Change Orders Are the Single Most Disputed Administrative Process in Construction Administration
Construction contracts define the scope of work; change orders modify that scope. On any significant project, dozens to hundreds of change orders are processed - scope additions requested by the owner, RFI responses that change the design, unforeseen field conditions that require design modifications, value engineering substitutions, and errors and omissions in the contract documents that must be corrected. Each change order has a cost and time impact that must be negotiated, documented, and approved before the contractor proceeds with the changed work. Managing this process fairly, accurately, and efficiently is one of the architect's most demanding construction administration responsibilities, and it is tested in detail on the ARE CE exam.
Types of Change Documents
Several different documents are used at different stages of the change process:
Potential Change Order (PCO) / Request for Proposal (RFP): The initial identification of a potential change and the request for the contractor to price the change. The architect or owner identifies a change in scope and issues an RFP asking the contractor to submit a detailed cost and time impact proposal for the change. The contractor has not been authorized to proceed with the changed work - this is pricing only.
Change Order Proposal / Cost Proposal: The contractor's response to the RFP, itemizing the cost and time impact of the change. The proposal should include: direct material costs (with backup), direct labor (hours × rate), subcontractor costs, general conditions impact, overhead and profit markups, and a time extension request (if applicable).
Construction Change Directive (CCD): Under AIA A201 Section 7.3, a CCD is used when the owner needs the contractor to proceed with a change before the cost and time are fully negotiated. A CCD is signed by the owner and architect and directs the contractor to proceed; the cost is either agreed in advance (if that is possible) or determined after the fact based on the contractor's time and material records. CCDs are used when the change is time-sensitive and cannot wait for a fully negotiated change order. The CCD becomes a change order when the cost is agreed upon.
Change Order (CO): The fully executed agreement between owner and contractor documenting the agreed cost and time impact of a change to the contract. The CO is signed by the owner, contractor, and architect; it is the formal modification to the contract sum and contract time.
Change Order Pricing
AIA A201 Section 7.3 and Exhibit A to the Owner-Contractor Agreement typically specify the markups that the contractor is entitled to on change order work: overhead and profit percentages (negotiated in the contract - commonly 10% overhead and 10% profit, or 15% combined, though this varies widely) and the allowable rates for self-performed labor and for subcontractor work (subcontractor cost + contractor's markup on subcontractor work). Time-and-material change orders (CCDs) require the contractor to keep daily cost records (time cards, material delivery tickets) to substantiate the actual cost.
Key Exam Points
- PCO/RFP: request for contractor to price a change - no authorization to proceed.
- Change Order Proposal: contractor's itemized cost and time impact response to PCO/RFP.
- Construction Change Directive (CCD): authorizes contractor to proceed before cost is agreed; A201 Section 7.3.
- Change Order (CO): fully executed; signed by owner, contractor, architect; modifies contract sum and time.
- CO markups: overhead and profit percentages specified in the contract; typically 10%+10% or 15% combined.
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