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January 28, 2022

Tangled Up in Change Orders?

Change Orders  play a major role in construction disputes, whether being the actual cause or being used as leverage.

A report released in 2020 reveals a significant increase in the cost of construction disputes in 2020, while the time taken to resolve disputes decreased.  In North America, construction dispute value rose from $18.8 million in 2019 to $37.9 million in 2020 while the length of disputes shortened from 17.6 to 14.2 months.

A “Change order” is just the industry term for an amendment to a construction contract that changes the contractor’s scope of work. Most change orders modify the work outlined by contract documents and typically will increase the contract price or adjust the amount of time the contractor has to complete the work, or both. 

Even the most carefully made plans may need changes once workers break ground on site. A change order is one of several important documents that record adjustments throughout a construction project. If all goes well, they keep contractors accountable to complete their work and it keeps clients accountable to pay for that work. 

In theory, for there to be a valid change order, the owner and contractor must both agree on all terms.  

Change orders are essential in all of these cases, therefore, it’s good to have a solid understanding of how to use change orders effectively before beginning any construction project.

A vital part of running a successful construction company is understanding how to adapt to the changing circumstances that are common on construction sites. 

Guiding principles help master construction change orders:

  1. Accurately estimate the scope of work during the initial contract.
  2. Inform the client that any changes to the original contract can result in changes to the timeline and cost of the project.
  3. Never undertake additional work until a formal change order is signed by all parties.

Most construction change orders include, at minimum, the following elements:

  1. Project name, location and date
  2. A list of proposed changes with materials involved
  3. An explanation of the effect on cost and schedule
  4. A summary of the total cost of the revised contract
  5. Signatures by all parties

Smart contracts and blockchain technology are becoming the “right tool for the construction job” to ensure change orders are implemented correctly to reduce construction disputes and costs.  Because data is decentralized and readily available throughout the network, the need for document duplication is eliminated. Change orders and delays are immediately traceable to a point of origin, eliminating the need for time-consuming oversight.

All construction contracts live in the blockchain and are accessible with a simple search. The sequential nature of a blockchain setup holds all parties accountable.

See how DigiBuild is leading the blockchain technology revolution in construction and is resolving disputes around the change order processes. 

Request a free demo today!

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