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Have You Upgraded Your Change Order Practices?

Not too many companies are doing work today on a handshake agreement. Yet many companies fail to document changes that occur on a project, instead accepting that the other party will eventually agree to those changes down the line or during close-out. Most change orders, however, are too significant to leave to later whims or circumstances.

While pushing for change orders is rarely glamorous, reviewing and documenting change order issues during a project does not have to be contentious. In fact, a timely, thorough and factually accurate presentation of the grounds for the change in price or time can avoid a lot of conflict. This preparatory stage can require:

Meeting with project team members to understand the scope and ramifications of the issue;

Scrutinizing the contract documents for provisions and details relating to the change;

Assessing the cost or time impact and providing credits where necessary;

Getting an in-house review of the justification for the change;

Organizing a meeting of the key stakeholders to review and discuss the change; and

Being accountable for problems of your own making, if any.

Once the change is identified and discussed, it is important to promptly and completely submit the necessary documentation in accordance with the contract requirements. Preparing the appropriate documentation requires consideration of numerous issues, including:

Time. The change order should identify all time-related impacts, both direct and indirect, and all schedule changes that will flow from the change. Specificity is crucial as to days, interim milestones, cumulative impacts, etc. If time is not an issue, consider stating that fact specifically in the change order to avoid disputes down the road.

Scope. All changes in scope should be carefully documented, with specific descriptions of the change and references to specifications, details, quantity, etc. Generic references to work or locations only lead to disputes down the road.

Price. All changes to price should be addressed, with line items if possible. The add/deduct should explain what is included in the price (labor, burden, materials, OHP, general conditions, etc.).

Final Agreement. A change order should reflect the parties’ final agreement and not leave items to further discussion. If certain aspects are unknown or to be reserved for later (such as work to be done on a T&M basis, cumulative impacts, time extension), those issues should be clearly listed as being excluded from the scope of the change.

Finally, put a system in place to make sure that change orders actually are circulated, signed by all parties, and returned promptly. An unsigned change order, even if discussed and negotiated, sometimes is no better than no change order at all.

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