Congratulations, your company has been awarded a major construction project. All your hard work in the preconstruction phase has paid off, and it should be smooth sailing from the initial notice-to-proceed through substantial completion. In a perfect world, this would be the case. In reality, few planning stones are left unturned after the construction contract is signed, and a change order must be added. On average, 65% of all projects valued over $250,000 experience a minor change order and 35% of these projects experience a major change order. On the new fast-track project delivery method, where design is still on-going after contracting signing, expect change orders as a common occurrence. Implementing a tracking system to keep up with the ongoing design may be beneficial.
Change Orders in Construction
A change order is work that is added or deleted from the original scope of work of a contract, which in turn, alters the original contract amount and/or completion date.
Types of Change Order
|Change in Scope of Project||Tenant agency has requested a design change|
|Unforeseen Conditions||Site conditions differ from the expected.|
|Professional Errors and Omissions||Requested by contractor or professionals|
|Errors||Errors in construction design plans and specifications|
|Omissions||Omission of an item or element from the plan|
Staying ahead is important, primarily for your project budget and to meet the Owner’s completion date. Letting these slip can plunge your project financially by not covering additional cost as they come as well as paying for owner liquidated damages by not completing a project before deadline.
How to Process a Change Order
Make sure that the change order process is clearly outlined in the construction contract. This will give your client clear expectations how change of scope situations will be handled and no surprises arise. Not having verbiage in the original contact and specifying what happens as changes come up can lead to disagreements and tension.
Notification of Change:
The first step is to notify the owner or general contractor when a likely change in scope is identified. Typically, this is written on letterhead as an RFI (request for information) and addressed to the responsible party. From there the responsible party will pass the RFI onto engineering parties or the client to answer the question. Clear direction is given after an RFI is answered and any change in scope can be determined after that.
What to Include
- Date and party the change order is being addressed too
- Itemized list of all that is included in the change order and change of scope
- Breakout cost of labor, material, equipment, overhead
- Change in contract value
- Change in contract time
- Signatures from both parties
No Changes are to Proceed Until Approved
Time and time again, there is pressure to complete a project on time and to keep your schedule. A majority of clients know a change is in process, but will still push to keep work on track. This practice puts project managers between a rock and a hard place at times. It is important that you understand not proceed with the change order work without your client’s approval and signature.
Tracking & Staying on Task
Depending on the size and complexity of your project, an excel log or software program will greatly help in tracking the status of change orders. Tracking will also help determine overall project material needs, manpower needs, electrical equipment, rental equipment, milestone dates, and final completion dates. All of these components play a part of the project schedule and being proactive with them keeps the project duration from slipping.
Having a dedicated Estimator assigned to a fast track the construction project will help keep up with the change orders as the drawing re-visions come off the press (or electronic transfers, keeping the environment in mind). Some new facility fast track projects are known to have one 100+ drawing revisions, which in turn equal 100+ change orders. Then there is the other 100+ change orders from all the rework created by previous work already in place.
Change Orders Are a Necessity
The key to all successful projects is great communication between the contractor and their client. By communicating the change order expectations to your client before a construction contract is signed, your project has a greater percentage of being out of the negative zone during project execution.
Change orders are generally looked upon by clients negatively as it impacts their budget. To make them more positive, clearly communicate to the owner what caused the change order and work with them on different options that will fit the project budget. When a total project duration is increased by a change, become creative and look for ways to shorten project duration without increasing cost.
Anticipate for changes to happen. Instead of taking a defensive approach, be proactive and get out in front of them before they become an issue. With a systematic approach frustration is reduced of the dreaded change order and the construction crew is able to work more effectively when the unknown happens.