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Time for a Change (Order)?

Standing Up for Yourself in the Field

It’s a week after closeout, you’re hunched over your final job-cost report, and something’s just not adding up. The profit line item is less than it should be, and the man-hours for the job are way over what you’d estimated. This is odd because, after so many years in business, your labor numbers are always pretty solid. You look back on the job itself but don’t recall any remarkable hiccups out on the site. Something’s just not right.

You first suspect (and hope for) a clerical error and meticulously begin examining the report in minute detail. Sure enough, rows and columns add up and the entries match the timecards. Still baffled, you check the original estimate sheets against the cost report, but except for a little extra material, one or two general requirement overages and the man-hour overage already discussed, everything seems to fall into place. So why so many man-hours?

You reflect once again back on the job, straining to recall any singular examples of waste or miscarriage that would explain the added hours. You do recount a handful of seemingly incidental events—small changes (or so you thought at the time) that may lead to your answer, so decide to bring in the job foreman the next day to talk it over. After some discussion, it becomes clear that those ‘minor’ changes may not have been so minor after all.

“I Like It Better Over There …“
Together you make a list. There were a handful of wall locations that were moved. There was that fascia detail that had to be reworked to fit, a few doors had to be rebored, some window heights changed, eaves extended and more. Now you’re seeing it.

The bad news? Taken independently, none of these changes seemed disruptive enough to warrant asking for extra compensation at the time. No, not one change order. You do some math, assigning labor and material costs to these culprits, and in the end you gave away $6,200 in “free” changes to the owner.

Of course, you do remember vague conversations and intimations by the architect and owner that “you’d be taken care of” regarding these items, but now that the job is over, the owner is on a yacht in the Caribbean and the architect is battling a severe case of selective memory. So you’re stuck again, you’re burnt again, and once again, it’s your own fault for not being more diligent in asking for a change order (or, as it’s formally known, a contract modification; we’ll be using the two terms interchangeably throughout this piece) when you had the chance.

The Contract Modification (Change Order)
What is a contract modification? Well, let’s say a change pops up in the field that warrants consideration.

Here’s what should happen next:

First, that request for change is forwarded to the architect for processing. (We are assuming that the architect is acting as the agent for the owner here.)

Then the architect sends a Request for Proposal for Contract Modification memorandum to the general contractor on the job.

The GC then contacts subcontractors and suppliers affected by the change for their pricing.

The GC receives this internal pricing back from subs/suppliers, adds in his own in-house costs and sends the memorandum back to the architect/engineer for approval.

After that, the A/E (often along with the owner) approves or rejects the proposal.

If accepted, the change in the field is given a green light and the contract modification is made to the original contract between the GC and client. Internally, if a subcontractor was involved in the change/pricing, that contract would be modified between the GC and subcontractor also.

If the proposal is rejected, the whole thing starts over, or the request for change is dropped entirely and everything reverts back to the original documents and contract.

Types of Changes
That’s how it should work. Of course, reality may say otherwise. I worked in the building industry for 43 years (with the last 20 years spent as a commercial construction estimator/project manager) and in that time I observed that it is truly rare that any building project is completed without some changes. (In fact, I don’t think I’ve ever seen it.) What kind of changes are we talking about? Well, for instance, there could be unanticipated, unforeseen or unknown (often subterranean) site conditions such as higher water tables than anticipated (even with a soils report), unforeseen upgrades to site utility services, rock/bad soil excavation not brought out in the soils report, and even hazardous materials regarding separate response and remediation. There could even be an unknown old building buried underneath your excavation that no one knew about (this happened to me twice in my career).

Alteration due to code, covenant, ordinance or other governing body (new laws) interpretation that wasn’t addressed during the design phase could also lead to changes, as can errors on the architectural plans/specifications and/or poorly defined details (very common).

Or, sometimes the owner or architect simply has a change of heart (and the money to pay for) over a particular detail and wants it changed. I can tell you from experience that this happens much more than you probably think.

Similar to above, but this time it’s the owner who did not understand the architect’s original intent and now once he/she sees it in place, doesn’t like it and wants it changed. Again, for some reason you don’t hear about this one much, but I’ve seen it play out numerous times over the years.

And there could be a multitude of other reasons—keeping in mind that the common denominator of legitimate change orders is that the change in question was wholly unanticipated by all of the parties. A contractor who simply blows his bid by missing something at bid time (that was clearly defined as being in his scope of work) generally does not have justification to ask for additional compensation via a change order.

Intestinal Fortitude
So at this point you’re probably thinking this all seems pretty straightforward, pretty cut and dry. If there’s a legitimate error or oversight, or if the project owner simply wants the change to happen, the contractor is allowed to ask for a contract modification. Right? Well, yes and no.

Sometimes it all depends on who is defining “legitimate.” Very often it isn’t clear whose fault an error is—or if indeed it’s an error at all, and that’s when things can get a little thorny. I think it’s safe to say if you’re a GC about to ask for a change order, you are going to encounter some resistance.

Another thing that fogs up the mirror a bit is that very often these changes are minor in nature—maybe 20 extra minutes on a detail or perhaps an additional man-hour to make a particular section line up. Here’s where there’s an all-too-human temptation by the contractor to “throw the change in” in the name of public relations or (more often than not) to simply avoid the lengthy contract modification process described above. Frankly, I’ve seen both occur with some regularity.

But this is exactly what you and your crew cannot do. This is where it’s important that everyone on your building team thinks like a businessperson. You owe it to your company and the employees and their families it feeds for every legitimate dollar that’s rightfully due you on the job site—even if it means alienating a client or enduring some paperwork. An error on the plans is not your fault. Generally—unless there’s very strict language in the specifications or your contract to the contrary, in which case, what were you doing bidding the job in the first place?—you are well within your rights to request additional remuneration should a legitimate change arise.

New Discipline
But this brings up another subject: For some people, this simple exercise of asking for additional compensation comes quite hard. I was one of those people. When I first started as a project manager, I was so intimidated by older, wizened construction veterans that I found it difficult, if not nearly impossible, to ask for a change order. I was hesitant and uncomfortable when conflict arose. Confrontation didn’t come natural to me.But all it took was to get beaten up few times (figuratively of

course) over a few cost reports and a handful of reprimands from my own bosses for me to develop the thicker skin I needed. I had to come to grips that we did not work in Wonderland, and if I was going to keep my job and do it correctly, I was going to need to harden my shell in regard to standing up for my (company’s) rights out in the field—including asking for each and every legitimate change order coming to us. It’s simply good business.

But some projects weren’t so good, especially those projects spawning from the abomination we all know as competitive bid. CB virtually ensures that every action occurring from the moment the architect pulls the plan off the plotter until the final check on the punchlist is adversarial. CB creates a gladiatorial atmosphere wherein once the clock sounds, the project turns into one great big “money-grab” between the project owner, general contractor, the architect/engineers, the subcontractors and the suppliers. In these environments, getting a change order approved is like pulling hen’s teeth.

Everyone on the Staff Is a Business Owner
In such a mercenary world, it’s no wonder it can sometimes be difficult (if not impossible) to negotiate a change order, but once again, the effort must be made. It’s your job, and like any skill, it takes time and commitment, focus and discipline to master it. In short, it takes guts—not just yours but your crew too. They too must understand that it is not OK for the owner to be out on the site negotiating changes with the workers directly (this happens a lot also).

Your workers should be made aware that when this type of situation does arise, it’s incumbent upon them to go to their foreman or project manager with the request for change so it can be processed correctly. Now you can likely see a problem already with the contract modification process. Being so thorough, it’s generally not going to happen in an instant. In cases where there is simply no time to jump through all the hoops, there is an alternative. It’s known as a field authorization.

Field Authorizations
When schedule is critical or when pricing can’t realistically be put together without inhibiting schedule, it may be more efficient and practical for all involved to incorporate an unpriced version of a contract modification known as a “field authorization for change” (or similar wording). This gives the contractor the go-ahead to proceed with the change in question and implies a tacit understanding by the owner, architect and contractor to negotiate a mutually fair settlement later on when the parties can get together.

Of course, this type of agreement can leave the situation a bit open-ended, but sometimes it’s the only way to proceed. Call it the “fast track” of change orders.

Field authorizations should be conducted only if they are absolutely necessary. Otherwise, the parties should go through the conventional contract modification process.

Thoughts at Large
Here are some other things to consider when dealing with contract modifications.

Without quelling enthusiasm, try to make your workers cognizant of not creating changes themselves, often through what they perceive as “a better way to build it.” I know this one sounds a bit strange, but I saw it happen all the time—and especially with my older crewmen. There are a lot of opinions out there, and in construction there are often a lot of different (but perfectly acceptable) ways to do something right. If the original detail will suffice to deliver a suitable outcome—leave it alone!

Get everything that is legitimately coming to you, but shy away from petty change requests such as asking for administrative costs to process change orders, extra minor phone/utility charges, minor cleaning of someone else’s mess to access your work or any other “housekeeping” things of the sort. Items such as these fall into the “cost of doing business” category. There’s a line between legitimate, billable contract modification and everyday business overhead that should not be crossed. Besides, you won’t get paid anyway, and all you’ve really succeeded in doing is alienating the GC or client, thereby making it more difficult come your next change negotiation.

Make sure all your field people (who apply) have the necessary forms and documents at their ready disposal when changes occur. If a superintendent demands a change on the fly, it can then be written up by your crew foreman and signed by the superintendent.

When there simply isn’t time/means to price the changes as fast as they’re occurring, you’re best bet may be to structure the changes around a T&M (time and material) or hourly fees. Then be forthright and fair when it comes time to bill. This sort of honesty and fair play can often win repeat customers.

Back at the office, you need to track contract modifications individually by job, classifying each with some sort of cost code and type (whatever works with your accounting system), and break out your actual costs into (generally) labor, material, subcontract and equipment. Do it as they come in. Don’t wait until the job is completed or it may snowball on you.

Handling changes and contract modifications efficiently comes only through a dedicated, attentive and involved effort on the part of everyone in the chain of command. By implementing some or all of the suggestions in this piece—and by having the courage to ask for what it rightfully yours—you will be well on your way to higher profit margins and greater revenue for your firm.

Good luck!

S.S. Saucerman is a retired commercial construction estimator and project manager who worked for a large upper-Midwest general contractor. He is also an established freelance writer and author whose work spans 20 years.

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