Glossary Term

Change Order

What is a Change Order?

A change order is a formal modification to the original construction contract that specifies changes in the scope of work, materials, timeline, or budget. Change orders are an essential tool for managing adjustments during a construction project, ensuring that all parties agree on the modifications and their impact on costs and timelines.

How Change Orders Work

When unforeseen circumstances arise or project requirements evolve, a change order is issued to document the new terms. The process typically includes:

  • Request for Change: Either the contractor or the property owner identifies the need for a modification.
  • Proposal Review: The contractor provides a detailed proposal outlining the changes, including revised costs and timelines.
  • Approval: All parties, including the lender if applicable, review and approve the change order before implementation.

    • Common Reasons for Change Orders

    Change orders may be issued for various reasons, such as:

  • Addressing unforeseen site conditions, such as structural issues or poor soil quality.
  • Incorporating design changes requested by the property owner.
  • Adjusting for material availability or pricing fluctuations.
  • Adding or removing project features based on evolving needs or budget constraints.

    • Impact of Change Orders

    While change orders are sometimes necessary, they can significantly impact a project:

  • Budget: Additional costs may arise, potentially requiring access to contingency reserves or additional funding.
  • Timeline: Changes often result in project delays as new work is planned and executed.
  • Contractor Relationships: Frequent or poorly managed change orders can strain relationships between contractors and property owners.

    • Tips for Managing Change Orders

    To minimize disruptions caused by change orders, borrowers and developers should:

  • Clearly define the project scope during the initial planning phase to reduce the likelihood of changes.
  • Include a contingency reserve in the budget to account for potential change order costs.
  • Establish a clear process for reviewing and approving change orders to avoid delays.

    • Change Orders and LYNK Capital

    At LYNK Capital, we understand that construction projects often require flexibility. Our lending solutions are designed to accommodate change orders while maintaining financial stability for borrowers, though if your budget increases, your project's value must support requests for additional financing. Contact us today to learn more about how we can support your construction projects.

     
     
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    *LYNK Capital Fund, L.P. operates as LYNK Investments, LLC in the state of Texas.
    LYNK Capital offers fix & flip loans, new construction loans, bridge loans, and DSCR rental loans to real estate investors.
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    Private Lending Glossary - Change Order