Change orders are modifications to the base construction contract, usually increasing the cost and sometimes extending the completion date.

Change orders stem from several sources:

1) Encountering conditions that were concealed at the time CDs were prepared (e.g. corroded steel hidden behind masonry). The presence of such conditions may be anticipated, but the extent and location are not precisely known in advance.

Often, CDs include allowances—amounts built into the base bid for anticipated conditions not explicitly reflected on the drawings, based on contractual unit prices for each repair detail. If the allowance is exceeded, a change order is issued for the difference. Conversely, if the allowance is not reached, a change order credit is issued.

2) Recognition after work has begun of conditions that should have been included in the CDs (e.g. the presence of asbestos). If no contractual unit prices were established for such off-the-radar work, the owner must negotiate with the contractor after the fact, with limited leverage.

3) Expansion of scope. The E/A says, “Now that we’re up on the scaffold, we see some cracks in the parapet that we didn’t see from the ground.” If the problem was not seen from the ground, it’s likely that unit costs for its correction were not included in the CDs. Again, leverage is with the contractor.

4) Ambiguity in CDs. Here’s an example from an interior project: The specification read “install wall-mounted telephone jack 18″ from corner of wall, horizontally.” The contractor installed the jack 18″ from the corner, but the jack itself was oriented horizontally, rendering it useless for a wall phone. The contractor argued for an extra to reposition the jack. A simple, unambiguous drawing would have prevented the confusion.

5) By design. In some projects, the lump sum bid might cover contractor mobilization and general conditions, with all restoration work performed on a unit-cost basis, administered as a series of change orders.

6) “While you’re here...” The owner says, “You’ve done such a great job on the east facade, how much would it cost to restore our terraces?” Change orders of this type are usually not a problem because they indicate owner satisfaction that the contractor is performing well, at a reasonable cost.

Many contractors welcome change orders because they’re profitable. Some even have luxury boats named “Change Order.” While the base contract is negotiated in a competitive environment, the selected contractor is the only “bidder” for change order work once the project is underway. Thus, the selected contractor has all the leverage—a monopoly on potential change orders.

SUPERSTRUCTURES has established a culture that discourages—rather than tolerates—change orders. Sophisticated clients are attracted to this because our projects typically involve few change orders. We average about 5%, and often zero.

Some recommendations for owners:

Minimize change order types 1, 2, and 3 by authorizing more upfront work on the part of the E/A—more drops, more probes, non-destructive testing if appropriate, and more visual observation, ideally deploying drone imagery. The CDs will still carry allowances and unit costs, but the allowances will be smaller relative to the overall project scope and better approximate the actual work.

Minimize type 4 by selecting an E/A is known for “tight” CDs. Such CDs usually mean higher upfront fees for their production but save money overall by minimizing (or eliminating) change orders.

Avoid type 5 by insisting that as much work as possible be included in the base scope of work, where it is purchased at a “volume discount” relative to unit cost pricing.