A Subcontractor's Guide to Understanding the 4 Steps of the Change Order Process.
There seem to be two perspectives when it comes to change orders…
You either love them because it means more work and money for your company,
Are they are the bane of your existence because they are such a huge hassle and time drain.
If you happen to fall into the latter, today we will discuss the change order process from start to finish. And you will learn the process that will ensure that your change orders get approved and paid.
If you haven't worked with change orders before, we will start with a brief overview and then move on to the 4 Critical Steps for getting your change orders approved and paid.
So, let's get started with the overview, shall we?
What exactly is a change order?
A change order is a modification to your scope of work (and the contract amount), as stated in the original contract between your company and the general contractor.
Change orders become an addendum or amendment to the original contract. And they are subject to the same terms and conditions of the original agreement.
Most fail to realize that signed change order is an enforceable contract between the parties, just like the original contract.
While the term "change order" is pretty prevalent across the country, it may also be referred to as:
ADA - Additional Work Authorization
AWO – Additional Work Order
EWO - Extra Work Order
EWC - Extra Work Charge
NAC – Notice of Additional Charge
NAWR – Notice of Additional Work Required
And the terms "Extra" and "Extra Form" seem to be pretty popular.
Next, there are three types of change orders:
Additive – as the name implies, your scope of work, contract amount, or both will be increased. This can be due to changes by the owner, the tenant, and sometimes even the project architect.
They are needed when the size/scope of the project changes or the finish schedule gets upgraded.
They can also be issued if another trade damages your installed work. If this is the case, the subcontractor whose work was destroyed will receive a change order to repair the damage. The other contractor, who damaged the work, would then be issued a back charge.
Deductive – your scope of work, contract amount, or both will decrease. Once again, this can be due to changes by the owner, the tenant, and sometimes the project architect.
Typically, these occur due to reducing the project's size/scope or downgrading the finish schedule.
No Cost Change – this option can notate changes that only affect the job schedule. Since a change order becomes part of the original contract, you can use a no-cost change order to modify your scheduling.
Let's say you will be installing some wallpaper on the project.
The job is in California, and the wallpaper supplier is in New York.
After the wallpaper is shipped, weather delays the truck or transport, which means a delay for you in installing the wallpaper.
You can write up no-cost change order, stating that you will be starting the wallpaper on the 15th instead of the 3rd. There is no cost increase or decrease; the only change involves the starting date.
You submit the change order to update your starting date, and it gets signed.
Now, if there's an issue with the changed starting date, either with another sub or maybe even the general contractor in the future, simply refer them to your approved schedule change.
Ok, got all that? Good, now let's move on to those 4 Steps of the Change Order Process we mentioned earlier.
Step 1. Follow the guidelines for change orders, per the original contract language language.
Step 2. Prepare your change order correctly
Step 3. Submit your change order for approval
Step 4. Once signed, perform the work in a timely fashion
Step 1. Start with your contract; what does it say about change orders? Most contracts will have a section that discusses change orders, and any specific requirements should be listed there.
If you cannot answer the following questions, submit an email to the GC's office or project manager, and ask for the specific information.
Please don't call; ask via email to receive a written response, with a timestamp from the GC to keep in your job file.
Here are the questions you need to ask:
How do you submit them? You have options such as fax, email, file sharing, or maybe mailed-in copies.
What paperwork gets used? You may be able to submit a change order on your company letterhead, or you may need to use the GC's forms. Typically change orders submitted on the wrong paperwork will head straight to the circular file.
Who approves them? Always find out who has the power to sign your change order. Get a direct phone number or extension or their specific email address. This information makes following up on any submitted change orders faster since you have a direct line to contact them.
When do they get paid? In most instances, completed change orders should get submitted along with your monthly progress billing statements. However, change order payments are sometimes held until the end of the job and batch processed just before the GC closes the project.
Specific O and P calculations for extra work? Some projects will have set the overhead and profit margin that you can use for calculating change orders.
This scenario is especially true on public works and prevailing wage projects. The project owner will determine these amounts, which you can find in the contract language.
Change orders that don't follow the preset O and P guidelines will not be approved.
Step 2. When preparing your change order, here are the best practices to use:
Reference change order to GC job number/name and your job number/name.
Be specific with the area, room number, wing, or floor.
You should include the date of the change order, the date for work to start, and the completion date.
Use the same pricing as for the original contract, if possible.
Use the same profit margin as the original contract or O and P numbers in the original contract.
Include a reason for the change – trade damage, architect change, tenant change.
Know your T and M rate. You may need to recalculate your change order price to a T and M rate.
You should never submit a change order that reads, "make changes as directed by project superintendent (or project manager) on such-and-such date."
The more specific your change order language is, the less chance others will misread or misunderstand.
Step 3. Submit your change order to the GC and wait for it to be approved. You may want to follow up weekly just to make sure it's still moving through the approval process.
Until your change order has been approved, signed by the GC, and returned to your office, there is no approved change to your scope of work. However, here are a couple of essential points to follow as you wait for the approval:
Don't order/pay for additional materials until your change order is signed. If you order the materials and the owner decides not to do the extra work, you will be stuck with the material and the bill.
Don't begin the work until you have the change order signed and a copy in your files. Don't fall for the "it will be signed by the end of the week so you can start now" ploy. There is a name for any work performed without a signed contract or change order in place; it's called a "freebie." Of course, you can't make any money doing freebies!
Use your change order for leverage, if needed.
If you need to order special or more materials for the change order, make it clear that you can't (won't) place an order until you have a signed change order back from the GC. Any delay in getting the material will impact the completion schedule.
If your change order is for overtime labor to work the weekend, again, make it clear that if you don't have the signed change order back by the end of the business day on Friday, your crew will not be on-site over the weekend.
Step 4. Continue with your follow-up calls or emails until your change order is signed. As soon as you have your signed copy, order the necessary materials, and schedule your crew to do the work.
Once the additional work is complete, have the GC super or project manager verify that on your paperwork. One option is to make a copy of your signed change order add a few lines near the bottom of the page that says, "The additional work, covered by change order #__, has been completed per the plans and specs for "Project Name."
And then add two ________________. The first one is for the signature and date, and the second one is where the signer will print their name.
Once the work is complete, include a copy of the change order with the acceptance signature, name, and date, with your following progress billing statement.
The accounts payable person will see that your change order was approved previously and that the extra work has been completed and accepted by their office.
This process eliminates the need for accounts payable to chase down the super or PM to see if the extra work is still pending or complete.
Following these steps will mean less time chasing down change orders and change order payments for you.