Change orders
The one document that turns a surprise in the field into an authorized cost.
A change order is a signed, documented change to a construction contract's scope, price, or schedule, agreed to by the owner, the contractor, and the project's designer. Nothing outside the original contract is authorized until this document exists, no matter how urgent the change feels in the field.
What a change order actually changes
A construction contract fixes three things: what gets built, what it costs, and when it is due. A change order is the only mechanism for moving any of those three after the contract is signed.
"An official change of any kind in the original scope of work or terms of a construction contract agreed to by the owner, contractor, and project designer."
Source: Change Orders, Associated General Contractors of America
Notice the three signatures. A contractor's field decision, or a verbal go-ahead from a single board member, is not a change order. If your contract's scope of work does not cover the item, it is a change order or it does not happen.
Where change orders usually come from
Three situations tend to produce them: something unexpected turns up once walls or roofing are opened up, the board asks for more or less than the original plan, or the local permitting authority requires a change before it will sign off. Each has a different owner of the added cost, which is exactly why the change order needs to state a reason, not just a new price.
A vague or undocumented change order is nearly as risky as none at all. If the reason for the change is not written down, the board has no record of whether it was the contractor's error, an unforeseen condition, or the board's own request, and that record is what a dispute later turns on.
What an undocumented change costs you
Construction contracts distinguish delays the contractor could not have prevented from delays within the contractor's control.
"Excusable delays" are "unforeseeable and beyond the control of the contractor" and protect the contractor "from default termination, liquidated damages, and actual delay damages." "Non-excusable or inexcusable delays" are "caused by or are within the control of the contractor or its subcontractors."
Source: Excusable and Non Excusable Delays, Cohen Seglias Pallas Greenhall and Furman
Many construction contracts also carry a daily penalty for missing a milestone without excuse.
"In order to be enforceable, liquidated damages must be specifically stated in the contract and must reasonably estimate the actual or anticipated damages contemplated by the parties at the time of contracting."
Source: Liquidated Damages for Delayed Completion in Construction Contracts, Duane Morris LLP
A signed change order is the record of who caused a delay and why. Whether your contract even has a liquidated damages clause, and whether it would hold up if challenged, depends on the contract's own wording and your state's contract law; ask your association's attorney to read the clause before you rely on it.
Where the money for a change order comes from
Most project budgets carry a contingency line for exactly this.
"An amount added to an estimate to allow for items, conditions, or events for which the state, occurrence, or effect is uncertain."
Source: Recommended Practice 40R-08, Contingency Estimating, General Principles, AACE International
Contingency absorbs the uncertainty the board already planned for when it approved the budget. A change order is how the contract absorbs the rest, the cost that contingency does not cover. When change orders start outpacing the contingency line, that is the board's signal to revisit the budget, not to keep approving extras against a number that no longer holds.
Check yourself
Answer before you read the explanation, recalling it is what makes it stick.
During a re-roof, the contractor finds rotted framing behind the stucco and wants to proceed with the extra repair now, billing the association later. What should the board do?
A hurricane shuts down the job site for two weeks and the contractor asks for a schedule extension with no penalty. Which category does this delay fall into?
Midway through a project, several change orders have used up the entire contingency line in the budget. What should the board do next?
Sources
- Change Orders, Associated General Contractors of America
- Excusable and Non Excusable Delays, Cohen Seglias Pallas Greenhall and Furman
- Liquidated Damages for Delayed Completion in Construction Contracts, Duane Morris LLP
- Recommended Practice 40R-08, Contingency Estimating, General Principles, AACE International
Related elsewhere in the Academy
Capital Projects
Next, see how contingency itself gets sized before a project ever breaks ground: Contingencies.
Whether your construction contract includes an enforceable liquidated damages clause, how it defines an excusable delay, and whether your governing documents require board approval above a certain dollar amount before a change order is signed all vary by contract and by state. Check your signed contract and your governing documents.