How to Set Up a Profitable Change Order Process

Change orders are an expected part of construction projects and managing them effectively is crucial for the success of a project and your bottom line. Here are tips and advice from two longtime construction pros on how to create a successful change order process and lessen future change orders.

Change orders take different forms depending on the contractual agreement. The most common types include fixed price, unpriced, time and materials and final unit price. Contractors Rocky Geans and Tommy Ruttura told WOC construction conference attendees that it is essential to understand the specific requirements and procedures for each change order type to ensure proper documentation and approval.

Ruttura, president of Ruttura & Sons Construction Co. in New York, has worked in the construction for more than 40 years. He is a fourth-generation contractor. Rocky Geans, who has owned a construction firm in Indiana for five decades, also is a construction consultant and speaker.

Start with preconstruction planning
The key to lessening change orders begins with proper preconstruction planning, according to Geans and Ruttura. They said it’s essential to thoroughly review the project plans and specifications to identify ambiguities or potential issues. If there are uncertainties, it is crucial to execute a request for information to seek clarification with the owner, general contractor or others.

Don't hesitate to address concerns upfront because they can save your company time and money in the long run.

“You’ve got to be proactive,” Ruttura said. “Keep asking questions … before you have a signed contract, and it becomes a fight.”

The proposal should include the scope of work and the tasks you are not going to do.

“Without that kind of preconstruction planning, you could be jumping into a real mess,” Geans said.

Establish effective communication
Clear and consistent communication is vital throughout the project, the presenters said. Establishing regular meetings with the owner, general contractor and other stakeholders ensures everyone is on the same page, which reduces the likelihood of misunderstandings.

Schedule meetings beyond regular ones to continue discussions as needed. Keeping everyone informed and involved in the decision-making process helps avoid surprises and minimizes the need for change orders.

“Keep whoever you are working for in the loop during the entire process,” Geans said.

Develop a quality control process
Effective quality control should be integrated into every stage of the project, including the design and technical documentation, Geans and Ruttura said. By implementing thorough quality control processes, contractors can catch potential issues early and address them before they become significant problems. This proactive approach helps minimize the need for change orders due to errors or omissions, they said.

Identify change order triggers
Contractors know that change orders can be prompted by various factors, including scope changes, unforeseen issues, weather conditions, design errors or omissions, funding fluctuations, underbidding, material shortages and the owner’s circumstances.

Although some factors are beyond your control, it is crucial to carefully review the contract to understand your responsibilities and limitations. Being aware of the potential change order triggers can help you take proactive measures to mitigate their impact on the project, the presenters said.

Document all changes
Negotiating change orders can be a complex process, especially when disagreements arise over costs or timeline extensions. So, it’s important to document everything from labor, materials and overhead to insurance costs and profits, the presenters said. This documentation serves as a paper trail that can protect your company and help resolve disputes that arise.

“Documenting all the details is critical, along with pictures” that are dated, Geans said.

By providing comprehensive documentation and clear justifications for proposed changes, you increase the likelihood of obtaining approval and fair compensation for your work, they said.

Also, always obtain written approval for the change, even if you got a verbal agreement from the general contractor or owner.

“Say, ‘We know you know what it looks and (gave) the go ahead but I need you send me some kind of documentation for my CPA or lawyer,’” Geans said.

But before you do anything, carefully review the contract’s instructions on how to proceed with changes to the original scope of work. That information usually is under “general conditions,” Geans said.

“You’ve really got to pay attention to this section,” he said, but also noted, “Us contractors, we don’t like to read contractors.”  

If you don’t have time or desire to do this task, task someone on your team or a consultant with thoroughly reviewing the contract, Geans added.

“People go out of business for not picking up on this stuff,” Ruttara said. “So, you got to know your contract.”

Quantify and track changes
Finally, establishing a systematic process for quantifying and tracking change orders is key to the project's financial status and maintaining profitability, the presenters said. By regularly reviewing and quantifying change orders, you gain a clear understanding of their financial impact on your business, helping you hold stakeholders accountable so you get paid.

“Find it, quantify it, bill it, get paid,” Geans said.