Learning Objectives: What do I need to know?
After this section, students should be able to do the following:
- Define scope of work and describe how it is developed.
- Describe the Change Order Request and Approval process.
- Explain the timeline from COR to start of CO work.
- List some common causes of COs.
- Define additive, credit, and zero dollar COs.
Before starting this section, students should be familiar with the concepts of contracts, scope of work, and the relationships between Owner and Contractor in the most common Project Delivery Methods (Design-Bid-Build, Design-Build, Multi Prime, and CM at Risk).
Scope of Work
Each contractual relationship is defined by the scope of work covered by the agreement. A Contractor has a scope of work to perform in their service to the Owner, a Subcontractor has a scope of work to perform in their service to the Contractor, and so on. In construction the Scope of Work is the description of the work to be performed.
The scope of work should be linked to specific construction drawings and specifications or other detailed documentation of the work. A good scope of work should be clear. It should transparently describe the duties of the Contractor and and work that is excluded.
A Change Order (CO) is a change in the scope of work in a construction contract. An approved Change Order Request (finalized Change Order) will incorporate requested/required changes in the contract work, as well as associated costs and schedule changes, into an agreement.
May cover changes in:
A CO requires approval. If the CO presents additional costs to the project Owner (as opposed to changing an agreement between a Contractor and Subcontractor that does not impact the Owner), CO approval typically comes from the Owner, often with review and comment by the Architect or design team.
Change Order Requests
The change order process may be initiated when an owner or architect wants something changed, a question comes up, a clarification is issued in the forms or revised drawings, specifications, or sketches, or the conditions of the project change significantly in a way that is outside of the agreed conditions.
These Change Order Requests (CORs) may derive from:
- Owner or design team requests
- Reassignment of scope
- Unforeseen conditions
- Design omissions
- Schedule changes
- Approval of alternates (alternates given during bidding)
- Labor or material availability
Once the change is identified, a proposal is presented, reviewed for accuracy (is the scope of the change correct) and appropriateness (is the work covered under the existing agreement or not), and approved or rejected.
Chris Hendrickson of Carnegie Melon University (1998) calls payment for change orders “one of the most contentious issues” in construction contracts, continuing:
The owner and its engineer should have an appreciation of the effects of changes for specific items of work and negotiate with the contractor on the identifiable cost of such items. The owner should require the contractor to submit the price quotation within a certain period of time after the issuance of a change order and to assess whether the change order may cause delay damages. If the contract does not contain specific provisions on cost disclosures for evaluating change order costs, it will be difficult to negotiate payments for change orders and claim settlements later.
Read more here: Project Management for Construction
Listen to the following podcast: Key Strategies for Successful Change Management and be prepared to discuss the strategies mentioned.
May be positive, negative, or zero sum.
A credit change order (or deduct change order) covers the deletion of scope from a contract.
An additive change order (most often just referred to as a change order or an “add”) covers the addition of scope to a contract.
A no dollar change order covers a change in scope that will be performed for no additional cost and no credit.
Many change orders represent a combination of the three types. For example, a change in the shape of a bathroom (prior to material purchase or installation) may result in the reduction of material and labor required for framing, and addition in material and labor to increase piping, and no increase in cost to cover the change in layout to tiling and fixtures.
Documenting this kind of mixed change order would require a contractor to represent the costs associated with the original contract layout, the costs associated with the new layout, and the difference between the two costs. The total change order value may end up being positive, negative, or neutral depending on the net change.
$5,000 the original layout cost
$7,000 the new layout cost
$2,000 the total change order cost
In this case, if the change order is approved, the owner would pay the contractor the full contract amount and, in addition, $2,000 to increase the value of the work performed.
$5,000 the original layout cost
$3,000 the new layout cost
-$2,000 the total change order cost (a credit to the owner)
In this case, if the change order is approved, the owner would pay the contractor the full contract amount minus $2,000 to reflect the decreased value of the work performed.
Formats vary on change order proposals, but they should always include the following:
- Company identification
- Project identification
- Reference to request for change in work
- Description of change in work
- Value of change in work
- The difference between value of added work and deleted work, if appropriate
- Appropriate backup / supporting documents
Review the following Skanska Change Order from 2011 and notice the kinds of information it contains and the way it is presented:
Review the following AECOM Change Order from 2016 and notice the kinds of information it contains and the way it is presented:
Review the following Turner Change Order from 2007 and notice the kinds of information it contains and the way it is presented:
How are they similar? Different? Are they clear and easy to read? Would you change anything to make them more legible?