Change Order

The American Institute of Architects published its first standardised construction contract in 1888, and by 1911 it had produced the first General Conditions document, which embedded the concept that a construction contract changes only when the owner, contractor, and architect all sign the same piece of paper. That paper is AIA Document G701, the change order, and the current 2017 edition defines it as \u201Ca written instrument prepared by the Architect and signed by the Owner, Contractor, and Architect, stating their agreement upon all of the following: the change in the Work, the amount of the adjustment, if any, in the Contract Sum, and the extent of the adjustment, if any, in the Contract Time.\u201D The operative word is \u201Cagreement.\u201D A change order is not a directive, a request, or a note on a napkin. It is a binding contract amendment, and without the three signatures nothing has changed, regardless of how much new work has already been done.

In a man cave build or renovation the change order is the line between the budget you planned and the one you paid. A study of 18,229 construction projects conducted by the AIA Contract Documents research programme found that change orders add an average of 4 percent to the total project cost, with the market standard range, the middle 80 percent of all projects, stretching from an 8 percent decrease to a 16 percent increase for the smallest projects. That means roughly one in ten home-scale projects sees its cost rise by 15 percent or more from change orders alone. The number of change orders rises with project value, from an average of 1.7 for small projects to more than 11 for the largest ones, but the AIA research revealed a counterintuitive finding: the number of change orders has little correlation with the final cost overrun. Timing matters more than quantity. A change order issued late in the project leaves the owner with fewer alternatives and almost always costs more than the same change ordered during design.

A change order is not a Construction Change Directive, and the distinction is where owners lose negotiating position. A CCD, AIA Document G714, directs the contractor to commence additional work immediately when the owner and contractor have not yet agreed on the price or schedule impact. The contractor is contractually bound to perform the work, but the cost and time are negotiated afterward, which strips the owner of the ability to compare bids or decline the scope based on price. A change order by contrast requires agreement before the work starts, which is why every building project should specify that only signed change orders, never CCDs, adjust the contract sum.

How a change order moves through a project

The process starts with a proposal request. The architect or owner identifies a change in scope and issues a written request for the contractor to price it. The contractor calculates the direct cost of labour and materials, adds the subcontractor markups and the contractor\u2019s overhead and profit percentage, and submits a proposal that names both the cost impact and the schedule impact in days. The architect reviews the proposal for reasonableness: quantities must be correct, the rate must match the contract\u2019s agreed-upon unit prices where applicable, and the schedule impact must actually fall on the critical path rather than on a float activity the contractor could absorb without extending the completion date. If the architect disputes the cost or the schedule logic, the process repeats with a revised proposal until a number that all three parties accept sits on the table.

Then the architect prepares the G701 form, filling in the description of the change, the adjustment to the contract sum, and the adjustment to the contract time. The contractor, the architect, and the owner each sign in turn, and the document becomes a contract amendment with the original contract sum and completion date revised by exactly the amounts on the form. The contingency account, a line item in the project budget typically set at 5 to 10 percent of the construction cost, is the fund that pays for change orders. The owner\u2019s contingency is separate from the contractor\u2019s contingency and should be held by the owner, not released to the contractor as a general fund, because once the contractor controls the contingency every change order becomes a negotiation about whose money is being spent.

Change order vs. field change

The comparison is between a signed change order and a verbal change instruction given on site. A field change happens when the owner or contractor agrees to alter the scope without documenting it: the electrician runs an extra circuit because the owner asked for it, the framer raises a wall because the clearance looked wrong, the tiler switches to a different pattern at the homeowner\u2019s request. No paper exists. At the end of the project the contractor submits a bill for the extra work, and the owner disputes the charge because nobody agreed to a price before the work was done. The fix is simple but psychologically hard: no extra work without a signed change order, even if delaying the work by 24 hours to get the paperwork done feels wasteful. The 24 hours is always cheaper than the dispute. Understanding the contractor-vs-diy decision is essential here: a DIY build has no formal change order process, which makes the verbal instruction even harder to track and the cost surprise at the end even larger.

Where the term came from

The legal architecture of the change order begins with the Uniform Contract of 1888, the first standardised building agreement in the United States, drafted by the American Institute of Architects\u2019 three-man Committee on the Uniform Contract. In 1906 the committee was renamed the Committee on Contracts and Specifications and tasked with developing a standalone General Conditions document. The result, published in 1911, was the first edition of the document that became AIA A201, the General Conditions of the Contract for Construction, which has been revised fifteen times since its debut and remains the dominant legal framework for private construction contracts in the United States. The change order form itself, G701, derives directly from A201: the general conditions define the term, prescribe its use, and establish that only a signed change order modifies the contract. A201\u20192017 references the phrase \u201Cchange order\u201D twenty-three times, a density that reflects how much of construction contract law is really just change-order law. Harvard law professor Samuel Williston, one of the foremost contract scholars of the 20th century, reviewed the drafts of the 1911 General Conditions and confirmed their legal soundness. In the 115 years since, no court decision has been reported that struck down the AIA change order provisions as written.

Common mistakes

The first mistake is authorising work before the change order is signed, and nearly every cost dispute in residential construction traces back to this single error. The owner asks for an extra outlet, the electrician installs it, and the invoice arrives at triple the price the owner expected because the electrician priced for the work and the owner priced for the time it took. The signed change order locks the price and schedule before the first tool is lifted, and the only acceptable response to a contractor who says \u201Cwe can just sort out the cost later\u201D is \u201Cno, we cannot.\u201D

The second mistake is funding the owner\u2019s contingency directly to the contractor. The contingency belongs in a separate account controlled by the owner and released only against signed change orders. When the contractor holds the contingency, the incentive to scrutinise subcontractor bids for value disappears, because the fund belongs to the project and spending it does not affect the contractor\u2019s own margin.

The third mistake is treating the design contingency and the construction contingency as a single fund. The design contingency, typically 5 to 10 percent of the total project cost, covers scope growth during the design phase before a single contractor is hired. The construction contingency covers the unknown conditions that emerge on site. The design contingency should be distributed roughly 20 percent during schematic design, 30 percent during design development, and 50 percent during construction documents, and any unused portion at the end of design should not automatically roll into the construction contingency. Eating the design contingency before the first shovel breaks ground leaves nothing for the surprises that construction always produces.