attorney write a change order form for you that works with your contract(s). Then, you can simply print them out as needed.

What Should a Change Order for Construction Contain?

Essentially, the change order is an extension of your original contract, so it’s typically not necessary to repeat everything the contract contains. Instead, the change order lists only those items that are changing and then references back to the original contract’s terms.

Change orders for construction should specifically document:

  • Anything that’s a deviation from the original material and/or labor specs, even if it’s a no-cost change.
  • Any changes to the original contract price, whether the price is increasing or decreasing.
  • Changes to the payment schedule.
  • Any changes in the completion date.

Here’s an example of construction change order wording:

  1. Delete carpet and pad in the living room as originally specified. Add cherry hardwood flooring in the living room to match flooring being used in the dining room. Total price for this change: $ 435.00.
  2. Change master bedroom paint color from Sherwin Williams ‘Rare Gray’ #SW 6199 to Sherwin Williams ‘Mink’ #SW 6004. Total price for this change: $ 0.00.
  3. Additional hardwood flooring will need to be special-ordered and will need to acclimatize to job conditions. The completion date changed from October 1, 2013, to October 15, 2013.
  4. $200.00 due upon signing of this change order, to allow for special ordering of additional materials.
  5. All other terms and specifications of the original contract dated August 2, 2013, to remain unchanged and in effect.

And of course, both you and your client need to sign and keep a copy of the change order for your records.

Documenting Changes to the Changes

Depending on the complexity of the job and the type of client you’re dealing with, you may wind up with multiple change orders for construction work or additional punch lists, some of which will even change the changes. So…

  • Number your change orders, which simplifies tracking and referencing them.
  • If a change order alters a prior change order, avoid any confusion by referring to both the original change order and the original contract: Change base molding color from Minwax ‘Red Chestnut’, #232 as specified in Change Order #2, to Minwax ‘Red Oak’, #215. All other terms and specifications of Change Order #2 and original contract dated August 2, 2013, to remain unchanged and in effect.

Charging for Change Orders for Construction

Let’s face it—specifying, pricing, and writing up proposed changes to a project is time-consuming. If your client is constantly making changes, it can become a major pain! One way to partly compensate yourself, as well as hopefully reign in your client’s ongoing design alterations, is to consider charging for change orders. Here are a few suggestions:

  • Specify in your contract that change orders may incur a $50 fee (or whatever amount you want to charge). That documents the potential charge, so your clients are agreeing to it when they sign the contract. It also gives you the option of waiving the fee, which can be a good negotiating and sales tool.
  • Consider only charging for additional change orders after the first or second one. If clients are aware that they’ll incur a fee, they’re often more likely to get all their changes on the table at one time.

Talk to Your Attorney

I’m not a lawyer, and I don’t even play one on TV, so this shouldn’t be construed as legal advice. Make sure you talk to your attorney to ensure that your change orders meet all of your state’s requirements and that they offer you adequate protection.

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