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Tips on Change Order Management
July 30, 2013ParsCo Construction Tips on Change Order Management
Disputes commonly arise with construction contracts, particularly with change orders. If these disputes are not addressed with appropriate management focus, the distractions and economic costs of addressing them can result in significant profit erosion. In an economic environment where profits are already under pressure, change order dispute resolution can take on an even greater importance.
A change to a construction contract typically requires agreement among multiple parties, often revolving around the owner, the architect, and the contractor. All parties play important roles, with potential outcomes often at odds with each party’s understanding of the project’s terms as well as the associated economic costs and benefits.
An effective change order management process begins with a thorough understanding of the contract’s requirements, including what constitutes a deviation giving rise to a change order and the document flow processes required to be carried out. It is important to appropriately identify the change and the particular relationships to the contract terms; e.g., additional work required, plan deficiencies, changes in specifications, delays in schedules, etc. Make sure there is clear communication among all relevant parties as well as appropriate documentation that details the nature of the change and the associated economic consequences.
These processes and the steps required to resolve disputes along the way are generally addressed in the construction contract documents. When public projects are involved, it is also necessary to adhere to specific regulatory requirements that can vary by state, locality, and public agency.
Most construction projects, no matter how well-planned in advance, will involve some level of change orders. It is in the best interest of all parties involved to come to a successful resolution in an efficient and expeditious manner. Clear and timely communication, combined with management support and focus, are critical to ensuring a successful outcome.
COMMON CAUSES FOR CHANGE ORDERS
Causes for a change order can vary from one project to another, but still they are additions that need to be quantified in terms of time and money. Change orders, sometimes are a headache when the complexity and time frame of the requested job are tight. Change order management is another different process than regular contract documents, and most common causes for change orders can lead to legal battles, disputes and arbitration.
· Drawings Errors and/or Omissions
The most claimed situation for allowing change orders. Inadequate details, misrepresentation o simply avoidance to prepare a complete set of detailed drawings can lead to serious change order requests. Sometimes leaving out details and misrepresenting the exact environment in which the construction will be held at, can also lead to change order claims.
· Design Changes
Several outer factors can lead us to start a construction project without a complete scope of the project and start the construction without final drawings. This type of error is also common on design-build projects, where the on-going process of design can induce to work stoppage or produce economic impact in the project.
· Specifications
Sometime the drawing asks for one product but the specs calls for another. This situation is very common on construction projects where the drawings are assigned to different consultants, each one of them acting on their own, without any kind of direction from a team leader. This leaves the contractor with the difficult task of assuming and quoting on one article, but when the installation is going to be made, the owner, requires another article to be installed, instead of the one that you have already quoted.
· Unforeseen Conditions
How many times do you have to complete a soil boring? Soil problems, in particular, are the most common problems with unforeseen conditions. Soil studies can induce you to expect some condition based on specific testing. This could be wrong. Your assumptions on the soil conditions or any other issue regarding the construction of the project can be different from the actual conditions that you find on the site. Also, if the drawings specify a certain amount of work, when, in fact, the amount of materials is almost double, and then a change order must be issued.
· Substitutions
This is normally a contractor’s idea to substitute material, when he cannot get the specified materials or there is a shortage in supplies. This is kind of different because it can lead to another issue: a credit will be asked if the material cost is less, or sometimes the contractor will have to absorb the costs’ difference between materials and/or products. Sometimes, the Owner also asks for some upgrades during the construction process, in this case you must submit a change order request claiming the economic and time costs associated with the proposed modifications.
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