Change orders: understanding budget-creep

Few of us are wholly at home with the unknown, even fewer with the financial unknown. When we embark on our single largest lifetime investment (building a home), the idea of not really knowing how much we’ll actually spend does not sound at all appealing. The homeowner and all of her financing vehicles rely on the expertise of her builder (and, often, their associated Quantity Surveyor) to generate a thorough and accurate budget at the outset of the project.

Does a project budget equal a fixed price?

In production homebuilding (i.e., subdivisions of endless cookie-cutter houses on level lots) building at a fixed price is possible, but the entire concept of building a custom home is based on unknowns. Each custom home is a one-off prototype never again to be produced, whose level of complexity cannot be appreciated or anticipated by fixed pricing. There are changes of heart, unforeseen site conditions, and myriad other real-world impacts that cause anticipated costs and timelines inevitably to shift. This is why custom homebuilding must rely on change orders and healthy, well-considered contingency funds to prepare for the unknowns.

Client/architect change orders

On the Cliffhanger House, the project’s talented designer, Kevin Vallely, had called for the use of custom, kiln-dried, clear cedar siding. However, after the initial round of budgeting, he and the homeowners opted for a more finance-friendly Hardie lap siding.

As the project began to take shape, it became clear aesthetically, that Hardie would not suffice and that the siding matter must be revisited. After much consideration, a mock-up of a third siding system (called Resysta) was done for the client. The fibre reinforced hybrid material is produced of 60% rice husks, 22% common salt and 18% mineral oil and makes for a low-maintenance, waterfront friendly siding.

It also costs more in terms of materials, and more in terms of labour to install. In fact, it more than doubled the budget line-item. And so was born a change order.

Site-driven/engineer change orders

After months of blasting and excavation on the granite-heavy Cliffhanger site, the engineer determined the structural need to reinforce the foundation through the construction of additional buttress walls which would tie the foundation to the rock faces at the edges of the excavation and retain backfill. This change order impacted costs not only though additional material and labour needs, but also through the resulting impact on job-site access.

Contributor: Dalit Holzman, Econ Group Ltd.