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Change Orders Happen, So Plan, Revise and Communicate

By Brad Gross

How many jobs have you completed that were perfectly designed, planned and executed from start to finish?

If your business is like most construction companies, almost all jobs have circumstances that should lead to change orders. Without proper planning, approval and completion of a change order, you may end up working for free. Be prepared to capture any change orders that arise by following these guidelines.

Prevention by planning Although no one can prevent all change orders, certain steps can minimize the number and size of change orders. As with all construction jobs, planning the job properly, including the dates of various steps and materials deliveries, is the most critical step.

In addition to creating the plan, be sure to have it reviewed by the various subcontractors and vendors on the job so they are on board with your schedule. Every assumption that you make about the abilities of a subcontractor adds one more possibility for surprise.

Just because you have a solid plan does not mean that it will be timely and properly executed. Factors outside your control and that of your subcontractors can still interfere. The contractor must continually monitor the plan, revise it as necessary and communicate any changes to all parties.

Recognition Change orders are a fact of life. You can reduce them but not eliminate them. Once you accept that you will have changes in the plans of projects, you must be able to recognize those changes to a job that call for change orders, judge their costs and have them authorized and added to the contract. Missing any one step can lead to working for free.

The project director is ultimately the person responsible for recognizing the necessity for a change order. Although there may be specialists on the job, the project director is the one in charge. Be sure that the project director knows the original construction contract. Intimate knowledge of this contract is needed to recognize when a change order is appropriate.

All members of the project are responsible for reporting problems, and for allowing the project director to determine if the problems warrant a change order. Correcting the problem without prior authorization and a change order may save time, but it can cost you money.

Costing the Order Costing the order requires the same skill and experience used to plan and budget the job in the beginning. However, the planning must take into account not just the direct cost of the change, but also its related costs of how it affects the balance of the project. A change that involves delaying one particular part of the project can have consequences to other parts of the project that far outweigh the direct cost of the change.

Authorization Getting the change order approved by the owner prior to doing the work is vital. If the change order is completed before the approval is granted, you lose negotiating power. Also, if the cost of the change order is not approved before the work is done, the owner may agree that the change was necessary but disagree on the cost.

Once the cost of a change order is known, the owner may decide not to make the change, or to make a less expensive change. These alternatives are lost if you make the change before it is approved.

Communication Construction projects have critical stages where delays can detrimentally impact the entire project. Even at non-critical stages, waiting costs money. As soon as a potential change is discovered, it should be communicated to the project director and the owner so that approval can be obtained.