Avoiding Construction Change Orders

Avoiding Change Orders: The dreaded construction term “Change Order” is almost as bad as hearing “Root Canal.”

In my time as a construction manager I’ve had defensive customers declare “this will be a Change Order-free job, you will not catch me off-guard,” and some have asked me to include a $20k contingency because their cousin’s kitchen renovation went so badly awry they now expect terrible things. Neither of those have to be the case by following these 4 guidelines.

Open Book Pricing and Overhead & Profit (OH&P):

First of all, you can ask your General Contractor (GC) for “open book” pricing. A GC who shows you their subcontractor’s costs upfront is worth getting into the boat with. Coming to an agreed % fee on Conditions (site supervision, insurance, final cleaning) and Overhead & Profit (administrative costs & GC’s profit) can put everyone at ease to begin the project.

Gross Maximum Price (GMP) contract: GMP contracts states the value of the contract, and breaks out the cost of each sub-trade (eg: demolition, carpentry, paint, flooring, roofing, electrical, plumbing, etc.) and adds those up to the GMP. Regardless of what the painter or electrician charges the General Contractor (GC), the customer only pays the total GMP. The contract should also spell out what percentage the GC would make for any changes that are Unforeseen Conditions (unknowns like asbestos found inside walls), or changes due to code that a Building Inspector may call out that have not been included in the approved construction drawings.

Detailed Construction Drawings (CD’s): Architects & Engineers work directly for the project Owner, and are paid on a lump-sum or hourly basis for their Construction Drawing which are then sent for permit approval. The GC then uses those CD’s to bid & build the job, and refers to the CD’s constantly for specific measurements, elevations, and materials. When these drawings lack specific details like exact flooring materials or light fixtures, or include language instructing contractors to “design/build MEP” (Mechanicals, Electrical, Plumbing) - there can be too much room for interpretation from GC’s. Spending more money ahead of time for the Architect to provide material specifications, and have Engineers design the MEP provide the GC and sub-trades with exact direction & materials.

Allowances: When materials are not specified, a GC should include material & labor allowances for Finishes (carpet, cabinetry & countertops, light fixtures), and then provide material samples that fit within that allowance. For example, I generally will include $25 / Square Yard (material & labor) for broadloom carpet, $60/SF for granite countertops, and $5,000 for 8 overhead light fixtures. The countertops may be more or less expensive than $60/SF, if more expensive than the Allowance the owner pays more, if less expensive the GC provides a refund at the end. Contingencies can also be included as an allowance, in case a more expensive material is desired, or an Unforeseen Condition arises, or an additional task is added.

Following these 4 construction project guidelines can put both Owners & General Contractor’s on the road to success to begin a construction project. Establishing OH&P and GMP sets up the finances, detailed CD’s provides the contractors direct instructions on how to build, and allowances helps guide design budgets.