Gaining Control Over Change Orders
When the subject of changes orders comes up with a project team, there is usually a collective moan.
Change orders are a fact of life in the construction industry and have a major impact on schedule, budget, and reputation. However, they cannot be totally avoided.
The Housing and Building National Center Research cites that the average cost of the project increased between 11% and 15% due to change orders. In addition, the time of the project increased as an average from 10% to 20% of the original scheduled time.
Change orders are disprutive and if not managed properly they can lead to disputes and litigation. They can also delay payment as work may be stopped or slowed down due to untimely processing of change orders.
Covid-19 Impact on Change Orders
Although the worst of the Covid-19 pandemic is seemingly behind us, it has caused a ripple effect through the construction industry. The Deloitte 2022 Engineering and Construction Industry Outlook reports that supply chain issues are likely to continue to impact project delivery and profit margins. The report cites that “during the first seven months of 2021, the prices of critical construction materials observed double-digit increases every month.” With higher material costs and material shortages there’s bound to be an increase in substitutions potentially resulting in an increase of change orders.
What is a Change Order?
The Associated General Contractors of America defines a change order as “an official change of any kind in the original scope of work or terms of a construction contract agreed to by the owner, contractor, and project designer. Change orders include work that must be added or removed from the original contract in order to best serve the finished product of a project.”
Changes can be requested for a number of different reasons. There may be unforeseen site conditions, supply chain issues that impact material availability or price, or labor shortages. Sometimes change orders cannot be avoided, however they can also result from a design omission or error. In addition, it’s not uncommon for owners to request changes during construction.
Why Change Orders Are Dreaded
Change orders are often feared due to the potential for disputes or litigation.
Change orders are usually required to be in writing and considered a contractual document. However, there are other processes initiating changes including Construction Change Directives, Architectural Supplement Instructions (ASIs), or Request for Information (RFIs). But not all changes are formally documented. Ocassionally the approval for the change may be a verbal communication or a communication through email. Any change that impacts schedule, scope, or budget should be formally documented as part of the project record.
There is also a lot of paperwork involved with a change order. AIA suggests “After describing the change and the impacts on the contract sum and time, the change order should list any attachments, including each of the supporting documents, with the date of each. Upon completing the change order form, the architect will compile all attachments and issue with the change order.” However, keeping a chronilogical digital paper trail is not easy.
Construction lawyers are usually involved in disputes related to change orders. The American Bar Association suggests, “Figuring out whether a change order is justified is fact-specific. To determine whether a “change” is really a change, look at pre-bid documents, responses to RFIs, field work orders, and the parties’ course of dealing. Also consider order-of-precedence clauses which determine whether written specifications or drawings control.”
The bottom line is that there is a lot of documentation and communication to manage related to change orders.
Gaining Control of Change Orders
Changes to construction scope, budget, and schedule occur frequently. It is important that project teams understand the implications of a change order and how to effectively manage them.
Although most firms keep accurate, complete records to document change orders, processes for managing this information still requires manual administration. A proactive approach to managing change orders can relieve some of the stress. This is where technology and automation can help.
Start by automating the review and approval process.
Automated tools to track status of active change orders enable teams to proactively manage the review and approval process. Mismanagement of the change order review and approval process can lead to schedule delays, costly rework, and payment delays. Automated systems can track the status of drafts, incoming, under review, awaiting action, expected resubmissions, and overdue responses. In addition, overdue responses are much easier to track with an automated change order log vs. an Excel spreadsheet.
Then connect the dots.
It is a difficult task to connect all associated documentation and communication with the chronological sequence that provides a complete record of the decision-making process. Project Information Management systems can make these connections for you. Whether it’s a substitution request that comes in through a submittal, an RFI that may impact budget or schedule, or a change order proposal, having the ability to view all related all information including emails associated with a change order, provides a complete picture for improved decision making. Also, as the American Bar Association suggests, looking at the digital paper trail leading up to a change order request can help determine if the change order is even necessary.
Finally, standardize and centralize the process.
Having a standardized and centralized approach to managing change orders may reduce some anxiety associated with change order risk. First determine what related information needs to be captured for change orders. Then decide how and where to store it. Standardizing and centralizing access of this information ensures that all pertinent information is documented consistently – not only across projects, but across the enterprise. Staff members know how to find the information they need to make change order decisions. This will certainly save time tracking down information to expedite the change order review and approval process.