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A change order is written (or at least should be) any time there is a 'change' in the original scope of work for your project. It documents this 'change' and any additional cost (or credit) that you as the homeowner may incur. For example: your contract clearly specifies that you have selected laminate countertops for your kitchen, but shortly after the contractors begin demolishing your existing kitchen you decide you want to upgrade to quartz countertops. The contractor will write a change order specifying this change and what the additional amount will be. If you accept, both parties sign the document and each gets a copy. It now becomes a legal addition to your contract. Probably the most common causes of a change order are 1) when hidden conditions are found after the contractors have peformed the demolition phase (defects in the structure or previous workmanship in your home, dicovery of hazardous materials, etc.) and 2) because the written scope of work is vague or there simply is no written scope of work. The scope of work should be extremely detailed listing makes, model numbers, colors and finishes, door styles, etc. as well as the specific tasks to be performed. The more detailed the better. You want to make sure that both parties understand exactly what is to be done (and sometimes what is NOT going to be done) and what materials are going to be included. The best way to avoid change orders is to select a company to work with that is vastly experienced and specializes in the kind of work that you want done. There will be far less chance that they will be "surprised" when they begin constructing your project. Have a detailed scope of work and working drawings or prints that each party clearly understands and signs before the project begins. In a perfect world, if you don't change your mind during construction, there shouldn't be any change orders. A rule of thumb that I suggest to homeowners is to leave about 10% of the contract amount for contingencies. If your maximum budget is $40,000., don't sign a contract for $40,000. That leaves you no way to accomodate any change orders; whether they're for hidden conditions or, more likely, you decide to add or upgrade something to the project. Your human nature will have a tendency to do this. If, after seeing your project start to come together, you decide that a little addition here and there would now be the perfect compliment to bring your kitchen to another level, you will have set aside a little extra money to be able to do that.
Glen offered a very accurate and thorough answer to the question. The only thing I would add to it is the importance of receiving a detailed construction contract from your contractor. This should list (as Glen mentioned) model numbers, etc. What you should stay away from are "allowances". They are the number one driver for change orders. Allowances are often used in a contract when either the homeowner hasn't made a decision on a finish or fixture or the contractor is unsure how to bid a specific portion of the project. Inevitably there will be confusion as to what the allowance truly allowed for and what the final product/ decision did to the original price.
Best bet is to wait and start your project after you've made all the selections- and then figure that inspiration will strike you when you least expect it and you'll be adding that 10% at some point.
When interviewing contractors, check online reviews and call references to make sure the company has a track record for being on budget. After vetting the contractor, with detailed plans and specifications you don't have to worry about change orders unless you make changes. I usually suggetst to homeowners to have a 5% - 10% contingencydepending on the size of the project, not for change orders, but for addtions or upgrades they may want.
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