The 7 Causes of Change Orders (& How Design-Build Eliminates 4 of Them)
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The 7 Causes of Change Orders (& How Design-Build Eliminates 4 of Them)

In my 43 years in this industry, I have never once seen a job that did not have change orders. 

Costing software (and the process it must facilitate) should always account for every contingency, both foreseen and unforeseen. Of course, every client wants this! The key to accounting for contingencies, and thus keeping change orders to a minimum during construction, is to facilitate an accurate costing and Value Engineering (VE) process conducted by a modern Design-Build firm.

Before there were computers, separate Design and Construction firms would deliver a dangerously useless estimating product, tacking on the costing at the end of the design process(!). Many firms still use this archaic practice, one that rarely delivers a good result for the client.

There is obviously no way to alter a text-based product, presented as an afterthought to the Design.  Only by using a process where costing informs the Design can we create lower costs to start with and fewer change orders during construction.

This process-oriented approach is delivered by software specifically designed for Value Engineering (VE)- to reduce your construction costs and keep change orders to a minimum.  ALL other software is designed to merely deliver a product whose chief benefit is but to say “It will never be less than this”.  Why would anyone do that?

Also in my 43 years, I’ve never seen a client look at a cost estimate and exclaim “That’s all?  Let’s do this!”  Everyone looks at an estimate and their first question is always “What can be done to bring the costs down upfront and keep change orders to a minimum on the back end?”  Because of course, they do!

A professional VE process, conducted by a design-build business model using the right software (we wrote our own), easily eliminates four of the seven causes of change orders during construction.

Below are The 7 Causes of Change Orders, grouped by business model. You can see that the Design-Build model only has the first three, while the traditional model of using separate architectural and construction firms has an additional four: 

The Design-Build Model:

  1. Client requests
  2. Unexpected municipal requirements
  3. Unforeseen physical defects

The Additional 4 Change Orders of the Traditional Model:

  1. Not Included in the plans, but necessary for a completed project
  2. Inadequate Discovery during the costing process
  3. Inadequate specifications during the design and/or competitive bid process 
  4. Lack of accountability due to typical and traditional contractual incentivizations for separate Design and Building Firms (more on this below)

Let’s review each one in more detail. 

The 3 types of Change Orders in the Design-Build Model:

1. Client Requests

Client Requests can often account for the lion’s share of the total change order expenses on any typical job. 

However, it simply stands to reason that the more time spent upfront in design and costing, especially in a professional VE process, the less time will be spent during construction tying up all those loose ends that did not get handled upfront, and usually resulting in costly change orders.

The client has complete control over this one.

2. Unexpected Municipal Requirements. 

Even though this only happens in one out of every 10 jobs, changes of scope required by the city during construction do indeed happen for a variety of reasons.

Perhaps the approved structural design needed changes due to client requests, and the city requires additional work to allow for that change. 

Perhaps the approved structural work was deemed inadequate during the city’s actual construction inspection process, and they simply asked for more.  These details are thankfully and usually small.

Once in a blue moon, the city’s permitting process misses something entirely, and the construction inspector catches the error and adds the requirement.  With a smile!

Both client and City can control this.

3. Unforeseen Physical Defects. 

Dry rot, termites. Bad framing during the original construction. Room additions or other significant modifications poorly constructed without a permit. Significant settling.

Sometimes, these defects don’t show up until the siding on the outside or the plaster/drywall on the inside has been removed, revealing defects that must be addressed in order to pass City inspections or to simply provide an acceptable work product to the client.

The unfortunate reality of this type of Change Order is that it’s often not possible to say how bad the damage is until you start digging it out. This is certainly the case with dry rot and termites. 

However, any good Design-Builder should be able to read the forensic signs of hidden damage if they are present and diligently looked for during the design and costing process, providing some sort of allowance for the work in the construction budget. 

Design-only firms likely won’t possess the construction expertise to spot these forensic signs and include them in the plans as required work. Worse, general contractors competitively bidding a project for free are incentivized to withhold this information, even if they do look.  After all, none of the other bidders are going to include something that’s not on the plans… (see #4 below)

Once again, a competent VE process will reveal as much of these as possible, and give allowances in the project budget for them.

No one controls the presence (or not) of existing defects. 

Next, let’s review the additional four types of change orders inherent in the traditional model of separate firms for design and build and their reasons.

4 Types of Change Orders When Using Different Firms

1. “Not in the plans, not in the price” 

It’s simply not possible or practical to include in the plans every single thing that could possibly come up during a construction project.  As such, the design-only firm’s contract will make no such guarantees.

Even worse, no general contractor who is competitively bidding the project will issue a blanket guarantee that their price includes absolutely everything that could possibly come up, even if they are not on the plans.

Obviously, the phrase “not in the plans, not in the price” is sure to be a part of every general contractor’s construction contract. 

Let the Change Orders begin! 

The client completely controls the type of firm(s) that are retained and their contractual incentivization. 

2. Inadequate Discovery   

This fifth cause is an extension of cause number three.  Discovery means making holes in walls or ceilings; or digging holes in the ground to uncover those same physical defects. This should be done up front to tighten up the budget and keep change orders to a minimum.  I mean… right?

However, separate design and construction firms providing free estimates are financially disincentivized to include the extra cost for discovery during the design and estimating phases.  

This is because adding this expense to their bids will likely mean they don’t get the job, because they rightfully assume that none of the other bidders are doing so.

This leaves the unfortunate client paying for additional work when the process of construction finally reveals the true nature of the existing structure.  

Once again, let the change orders begin!

The client completely controls the type of firm(s) that are retained and their contractual incentivization. 

3. Inadequate Specifications. 

Finishes:  faucets, doors, windows, flooring, countertops, number of paint colors, etc.

Like site discovery, and for all the same reasons, neither the design nor build firms are required or even incentivized to create a thorough, accurate, and complete set of project specifications during the design and costing phases. 

This is a clear opportunity for the builder to “low-ball” the allowances for finishes that the design firm did not adequately specify in their plans provided at a fixed competitive cost.

HOWEVER, there is an inherent obligation for the design-builder to ensure adequate allowances for finishes, since they are the ones doing the design.

The client completely controls the type of firm(s) that are retained and their contractual incentivization. 

4. Lack of Accountability. 

In addition to inadequate discovery and specifications, there are many other ways the traditional model creates a lack of accountability.

Always “follow the money”.  

The design firm is often asked to create only the minimal amount of information required to obtain the permit, which is nowhere near the amount of information required to accurately cost and actually build the project, since the city does not care at all about most of the specifications, whether anything will leak, or any of the costs.

For example, liberal use of the phrase “VIF” (Verify In Field) on the plans means that the design professional is shifting their accountability for completeness to the builder, who then uses it as an opportunity for yet another change order when the verification is complete (see reason #4 above) and correct pricing may be obtained.  This is just one example of many.

In addition to “not in the plans, not in the price”, the builder enjoys numerous opportunities created by an asymmetry of information (non-transparency), and there are indeed many.  Entire books have been written on “How to Make Money With Change Orders.”  Google it.

The best way to avoid this unfortunate incentivization is to hire a single firm and make them responsible for the cost of what they design through a professional Value Engineering Process during design.

The client completely controls the type of firm(s) that are retained and their contractual incentivization. 

As you can see, the client has complete control over five of the seven types of Change Orders and only partial control over one other. 

It is unfortunate, however, that the average client has no awareness or experience in managing these incentivizations to their benefit. Retaining the services of a single, ethical Design-Build firm using a completely transparent business model and a well-crafted Value Engineering process is the easiest and surest path to eliminate four of the seven causes of change orders.

Learn More About Working with Building Solutions, a Full-Service Plan-Design-Build Firm.