A Change Order by Any Other Name
Designers, owners, and most contractors consider Change Orders a bad thing. Research indicates that overall project performance and contractor profitability is better on jobs with fewer COs than those with many. Even when Change Orders are initiated by owners increasing scope and not the result of design issues, the production and schedule disruptions can get out of hand and burden the project with unexpected and unrecognized accumulating costs that cause it to lose money. In a worse-case scenario can actually push a contractor into financial difficulty. Why, then, are projects constantly shifting under the weight of Change Orders? What is the source of all these Change Orders? If all the stakeholders dislike them, who is causing them? And why? What is going on?
From our research into the source and cause of Change Orders, we can verify that all “Change Orders” are not alike. They are born of different parents and for very different reasons. The source of these unwanted Change Orders is obscured by the use of the generic name – “Change Order”. For purposes of discussion a more descriptive name might shed some light on where these mysterious Change Orders come from and who gives them life.
A Change Order by Any Other Name
Find a list of possible new names for Change Orders, and who is to blame for each below:
- “Impossible detail” order – Designer
- “Improvement” order – Owner/Designer
- “It just dawned on me” order – Owner
- “Wouldn’t it be better” order – Owner or Designer
- “Changed my mind” order – Designer
- “Never occurred to me” order – Designer
This is not an exhaustive list, but I think you get the point. The idea that every detail and specification could have been thought of in advance by the owners and designers is a stretch. What condition gave rise to a change order is the key question. Was it an incomplete or erroneous design issue, owner needs or whim, ordinary evolving design or code requirements or just a condition no one could have anticipated. The problem is not the existence of Change Orders but rather how the construction industry has become accustomed to dealing with them. Contractors struggle with estimating the true impact and cost of additional, unplanned work, and owners and designers think they should get the “extra” work for little or nothing. Contractors are often accused of going after Change Orders they are not entitled to. We find this accusation the exception not the rule. In fact, the cause of most COs is actually outside the influence of the contractor, and there are almost none that the contractor can prevent. However, the atmosphere surrounding COs in the construction industry is replete with conflict and costly delays.
Change Order Management
Change Orders are not going away. To begin to manage the process efficiently, the industry must change its beliefs about COs. Effective change order management starts with contractors having a highly visible company-wide Change Order Policy that is widely circulated to owners, designers and field management before construction begins. Contractors need to make it clear to designers and owners in advance that multiple COs are not desirable, that they prefer not to have them — and to the extent they occur, they expect to be compensated for them. This will help assure that owner and designer expectations become more realistic. This allows the stakeholders to be more prepared to accept necessary changes to the work without assuming the contractor caused them and benefits from them. The expectations of all parties to the contract should be clarified to include the reality that changes to scope or schedule have a cost and that the additional work will be price fairly. And that it will include overhead and profit.
On this site you will find a sample Change Order Policy template that is self-explanatory. Take a look and if you don’t already have a formal Change Order Policy we recommend you develop one immediately. This nagging problem can only be alleviated in advance. We must learn to lead from the front. Read more about the project selection process.