What is Change Order?
A change order is a written agreement between the project owner and contractor that modifies the original contract. It can change the scope of work (adding or removing items), adjust the contract price (increase or decrease), or modify the project schedule. Change orders are a normal part of construction, but managing them effectively is critical for profitability.
Purpose
Change orders exist because construction projects inevitably encounter conditions or decisions that differ from the original contract documents. Design changes, unforeseen site conditions, owner-requested modifications, and code requirement updates all generate change orders that must be documented and priced.
How Does it Work?
When a change arises, the contractor prepares a change order proposal that documents the scope change, quantities affected, cost impact (material, labor, equipment, overhead, profit), and schedule impact. This proposal is reviewed and negotiated with the owner or general contractor. Once approved, the change order becomes part of the contract.
Benefits
Proper change order management protects contractors from absorbing costs for work outside the original contract scope. Detailed estimates for change orders -backed by accurate takeoffs and current pricing -strengthen the contractor's position in negotiations and ensure fair compensation for additional work.
Conclusion
Change orders are where accurate estimating skills directly protect a contractor's profitability. The ability to quickly and accurately quantify and price changes is as important as the original bid estimate.