Controlling the Cost of Change Orders

How does the contractor prevent change orders? This is the critical question we all face on every project. The customer doesn’t want a change order, the designer doesn’t want to have to review change orders and the subcontractors and material suppliers don’t want to price and manage that change all the way to the field.

Compounding the problem is the misconception that contractors generate changes. Contractors don’t change their mind on what is to be built. Change orders occur only when the owner changes requirements, when the designer clarifies project information that adds scope beyond that which could have been understood from the original documents or when the existing conditions are different from those represented by the original documents. However, change orders are a fact of life, and they cost contractors dearly during the course of a project, causing delay, consuming project management time, creating errors and, worst of all, sowing mistrust among the building team.

So, how do you control the cost of change orders? To begin with, you need to identify the basic elements of the cost of a change:

• Identification of a needed change
• Design process of the change to be made
• Management of the change process
• Additional time needed to make the change
• Labor and materials needed to make the change
• Negative impact of change on completed work
• Labor’s attitude toward dealing with the change

Controlling as many of these elements as possible can help mitigate the cost, minimize the disruption and stem the frustration caused by a change.

The first two elements, however, are largely unrelated to the contractor’s work. Identifying a needed change is often out of the contractor’s hands, and the change design process belongs to the design professional.

By managing the change process, contractors can begin to lessen their exposure to the risks of a change. In an ideal world, all parties affected by a change would be able to meet and discuss the change order. Everyone would be listening to see if the change affects their work directly or indirectly, and they would convey the necessary information to their staff and suppliers immediately to stop work in the affected areas. However, this is rarely, if ever, plausible. Instead, contractors must notify all involved entities—staff, suppliers, subcontractors, sub-subcontractors, subcontractors’ suppliers and others—that a change is coming. Additionally, it is imperative that these parties are alerted as soon as possible in order to stop work in the change area to limit additional cost to that change.

A Digital Solution
In these cases, contractors must take the initiative to communicate change orders to everyone involved, yet this is a difficult process itself. The project manager may try emailing everyone affected, but some involved parties may be missed or forgotten when doing so. The project manager could send an email to every individual involved in the project, but such untargeted emails eventually become noise in the inbox and are ignored by the project team.

So, what method should a contractor use to communicate such change? The answer: on the drawings, the first place anyone looks before working on a project. When you can modify the drawings and documents that your team uses every day, you can prevent them from making mistakes that will cost you money.

The way to do this is digitally. With a digital system for ordering materials, planning deliveries and scheduling work, project information can be updated in real time, and project team members can be notified of such changes quickly.

When choosing a digital system, ask the following questions to determine if it is the right one for you:

• Can all drawings and documents required be available in one system?
• Does it use the same source for field and office personnel?
• Can the system be used while disconnected from the Internet as well as while connected?
• Does the user have to micromanage the information in the system?
• Is the user interface simple and intuitive?
• Can every user update the digital information without assistance?
• Does the system minimally impact the user’s current processes?

Additionally, the digital system you choose should be capable of the following:

• Allowing users to update changes quickly
• Placing a hold on further work in that area
• Quantifying and recording any work already completed
• Conveying information on change work to be completed
• Permitting changed work to proceed as seamlessly as the original work

There are many products that have these capabilities. Find the one that works best for your company, and you can control the information used by your project team and mitigate costs when change orders occur.