Mastering the Change Order Process
“Change is inevitable,” as the old saying goes. On construction projects, a more appropriate statement might be that “change orders are inevitable.” If the mere thought of a change order makes you cringe, it may be time to take a look at tweaking your change order process.
Change orders aren’t something that need to be feared if they are managed successfully. Having a change order process in place will allow you to efficiently identify the need for change orders and manage them as they arise on a project.
Be sure to share your change order process with your clients and subcontractors so everyone is on the same page with how change orders are to be initiated and processed.
Here are some tips for crafting an effective change order process:
Start With the Contract
A change order is simply an addendum or amendment to the original construction contract and scope of work and can be initiated by the owner or the contractor. Change orders typically involves performing additional work due to a number of reasons such as omissions or errors in the original scope of work or ambiguous construction drawings. Changes in jobsite conditions, material substitutions, regulatory issues and safety concerns are some other reasons that change orders may be needed.
Carefully read and understand the construction contract, paying special attention to clauses regarding change orders. They may include requirements regarding the timeframe for initiating a change order, specific information and documentation required as well as the authorized agent to approve the change order for contractor initiated changes.
Some contracts may include conflicting language or clauses regarding change orders. A clause might state that change work can’t begin without having a written and approved change order while also including language in the contract allowing the owner to request additional work without an agreement in place. Be sure to address these issues before executing a contract with the owner.
Review Plans and Specifications
This part of your change order process should coincide with your review of the construction contract. Any ambiguity in the drawings or errors or omissions in the scope should be addressed with the owner and the architect get these corrected and to mitigate the need for change orders further along in the project.
Failing to review and identify any issues with the scope of work, plans and specifications will lead to unnecessary change orders down the line. Not doing your due diligence is a big no-no. This includes understanding the current site conditions and anticipating and addressing any issues that might arise along the way, such as material or labor shortages, is an important step in the preconstruction phase and in your change order process.
Don’t Ignore or Delay Change Orders
Regardless of whether the change is initiated by the owner or the contractor, they need to be handled as expeditiously as possible. Ignoring or delaying a change order can be disastrous to a construction project. Putting off a change order until late in the project can result in an overblown schedule and huge cost overruns.
Once a change order is initiated, you need to quickly negotiate the cost, get authorization to begin the work in writing, make schedule adjustments and get underway with the amended work. Delaying requests can lead to a backlog of change order work or require costly rework be done to accommodate the changes.
When a change order is requested, you may also need to alter your current schedule and work as the change order is being negotiated to avoid falling behind on any contract timelines you are currently under.
Communicate With All Parties Involved
Part of your change order process should include communicating with all parties involved on the project. The discussion should start with identifying the reason for the requested change and how it will be managed. Disputes over change orders can be magnified is not properly managed.
Work with the owner’s authorized agent to carefully define the new scope of work and discuss how it will impact the current construction schedule and performance. Make sure you are on the same page with owner in regard to expectations for how the work will proceed when change orders are needed.
You will also need to sit down with your subcontractors to make adjustments to their schedules and timelines. Discuss how change in scope may directly, or indirectly, impact the work they are doing and whether or not a change order in the scope of work they are contracted to perform is needed. Make sure workflows are clearly defined so everyone involved understands their role in changed work and that they integrate that into their schedule.
Keeping everyone updated on the change order process and the work being altered, you can integrate the change order work into your project schedule and minimize the impact it might have on project completion.
Negotiating the Change Order
The final step in the change order process before commencing new work is negotiating the change order. This can be a tricky process because disputes can arise over whether an actual change to the contract scope exists. There can also be issues over an agreement on cost and whether extensions to the original timeline need to be adjusted.
The first thing you need to do is work with the owner to establish how the additional work will be estimated and agree upon a cost. This can be done through unit pricing, time and materials pricing or as a lump sum cost. This might already be laid out in the contract documents or you may need to work with the owner to work out a mutually agreeable solution.
The next thing you need to work out is whether or not a timeline extension is needed as a result of the change order. Don’t be afraid to push back, especially on owner initiated change orders, if additional work being requested will require additional time to complete past the deadline established in the original contract.
Avoid disputes and claims by documenting every step of your change order process. A good way to do this is to create templates for initiating and requesting change orders. Keep written records of all communication between you and the owner regarding the change order. Don’t begin any change order work without an authorized, signed and executed document from the owner covering costs and any other negotiated terms.
Once you begin work on a change order, document the work being done, including time and material costs. Be sure to share these documents with the owner and discuss any issues that might arise along the way.
A good change order process established a method for managing change orders across your projects. Regardless of the complexity or number of change orders, each are handled in consistent and uniform way.
Once the process is established, you can evaluate and modify it to make it as streamlined as possible.
For more information on managing change orders, check out A Quick Guide to Managing Change Orders.