Nothing in construction is so surrounded by tension, distrust and angst as the issue of changes to the work. This is particularly true in our current environment where every dollar is scrutinized in detail and each of us is tied to a budget that has little room for accommodating added cost and no forgiveness for overrunning the bottom line.


Changes orders produce a number of effects. First they amend the design to more accurately reflect the actual conditions on the project or the wishes of an owner or, at times, architect. Secondly, they provide the opportunity for a builder to financially cover some of the potential losses or exposures that exist on all projects. On a less frequent, but not uncommon, instance they provide a builder the opportunity to increase those costs and exposures by underestimating the cost of the change or by the change having a consequence that is not readily apparent until further into the project. Thirdly, changes invariably consume an enormous amount of time and effort by all parties in issuing and tracking documentation, assembling information from subconsultants, subcontractors and suppliers, negotiating a fair or at least acceptable and defensible price for the anticipated work and completing the mass of paperwork that accompanies each occurrence. 


Despite best efforts, it is inevitable that there will be changes that occur after a contract is awarded because changes are an integral part of the development and construction process. There are, however, ways to minimize the impact of these changes on your project.



Avoidance 


Ensure to the maximum extent possible that the documents the design team produces are, in fact, what you and your clients require and desire. This sounds simple enough but our industry is famous for the projects built that prove a singular disappointment. Occupants weren’t consulted and the layout is either inconvenient or nonfunctional; facilities weren’t consulted and the HVAC system incorporates manufacturers that are incompatible with the balance of the spaces; or the donor is kept at arm’s length from the design and the result is a building that doesn’t meet the expectation of the very source of its funding.


Correcting each of these issues can be done during construction but it is tremendously inefficient and the cost in resources is immense for all involved. The right time to make changes is during design where the costs of change are confined to redrawing. The single most important task an owner can perform to minimize changes is to make careful and resolute decisions during the design process.


Design decisions, once made, should ideally never be revisited. This places a premium on careful and thoughtful decision-making and the owner’s need to take whatever time is necessary to understand the proposed design alternatives and make choices that are right for the project. Decisions made are cumulative and one made early in the design process can rarely be changed without significant impact on the project cost and time. If a change is necessary it is always better to make the change on paper rather than in construction. 


Give sufficient time to your designers. A fool proof way of ensuring that you spend the entire construction duration embroiled in arguments about changes is to give an unrealistically short design period to your design professionals. You should push for a date of issuance but you need to understand and acknowledge that a minimum period of time is required to produce a good set of documents and if that time is not given, the results will be changes later.


Ensure that periodic, in-depth reviews are conducted. This should not only encompass a review that concentrates on the design but should include how effectively coordination between the disciplines is being done. Conduct an RFP process (complete with form of contract and a detailed set of owners’ bid requirements) and bid a complete set of design documents. Hire the builder who proposed the best combination of time and money and insist on the right people. As in every endeavor, everything depends on the people executing the work. If they have the requisite experience, the drive and the passion you can rely on the product they provide. The core obligation of any owner is to make this initial decision the correct one. 



Addressing The Change


Know the Scope: 


Review the change to make sure you are paying for only changes to the scope. A common pitfall in the process is that a submitted change will unintentionally include portions of the work that should have been covered in the original contract. If the scope is unclear, and it will often be precisely this, then at least this scope clarification becomes a negotiating point.



Get the Proper Documentation:


Insist on backup for each of the subcontractor quotes with a detailed breakdown of how the cost was determined as well as a breakdown of all labor rates. Quotes are important as they establish what the subcontractor is charging and how that charge was determined. Breakdowns of both material and labor are a great way of ensuring that you can look at the cost in an objective a way as possible. 



Determine Markups: 


Agree on a fixed markup both for subcontractors and for the GC/CM firm. One such approach is a fixed markup of, say 15 percent in the aggregate, for the subcontractors, regardless of how many tiers are involved. The idea of fixing this, as well as labor rates, is that it avoids hours of arguing later about what is a fair markup. In fact, getting the markups in the contract is an ironclad way of ensuring that the argument stops at the very beginning.



Know Costs:


Understand where the market is in terms of costs. There is a multitude of online resources that can give you an idea of what the cost of an item of work is within a geographical area. You can also call other subcontractors to find out values but you should be prepared for an enormous cloud of dust and debris tossed into the air in an attempt to discredit the numbers as not germane to this particular case. There will be some truth to that view but the larger truth is that there is both value and accuracy to these resources and they should be used to reinforce the case for the cost, not dogmatically, but simply as another source of verification.



Get the Credit you Deserve: 


Credits are always problematic. If an item of work is added to the contract at a cost of “x” it invariably gets deleted at a cost of “.5x” or less. One counterargument is that adds and deducts go in at the same unit price. If a wall is added at $7/sf then it is deleted at precisely the same number. Another tactic is, if you are contemplating deleting a portion of the work, say doors, frames and hardware, then first ask for the add if you were to increase the number of those units. That at least gives you an idea of what the perceived value of that add was to the builder and therefore a good starting point for the value of the credit. 



Don’t Give Away Time:


Be careful of time extensions. Changes can come through that automatically add three days for the most trivial of issues. It is fairly simple to argue that you need to see a schedule update showing how the critical path is affected in order to make these disappear but you need to be aware of them. We typically concentrate on the financial side of the change, often at the expense of the time impact and yet they are both closely intertwined. Ignoring one is tantamount to ignoring the other. In some larger or particularly complex changes, or when there are changes to material and equipment, there will be changes to the contract duration; either increased or, although this is extraordinarily rare, decreased. In these cases a thorough analysis of the impact of those changes needs to be performed before you should agree to any change in the contract time.


The key to a successful change order experience is to, as far as possible, minimize the number and size of changes by ensuring that the initial bid documents are as close to the final product desired as possible. It is critical that the owner make timely and resolute decisions during the design phase and, equally important, institute an owner tracking system that ensures that the design consultants and the builder only make changes the owner wants and is willing to fund.


Understand the changes and the costs associated with those changes, argue strongly for your position and settle quickly and fairly. And when you come to an agreement, execute the paperwork and avoid second guessing the outcome.


In the first place there will be plenty of people who can do that for you and in the second your time is far better spent resolving new challenges that arise instead of revisiting the past. Having a process that pushes changes through, does so fairly, follows up with the proper paper work and allows payment to flow down to the subcontractors will provide returns to you and your project that will be as valuable as they are productive.