Embracing Change (orders)

David O. Hunt Jr.

June 2007

Wall and ceiling contractors say lower quality plan drawings are causing a spike in the number of change orders, which strains relations on a project and leads to a day when the building owner faces a higher than expected construction cost.

Steve Grabar, president of Expert Drywall Systems in Campbell, Calif., said change orders for his company start as a change request from the GC. Grabar said his company quickly determines if there is an impact from a change request. If so, his firm quickly submits a change order. Grabar said Expert Drywall considers time and materials, lump sum or unit price methods of responding to change requests. He most frequently responds using the time and materials method, and produces an extra work order for the GC. Grabar said he also sometimes responds using the lump sum payment method, submitting a change quote.

It is critical for his company to respond quickly to a change request, so Grabar’s firm normally follows up within 10 days. From a legal standpoint, Grabar said a contractor could decide not to pay for a change order if it is not completed correctly. Therefore, Grabar held training sessions on writing up extra work orders for his 30 supervisors. In the beginning, he said, none of his supervisors wrote change orders correctly, though several were close. That problem, he said, no longer exists.

Grabar said some architects have grossly underestimated the amount of money it will take to build a project. That, he said, greatly increases the number of change orders on a job. Nevertheless, Grabar said, if an architect secures a job, they will get 20 percent of their total up front, giving them a win, whether the project is completed on time and on budget or not.

The building owner’s only protection, as he sees it, is the low bid process, which should disclose the true cost from a set of reputable, competing bidders.

Grabar also emphasized how important it is to stay on top of change orders.

"Timing is everything with change orders,” Grabar said. "It is important to keep them current. It just looks better when you’re submitting a $4,000 change order for one week, rather than $20,000 in change orders for a five-week period.”

All in all, Grabar said change orders have not posed much of a problem for his firm. He and other wall contractors usually complete a walk-through before submitting a bid as part of the complex work his union employees handle on a regular basis. Grabar said he has been learning his family’s business since he was 5 years old, and that he uses this background to assess whether the drawings he sees will work or not. If they won’t work, he points out the failures to the GC, and submits a bid accordingly.

Finishing the Architect’s Job
One contractor, who asked not to be named, said his firm completes internal and external work on many large commercial and public projects. He said change orders, "have become a cumbersome but important part of the business.”

When GCs send change requests, this wall and ceiling contractor said his firm quickly submits a signed change order. He said his firm also completes the work based on a unit price, time and material or lump sum basis. Most often, the firm utilizes a lump sum method for reimbursement.

He estimated that change orders make up 10 percent of the value of a typical contract.

The contractor said he is concerned about the growing impact of change orders on his business. He believes the growing number of change orders is creating a new reality under which change orders are actually covering errors and omissions in bid day drawings. "In most cases, these are not truly changes,” he said. "What we’re doing is completing the drawings. We are pricing what should have been included on bid day,” he said.

To add insult to injury, the contractor said he must review rolls and rolls of changes, many of which do not pertain to his firm. He said he must evaluate each change, creating a loss of productivity. Further, his firm is limited on most contracts to 15 percent overhead and 5 percent profit margin for a change—a much lower figure than if the item had been included as part of the original bid scope.

The contractor went on the say that the higher number of changes involved in projects doesn’t help the GC, either. He said a high number of change orders creates a greater than expected tab and an extended schedule, which eventually strains relations between the owner and GC.

That Age-Old Problem: Getting Paid
Paula Yates, secretary/treasurer of Culberson Drywall, Mountain View, Calif., said her firm’s biggest problem with change orders centers on the time it takes to get the payment from the GC for implementing the change.

"Our biggest complaint with change orders is the timing of the payment,” Yates said.

Yates said it can take up to four to six months to get back the reimbursement from a signed change. In the meantime, she said, her firm is facing its own costs.

Kevin Biddle, president of Mader Construction of Elma, N.Y., agreed that the quality of plan drawings has fallen off in the recent years. Biddle said when his firm is working with a GC for the first time, they push for quick reimbursement on change orders. If the GC is slow, Mader tells the contractor they will not perform any more added work. That strategy, he said, normally speeds up the payment for change orders, especially if his firm doesn’t have an established relationship with the GC.

Biddle also said project managers with his firm are encouraged to develop good working relationships with the GC in order to resolve disputes as quickly and amicably as possible. "It is important to develop a good relationship with the GC so any disputes over issues like change orders are worked out easily.”

Let’s Hug It Out
Joseph Feldner, president and CEO of McNulty Brothers Company in Chicago, agreed that the best defense against problems with change orders is to maintain an open dialogue with the GC.

"Maintain honesty,” Feldner said. "You’ve got to be straight up. And give the GC what you should give him.”

Feldner added that he is able to look himself in the mirror each night, and said he feels good about his work. He said it is critical in business to maintain a high level of integrity.

Scott Cavanaugh, general manager of Kenco Drywall, Layton, Utah, said his firm has gotten into a few battles over change orders, but generally sees a silver lining in them.

"I like getting the added revenue on an existing contract,” he said. Cavanaugh sees less risk in pricing additional work to an existing contract. He said if he had to account for the additional work when he originally bid the job, it would only increase the risk of not getting the project in the first place.

Cavanaugh also said his firm mostly submits change orders on a time and materials basis.

Looking at the change order issue from a GC’s perspective, Cavanaugh said he believes the 5 percent cap on profit margin is meant to limit the chance of a large claim being filed by a subcontractor at the end of a project. Therefore, he takes no issue with this.

However, Cavanaugh agreed that the increase in the number of changes orders reflects a reduction in the overall quality of plan drawings. Therein lies a problem, he said. Cavanaugh said he believes engineers are starting to combat the quality issue by passing some of the risk to subcontractors. He sees more and more engineers requiring his firm to hire an engineer to complete drawings for their part of the project. Cavanaugh sees this trend continuing, but said the building owners stand to lose the most on this because they are the ones who bear the additional cost.

Still, one contractor took no issue at all with change orders. Glen Moore of Builder’s Plastering, Alta Loma, Calif., said he maintains good working relationships with a list of GCs selected from his 25 years in business.

"I rarely have an issue with change orders,” Moore said.

Moore believes the quality of plans on the projects he completes is very good. He said if he sees an item that’s missing, he builds it into his bid, in consultation with the GC.

About the Author
David O. Hunt Jr. is a free-lance writer/photographer based in Hershey, Pa.