Understanding Constructionese: Everything you need to know about change orders

If there’s one term in the construction industry that sends chills down a homeowner’s spine when they hear it, it’s a change order. To most, change orders equal escalating budgets, penalties, fees, and general heartache (more accurately, heartburn).

It doesn’t have to be this way. We’re here to demystify and unconfuse all aspects of the change order, including:

• What is a change order, and why does it exist?

• Are there different types of change orders?

• When should I ask for a change order?

• How will a change order impact my project?

• Are there added costs in doing a change order?

+ What is a change order, and why does it exist?

A change order, by definition, is an addition or modification to the agreed-upon scope of work after the project has started. More simply put, a change order is a change to your order. Inevitably, once a project begins, you think of another idea or forget to add detail, or as you see the space change, you’d like to make adjustments. The change order is there to clearly define what you’d like changed, how it’s going to be accomplished, and (yes because it’s being added) the added cost incurred.

Without the change order, a project then devolves into a contractor promising things but not communicating cost or timeline implications and then giving a massive bill to the client at the end of the project. Frustration ensues, and by the end, no one is happy.

So, in reality, a change order is a protective measure to provide you with clear documentation and the financial implications of any added items to your project.

+ Are there different types of change orders? When should I ask for a change order?

To explain this, let’s consider the following analogy. Imagine you’re at a nice restaurant and order a sirloin steak and mashed potatoes. That is your scope of work. Now imagine the following scenarios:

Scenario 1: Right after you order, you follow the waiter back because you’ve had a change of heart; instead of the sirloin, you’d like the filet mignon. His response: “Not a problem at all! Just know that the filet is more expensive and takes a bit longer to prepare, but we’ll adjust your order.”

Scenario 2: You decide when you receive your food you’d like a side of green beans. Your waiter’s response, “Of course, I’ll put the order in, we’ll add the cost of the green beans to your bill, and we’ll bring them out in 10 minutes or so”.

Scenario 3: You decide upon your food arriving that you don’t want the steak and potatoes; you want the chicken and rice. Your waiter’s response “Of course we can accommodate, but you’ll need to pay for both this meal and the next.”

Those three scenarios encapsulate the different types of change orders. In the first scenario, you’ve decided that before any food (work) has been prepared (completed), you’d like to add something that will cost the project. Not a problem. The change order is simply the added cost, and it will have minimal effect on the timeline since we made the decision so early on (more on this in a bit).

The second scenario is the mid-project change order. Again, we’re not too far into the project to make the change, so we add the cost, but it will impact the final timeline since we’ll need to adjust on the fly.

The third scenario is the one that should be avoided if at all possible. We’ve moved past the point in a project where a particular change order is feasible (let’s say cabinetry has already been ordered, and you want to change the layout). Therefore, you have to pay for the cost of goods, the work that has already been done, as well as the change order itself. This scenario is the one that gives change orders a bad name, but as you can see, if you have a builder who is organized, plans, and communicates well (not to mention provides detailed drawings and a clear scope of work), this can be easily avoided.

+ When should I ask for a change order?

The answer to this is simple: as early as possible. The corresponding graph illustrates that the further you get into a project, the more difficult (and costly) a change order will be. If you think back to the food ordering scenario, you could change your order 12 times at no added cost (other than a disgruntled waiter) as long as you catch it before the work begins.

+ How will a change order impact my project?

As the graph above illustrates, the later a change order comes in the construction process, the more significant the impact (both financially and on the timeline) will be on the project. Also, a more extensive change order (I’d like to switch out my tub insert for a freestanding tub) will have a far greater impact than a small one (can we add another outlet over here). All change orders, as they are being added after the initial schedule was set based on the original scope of work, will extend the project’s timeline.

+ Are there added costs in doing a change order?

We’ve intentionally saved this one for last because this is always the first thing that comes to the client’s mind. Hopefully (if you haven’t skipped to the end), you can see that change orders take many shapes and sizes, and most of the time, they can be added with no more added cost than if they were included in the contract beginning. Our perspective (and we hope the industry's perspective at large) is that when a change order arises, we charge what it costs to get the work done. After all, it wouldn’t seem fair for that waiter to tell you, “Well, since those green beans weren’t on the original order, now they're double!”