Change Orders - An Overview

Change orders are used in a construction project to specify any changes in the proposed work covered by the scope of the contract or any additional work or alterations to the planned work that vary from the scope of the contract. There are different types of change orders:

• Commitment change order – Commitment change orders represent changes in the agreed cost and/or the timeline for the work covered by the scope of the contract. Contractors use commitment change orders if their deliverables would cost more than the committed cost or could extend the proposed timeline. Useful for budget amendments and schedule revisions.
• Contract change order– Contract change orders represent any addition to, alteration, or omission of planned work covered by the scope of the contract. These include work that is not covered in the scope of the contract, like deviations in plans and dimensions, changes in designs, materials, additional work, and more. There are two types of contract change orders:
  • Prime contract change order – Changes that affect the contract between the general contractor and the owner/developer. Typically prime contract change orders are initiated by the general contractor and approved by the owner.
  • Client contract change order - Changes that affect the contract between the subcontractor and the general contractor. Typically client contract change orders are initiated by the subcontractor and approved by the general contractor and/or the owner. 

Credit Change Orders - Also known as Deductive Change Orders, are issued when a change results in a reduction of the overall contract value or project budget. These are essential for documenting and approving downward budget adjustments in a formal and traceable manner. There are many scenarios where a credit change order is used:

• Overestimated costs during the initial budget planning phase.
• Reduction in material prices that lowers procurement costs.
• Scope reduction when the client decides to exclude certain work originally included in the scope.
• Substitution of materials with lower-cost alternatives, either by the client or contractor.
• Design changes that lead to simplified or less expensive execution.

Contract change orders are created for a variety of reasons, including but not limited to requests from the client/owner, improvement in designs, choice of materials used, conflicts between plans and actual site conditions, availability constraints on materials, human resources, and equipment. 

Commitment change orders are also used to specify variations in the duration and cost estimation of pre-scheduled tasks that affect the overall budget and construction timeline of the project. 

Credit Change Orders are particularly useful for formalizing budget amendments involving cost reductions, ensuring transparency and alignment between all stakeholders.

• Once the project budget is finalized and locked, it is set as the baseline. 
• Any changes or additions to the locked budget are carried out through change orders
• The change orders go through an approval workflow
• Approved change orders are added to the project schedule for execution
• Once added to the schedule and published to the respective subcontractors, the change order value adds to the project budget automatically
• You can view the change orders and their values added to the project budget in the 'Finance' > 'Budget' > 'Change Order.'  See View Budget Updates for more details.
• Credit change orders are linked to the budget to decrease the budget amounts allocated for the respective cost codes.

Change orders can also arise from responses to RFIs and punch list items that require additional work or rework of already completed or ongoing tasks. These include the work that may impact the schedule and budget of the project.   

Linarc's change order module lets general contractors and subcontractors generate change orders depending on the situations that arise in their course of work. 

Each change order typically includes the type, serial number, a description of the change, plan markups, photographs, PDF documents, etc., and an estimate. The estimate can include the schedule impact, breakup of material cost, labor required, labor cost, and more. 

Contract Change Orders:

For changes that affect the prime contract, the GC can request work cost estimates from the appropriate subcontractors required to take part in the change work. Once the subs accept the change work and submit their estimates: 

• The GC reviews the estimates. 
• For self-performed work if any, the GC can submit their own estimates
• The GC evaluates the estimates and either accepts or request for revisions from the contractors
• Once the estimates are accepted, the GC arrives at the final cost of the work, and obtains approval from the owner.
• The GC gets the signatures from the involved parties.
• The GC then adds the approved CO as a task/deliverable to the master schedule, so the job(s) can be assigned to the respective subcontractors. 
• The approved total cost of the CO is added to the project budget automatically.

For changes that affect a client contract, the respective subcontractor submits their estimate. Then: 

• The GC reviews the estimate and gets approval from the owner. 
• The GC gets the signature from the involved parties.
• The GC then adds the CO to the master schedule and assigns it to the subcontractor.  

Commitment Change Orders:

The general contractor or the subcontractors can create commitment change orders. 

• The creator indicates the schedule and/or cost changes in their estimate/bid and uploads it to the change order. 
• The GC reviews the estimate and obtains approval from the owner. 
• The GC gets the signature from the involved parties.
• The GC then adds the CO to the master schedule and assigns it to the creator. 

All participants in a change order can obtain a PDF version of it, which contains complete details of the change order.

• GC - Once the GC adds a change order to the master schedule, the estimates are added to the project budget. 
• SC - Once the SCs accept the change order work assigned by the GC, the estimates from their bids are added to the project's budgeted estimate and applied to cost tracking.    

Credit Change Orders:

These function similarly to standard change orders but are distinguished by cost estimates entered as negative values, representing the amounts to be deducted from the original budget allocated to the respective cost codes. 

Read the following sections to know more about:

• Change Order - Workflow
• Change Order Dashboard
• View Change Orders
• Create a Contract Change Order
• Create a Commitment Change Order
• Request work estimates from subcontractors and vendors
• Respond to estimate requests
• Process change order estimates
• Close a Change Order
• Approve a change order on behalf of the owner
• Get Owner Approval for a Change Order
• Request Signatures
• Add Your Signature
• View Signature status
• View and Download Completed COs
• Chat and collaborate on a change order