We have all seen the picture of the dinghy named “Original Contract” attached to the yacht named “Change Order”. Throughout the history of construction, there is no doubt that there are likely many instances where this has been the case, but it doesn’t necessarily mean that it was unjustified or even an overly inflated change order value. The truth of the matter is that change orders are a necessity in construction contract administration and are born out of a variety of situations and reasons. As an OPM, we see it as a critical part of our job to ensure a solid change management process on every project we are involved in.
The key components to a well-done change management process are well-written contracts, communication, and discipline.
Establishing Solid Contracts and Ground Rules for Effective Change Management
The entire process begins with solid contracts, both between the Owner and the CM/GC and between the CM/GC and the subcontractors. It is important that the contract detail the GC/CM and subcontractor mark-ups and notice requirements. Some of the best contracts we have administered are also very clear about what costs will or will not be accepted as part of change orders, or have limits/thresholds that govern how and when they can be included. Provisions regarding small tools required by subcontractors to perform that their work is an example. Some contracts do not allow small tools and equipment to be a mark-up percentage, but rather require a detailed showing of additional usage based on the scope of the change order, i.e. more interior demolition in a new work area in an occupied building could require an additional negative air machine onsite and more saw blades to be consumed.
Once the contracts are established, a kickoff meeting between all of the stakeholders must be scheduled. The “ground rules” for the change management process, consistent with the contract provisions, are confirmed at this meeting. On many of our projects, we have had success with creating work flow diagrams that illustrate accepted paths where a change event can become an approved change order. These work flow diagrams are also intended to pick-up scope changes that are generated outside of the customary process: architect issues a proposal request (PR) to the CM/GC for pricing or to proceed on a time and materials basis.
The aforementioned “known” change management cycle is most often captured on logs prepared by the architect (PR Log), the CM/GC (CR or PCO Log), and the OPM (PCO Log) and communicated at weekly Project Meetings with the Owner, Architect, and CM/GC. The peripheral scope changes that the work flow diagrams are meant to capture are often generated as a result of a Request for Information (RFI), or from the design team’s notes on shop drawings or submittals. There is also the possibility of communications between the CM/GC and the Users being interpreted as a “verbal” change directive. All of these scenarios are the root for the old saying (and concern) that the CM/GC “could have a desk drawer full of slips and change requests from subcontractors”, which would come as a surprise to the Owner at the end of the project. Here is where ground rules come in, which inherently create a communication chain, discipline, and accountability for the project team to ensure that this scenario does not occur.
Effective Communication and Collaborative Change Management for Project Success
The ground rules start with real-time communication of potential changes to the contract scope of work. Most projects have a weekly construction meeting in which the Architect, OPM and CM/GC are working through technical items like RFIs, submittals, reviewing schedules and change orders. The team must be disciplined during these meetings. At the kickoff meeting, the team should agree that any adjustment in the time or cost must be acknowledged and discussed during these meetings. If the team determines that there is a potential change, then the item is assigned a Potential Change Order number and added to the respective logs. When this process works as outlined, two important scenarios are created. First, the project team is given the opportunity to potentially prevent the scope changes working collaboratively and creatively together. Second, the Owner becomes aware of the change, has an opportunity to assess cost and budget considerations in real-time, and can make informed decisions authorizing “optional” changes based on accurate data.
With clear contract terms and agreed-upon ground rules based upon those terms, the change orders can be assembled, reviewed, and approved in a timely fashion. This keeps cash flowing to the CM/GC and its subcontractors, which is a critical component to a successful project, especially in our current busy Massachusetts construction market.
A key role of an OPM is to ensure that the change management process happens consistently throughout the project and that each team member is accountable for their piece of the process. It is equally as important to avoid having the change management process be perceived as “negative” in that that someone may not doing their job or that someone is trying to take advantage of the change process. While some of the change process may result in “difficult” discussions, it is each team member’s job to confront those discussions in a professional, reasonable, and collaborative manner to ensure a fair outcome per the terms of the contract. It is understood in the industry that a good project will still have change orders ranging from 3-5% of the original contract value on a renovation project, and 1-3% on new construction. When contract terms ensure fair pricing, and real-time communication of changes is diligently reported to eliminate surprises, then the change management process can be one of the pillars for a successful project.