Firm management

The Fundamentals of Change Orders in Construction

By Salvatore Verrastro, AIA and Mark I. Baum, AIA

The change order is fundamental to construction contracting as the primary means to modify the contract for construction. In fact, the term “change order” is found 23 times in the text of the AIA’s A201™ General Conditions of the Contract for Construction (2017) and is defined therein as “A written instrument prepared by the Architect and signed by the Owner, Contractor, and Architect stating their agreement upon all of the following: 1) the change in the Work; 2) the amount of the adjustment, if any, in the Contract Sum; and 3) the extent of the adjustment, if any, in the Contract Time.”  The operative language is that a change order is an “agreement” amongst the parties and, therefore, the terms are settled and become a part of the contract.

Fiction: Change orders are only for mistakes

Change orders have earned a bad reputation for the implication that a change means someone made a mistake; however, mistakes are not the primary cause for changer orders. All modifications of contract terms must be memorialized by change order. Most modifications to the contract, including change orders, are due to owner changes to the project, unforeseen conditions, weather delays, contractual issues, and other matters not caused by any of the parties. Owner-directed changes may include desired scope changes, for example, to fit out a tenant space, or to adjust schedule milestones to meet a lease deadline.

Common reasons for construction change orders

Unforeseen or differing site conditions such as underground obstructions or concealed building conditions on renovation projects, or discovery of hazardous materials, may lead to a change order.  Other delays beyond the contractor’s, architect’s or owner’s control include labor disputes, shipping delays, fire, evacuation orders, and severe adverse weather which may lead to reasonable delays and associated costs. Additionally, change orders may be necessitated by approved substitutions, changes in insurance, the owner failing to maintain required insurances, settlements of insured losses, and reconciliation of allowances and unit prices.  Lastly, at closeout, contract adjustments may be required to account the aforementioned items, back charges, liquidated damages or early completion bonuses, and any punch list credits due the owner for incomplete or unsatisfactory work not remedied.

Regardless of the reasons for the change order, open dialogue between the parties can go a long way to mitigating the impact of a change, such as the impacts to the project’s cost and schedule.  Frequent changes can also result in strained relationships and may affect the jobsite morale, performance, and quality of the work.

Where a change order is the result of an architect’s “error” or “omission”, the “standard of care” that is expected of licensed professionals must be considered.  Architects do not guarantee a perfect set of documents, but rather are expected to apply their professional knowledge and experience and use “reasonable and ordinary care” in the preparation of their documents.   Where an omission adds value to a project, and the owner did not pay for the omitted work the first time, the owner is responsible for such costs.  Where there is an “error” that does not add value to the project or costs more than the work otherwise would have, it must be determined if the architect fell short of the standard of care.

What is the change order process?

The change order process is typically initiated by one or more of the following documents:

  • a Proposal Request
  • an Architect’s Supplemental Instructions (“ASI”)
  • a Construction Change Directive (“CCD”)
  • a Request for Information (“RFI”)
  • a request for a change order

A proposal request is issued by the architect to the contractor requesting a proposal for a change, or a modification to the scope of the contract and is typically issued by the architect on behalf of the owner, or by the architect to determine the cost of a change it is contemplating or that may be required to properly perform the Work. The ASI is a directive issued by the architect to the contractor providing additional information within the scope of the contract documents or to make minor changes to the work that, in the architect’s opinion, will not result in an adjustment to the contract sum or time. A CCD directs the contractor to immediately commence additional work or to implement a change to the work.  This tool may be used where the owner and contractor have not agreed on proposed changes in the contract sum or time, or to direct changes in the work which, if not expeditiously implemented, might delay the project. It is important to understand, however, that while a CCD directs work and binds the contractor to perform such work, the modifications to the scope, cost and time still must be incorporated into the contract by change order.

A Change Order Request is a proposal issued by the contractor either as a self-initiated claim, or in response to a proposal request, RFI or ASI if, in the Contractor’s opinion, the RFI or ASI modifies the scope of the Contract.

Ultimately, under any of these scenarios, the contractor will submit to the architect its proposal documenting the cost and time impact of the proposed change.   It is an important duty of the architect to carefully review the contractor’s proposal and advise the owner of its reasonableness.  Most important is to confirm that the contractor is not asserting a claim for work that is already required of the Contract Documents and is not including costs such as general conditions and overhead that are included in the OH&P percentage, or for other work already contracted for.

Additionally, the architect must consider the proposed impact on cost and time.  Are the costs presented reasonable?  Typically, the architect is not required by its agreement with the owner to perform a detailed estimate, but rather assure the owner that the costs presented are reasonable, quantities are correct, and costs presented are allowed by contract.  Most architects are not experienced in analyzing schedule logic, but must nevertheless assess whether the proposed schedule impact is reasonable.  In reviewing the impact on time, the architect will need to consider a number of factors, including:

  • Does the proposed change impact the schedule’s critical path?
  • Could the contractor mitigate delays by adjusting other activities?
  • Are there concurrent delays that are already the responsibility of the contractor.

If the architect does not fully agree with the contractor’s proposal, the architect must respond in writing to the contractor, detailing its reasons, and then endeavor to reach mutually agreeable terms with the contractor.  Once in agreement with the contractor, the architect must inform the owner of the cause for the change, review the cost and time impacts, and seek owner’s approval of the proposed adjustment to the scope, the contract sum, and the contract time.

Once all parties agree, the architect prepares the change order. The description of the change should be clear, succinct, and complete.   It should be adequate for a third-party to generally understand the change and its impacts. There are three parts to the description that coincide with the definition of the change order – the scope, the impact on cost, and the impact on time. For the scope, the change order should reference the specific Contract Documents that are to be changed as well as the documents prepared and issued by the Architect that describe and detail the change. For the cost and time, the change order should state the contractor’s proposed change to the contract sum and contract time, referencing its proposal.

After describing the change and the impacts on the contract sum and time, the change order should list any  attachments, including each of the supporting documents, with the date of each.  Upon completing the changer order form, the architect will  compile all attachments and issue with the change order.

Once the change order is finalized, it is common to print in triplicate, one original for each signatory.  The architect typically signs first, followed by the contractor and then by the owner.  Alternatively, it the parties agree, all can be handled electronically in PDF form.

AIA Document G701™-2017 is used for implementing changes in the work agreed to by the owner, contractor, and architect. Visit G701™-2017 to learn more about how this document (and others) can help you in efficiently implementing the change order process for your construction project.

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AIA Contract Documents has provided this article for general informational purposes only. The information provided is not legal opinion or legal advice and does not create an attorney-client relationship of any kind. This article is also not intended to provide guidance as to how project parties should interpret their specific contracts or resolve contract disputes, as those decisions will need to be made in consultation with legal counsel, insurance counsel, and other professionals, and based upon a multitude of factors.