Types and its Implications of Change Orders in Projects

Types of Change Order

There are two main types of changes :

                                           Directed

1.                                           A formal, written statement by the buyer specifically directing the seller to perform differently

2.                                           The area of performance changed must be expressly identified as being within the buyer’s unilateral control.

Directed Changes include:

ü An Architects Instruction

ü A Main Contractors Instruction

ü A Site Instruction

ü A Variation Order

                                           Constructive / Implied #

1.                                           In the absence of a directed change, any set of facts for which reasonable inference can be made that the buyer required the seller to perform differently

2.                                           Treated (Implied) as a directed change issued under the changes clause

Constructive / Implied Changes include:

ü Verbal requests

ü Letters / eMails / Faxes

ü Minutes of Meetings

ü New or revised Drawings

ü New or revised Specifications / Equipment Schedules

ü New or revised Programmes

ü Responses to ‘Requests for Information’ (RFI)

 Implications of Change Orders

                                           There is an expectation that:

1.                                           The Customer will make an equitable adjustment in price, delivery schedule, or both.

2.                                           Contractor (and it’s subcontractors) will proceed with the contract as changed, even if the contract adjustment has not been negotiated.

3.                                           Contractor has the right to seek clear direction (raise any queries associated with any Change Order).

4.                                           The Customer has an obligation to respond to any request for clarification.

 But you will have to establish ‘Entitlement’ and ‘Compensability’

Note: But don’t forget the simple rule – Get it in writing, DO NOT work to verbal instructions

How to establish ‘Entitlement’ & ‘Compensability’

 It is the Project Managers responsibility to:

1.                                           Fully understand the contents of the ‘Contract Baseline’ set of documents, especially with regards to the ‘Changes’ clause.

2.                                           Ensure that all ambiguities are resolved with the customer as quickly as possible. This includes any Deviations from Specification / Assumptions that were included in Contractor’s Bid letter.

3.                                           Use the ‘Changes’ clause as a tool and strictly adhere to its requirements.

4.                                           Always communicate in writing (including confirmation of verbal discussions or agreements).

5.                                           In the event of a disagreement, preserve Contractor‘s rights under the contract to make a claim at the end of the Project.

6.                                           Notify the Customer immediately upon recognition of a potential Constructive (Implied) change and request a formal Directed Change Order.

7.                                           Evaluate the work associated with any form of Change Order and formally advise the Customer of the impact on Price and Schedule as quickly as possible.

8.                                           Claim payment for the changes at the earliest opportunity

9.                                           Track the status of all changes and associated correspondence / instructions.

10.                                        Recognise the associated costs and revenue in an appropriate manner in the CTC process

11.                                        Formally ‘book’ any Change Orders only upon receipt of the appropriate paperwork from our Customer

                  How to recognise ‘Changes’

o    Change Mechanisms

As mentioned earlier there are several mechanisms for changes to occur on a Project. We shall look at these under the headings:

?                                                                      Schedule

?                                                                      Scope

?                                                                      Conditions

?    Schedule Changes

v   Disruption of the normal schedule of workflow: stacking of trades, crashing the schedule, re-deployment (asked to move), etc.

v   Work done out of sequence or building preparation not ready in time for Contractor to begin with enough time remaining to finish as planned.

v   Disruption of normal workflow due to over inspection of work.

v   Disruption of normal workflow due to partial occupancy prior to the completion of work

v   Disruption of normal workflow due to holds on work progress. (delay)

v   Have there been any scheduling delays in general?

v   Acceleration or compression (either constructive, owner-initiated or contractor initiated).

v   Is all work finished in a timely manner so that Contractor can proceed? Was there slow: submittal return, RFI review, decision making or approvals?

v   Is there a lack of direction or decision making?

v   Are there erroneous contract terms that prevent Contractor from completing work or getting paid on time?

v   Is payment untimely or is there nonpayment?

v   Others

Acceleration

–                                            The need to accelerate your contracted works could indicate either a delay to the preceding works and a failure to be granted a Time extension or an inherent lack of realistic Time Schedules in the first place.

–                                            Acceleration is not necessarily working quicker. It can sometimes be achieved by working differently :-

l              Overtime

l              More resources

l              Changes to activity sequences

–                                                                                            Carry out activities in parallel

–                                                                                            Divert resources away from activities with large ‘float’

–                                            However, every time you need to change your original plans there will be a cost implication. This is very difficult to prove without having a record of what you intended to do in the first place.

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