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Local Government and School Accountability

Capital Planning and Budgeting

A Tutorial for Local Government Officials

Module 3 - From Plans to Projects
Change Orders

Capital projects are complex undertakings, and good planning usually allows them to be completed within the original cost and scope. However, unanticipated conditions may necessitate change orders to perform additional work.

A change order is a formal modification of the construction contract, agreed upon by both the local government and contractor, to authorize a change in the work, an adjustment in the project cost, or a change in the contract time. While some changes are not preventable, others can be avoided. Examples of planning weaknesses resulting in change orders found by our audits include:

  • Deficiencies in designing the scope of the project or surveying the work site
  • Errors in the design consultant’s cost estimates or project design
  • Differences between “as built” drawings (such as blueprints) and actual work site conditions
  • Significant variance between bid specifications and project plans
  • Vague contract terms subject to interpretation.

Because the governing board authorizes construction contracts and professional service contracts, it must also review proposed changes to these agreements. Change orders must be presented to the board for approval in a timely manner and should be reviewed by the board as promptly as possible to ensure the change order is approved before any additional work is started.

Change orders can be costly, because they are often not awarded through a competitive process designed to obtain the lowest price available; rather, they are often negotiated with the existing contractor to minimize delays in an ongoing project. Revising a contract which materially varies from the original bid specifications also may give the appearance of unfair advantage even when none is intended, because the project is not being completed under the terms of the original bid.

Change orders should be reviewed to determine if the change represents a new undertaking that should be advertised for the solicitation of competitive bids. Where the change relates to details or relatively minor particulars and is merely incidental to the original contract, a change order may be issued without competitive bidding even if the increased cost exceeds the bidding limit. However, no important general change may be made which so varies from the original plan, or so alters the essential identity or main purpose of the contract as to constitute a new undertaking without seeking competitive bidding. Best practices dictate that similar change orders for the same contractor that occur within a few days of one another should be aggregated.

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