Managing and Negotiating Change Orders

Presented byDaniel Williams, P.E.May 1, 2008

1. Discuss CO procedures before construction begins

2. Develop a potential change order (PCO) log and filing system

3. Distribute a PCO log at each progress meeting

4. Evaluate each PCO before making a recommendation

5. Never lower your standards of professionalism

6. Evaluate and resolve each PCO as fast as possible

7. Choose your battles wisely

Guidelines for Change Order (CO) Management

Construction Management

1. Quality Assurance

2. Contract Administration

3. Change Order Management

Definitions

Potential Change Order (PCO): An issue that could affect the cost or duration of a contract.

 Change Order (CO): A change to the cost or duration of a contract.  

Claim:

A potential change order.

Issues that initiate PCOs

Drawing error Specification error Contract document discrepancy Code violation Engineer-requested change Submittal review comment Request for information Owner-requested change Contractor-requested change Substitution request Permit agency request Permit requirement Easement requirement

Property owner request Utility conflict Value engineering proposal Changed site condition Safety Code change Code interpretation Tax increase or decrease Quantity increase or decrease Weather Material availability Labor availability

PCOs that correct the design

EX: $18K LS vs $31K T&M

Number of PCOs to Expect

$10M $50M

Tunnel 10 to 20 20 to 50

Reservoir 15 to 30 30 to 60

Pipeline 30 to 50 50 to 150

Pump Station 50 to 100 100 to 200

Treatment Plant 75 to 200 200 to 500

EX: Salem & Clearview

Time and Cost to Resolve PCOs

PCO

$1,000

Hours

3

Cost

$500

$10,000 8 $1,000

$25,000 16 $2,000

$100,000 40 $5,000

$1,000,000 160 $20,000

Percent (%) Change Orders to Expect

Pump Station – 1.5% to 5%

Reservoir – 1.5% to 5%

Treatment Plant – 1.5% to 5%

Pipeline – 5% to 10%

Tunnel – 10% to 30%

Paying for Change Orders

Lump Sum

Time and Materials

Unit Price

Meet and Discuss CO Procedures before Construction Begins

Proposed Agenda

• PCO log

• Number of PCOs / COs to expect

• Forms

• Recommendation and Owner approval process

• Lump sum vs. time and materials

• Quantity overruns on unit price bid items

• Markups on labor, materials, and equipment

• Contract documents governing PCO and CO procedures

• Liquidated damages

• Distribution of PCO log at weekly progress meetings 

#1

Develop and maintain a PCO logand Filing System

• Never remove an unresolved PCO from the PCO log

• Maintain a file for each PCO

• PCO file should document the event that initiated the PCO

• Correspondence regarding a PCO should reference the PCO number

• Develop and maintain a CO log and filing system

#2

EX: Hajek & Curran

Distribute a PCO log at each Progress Meeting

Include PCOs as agenda item

Distribute PCO log and review status of each outstanding PCO

Ask if there are there any PCOs that should be added to the log

#3

•

•

•

Evaluate each PCO before Making a Recommendation to the Owner

• Scope

• Cost

• Schedule impact

#4

EX: Valve StemEX: Math errorEX: T Bailey valve/labor costEX: Gas monitorsEX: Clearview Attorney & River Crossing PCOEX: Use baseline schedule, schedule of values, certified labor rates, equipment rates, RS Means

Never lower your standards of Professionalism

• Always treat the people with respect

• Let the other side have its day in court (i.e., listen)

• You do not have to come to an agreement at a PCO meeting

• Never infer that someone has deceived or lied

• Public works contracts are a marriage not a date

#5

Disagreements regarding PCOs are professional disagreementsnot personal disagreements

•

EX: Peter Falk (Columbo)EX: Ted & MunkdaleEX: Sheffield and LandisEX: Kenko “run off road”EX: Gaynor and CoxEX: Hajek and Alia

Evaluate and Resolve each PCOas Fast as Possible

The longer a PCO goes unresolved the more time everyone has to determine its impact on cost and schedule.

#6

Choose your Battles Wisely

You do not need to win every battle to win a war. 

#7

EXAMPLE – Choose your Battles Wisely

$29,270 Weak $12,695 $12,695

$28,168 Very Strong $14,093 $15,609

$10,454 Strong $7,200 $7,200

$5,272 Strong $2,909 $2,909

$996 Very Weak 0 $996

$74,718 $36,897 $37,893

Contractor’s Request

Strength of Contractor’s

Request

Engineer’s Proposal Agreement

$20K

$40K

$30K

$10K

$300K

$266K

$200K

$250K

$150K

$100K

$50K

28

16

9

4 3

0

10

7

29

13

36

1311

37

3

14

10

31 31

53

10

5

23

16

9

58

9

$171K

Contractor’s Proposal

Negotiated Change Order

EXAMPLE – Choose Your Battles Wisely

10

9

6 7

17 17

EXAMPLE – Pump Station Change Orders

$403,000

$288,000

$115,000

Contractor’sProposal

Agreement

Savings

Bid Amount -- $8.5M

Final Cost -- $8.8M

PCOs – 140

COs – 41

= 28.5%

Time to Resolve PCO

Low Animosity High

Co

st o

f C

O

EXAMPLE – Resolve PCOs as Fast as Possible

Owner’s Letter:

“I conclude that the information received was designed to deceive and mislead.

We have been led down a path of compromise and cooperation that has resulted in delivery of equipment that will not function as the

contract requires.

Given the now visible pattern of misinformation and misleading actions, the Contractor’s plan is rejected in its entirety!”

Contractor’s Response:

“While I would prefer to ignore this rejection letter in its entirety, to be silent would give the impression that it is accurate. The letter is full of inaccuracies and misinformation. It qualifies as “hate mail” rather than professional, accurate criticism.

We deserve compliments not criticism. Instead we received slanderous criticism.”

Example – Never infer that Someone has Lied