In construction, changes are inevitable. These changes can impact the scope, cost, or schedule and can occur at any point in the project and affect any or all stakeholders. If we don’t have a process for dealing with these changes in a timely manner and documenting them, we inevitably expose our company to risk — loss of profits, schedule delays, and impacts to stakeholder relationships. A pattern of poor change management over time can result in stunting the ability for a general contractor to be profitable, and in turn affect the ability to grow and win repeat or new work through positive reviews and referrals.
Project change orders can manifest in many different forms including but not limited to: owner requests, existing or unforeseen field conditions, scope gaps, design errors, building regulation updates, and material modifications. Ideally, these changes are kept at a minimum but construction is never predictable and the reality is, change is inescapable when delivering complex projects. Our only control is our ability to effectively manage these changes to reach the overall goal of profitability and company growth.
Throughout this guide, you will learn the importance of implementing an effective change management process and why it’s important to your construction projects. We’ll also talk through the pivotal factors to consider in generating a standard procedure (SOP) and a rough outline of what steps to include to begin building the path to profitability.
- A clear, standardized change order process is crucial to protect your company against risk.
- Accurate cost estimation and detailed scope descriptions in your change orders will help expedite the process and avoid disputes down the road.
- Take the time to thoroughly document every step of the change order process so you can protect yourself against post-project claims and litigation.
In this Article
- The Construction Change Order Process
- Step 1: Define Clear Change Order Procedures
- Step 2: Standardize Documentation
- Step 3: Perform Accurate Cost Estimation
- Step 4: Outline Detailed Scope Descriptions
- Step 5: Execute Timely Communication
- Step 6: Streamline Review and Approvals
- Step 7: Document Everything
- What goes wrong without a good process for change orders?
The Construction Change Order Process
An effective change order process should be simple to implement and easy to follow for the entire project team. The more standard and clear the process is, the easier it will be to mitigate the risk of cost overruns, delays, rework, etc, and to replicate it on multiple projects across the entire company. The key is to create a plan that is general enough to duplicate, but specific enough to keep all stakeholders accountable and aware of their responsibilities.
Step 1: Define Clear Change Order Procedures
Before anything else, you need to establish clear procedures for initiating, reviewing, and approaching the change order process. This includes identifying the stakeholders that are involved at every stage and who will ultimately drive accountability for stakeholder participation. This outline should not only allow all team members to understand their roles and responsibilities in the process clearly, but also clearly communicate where relevant information can be accessed. Consider including a flow chart highlighting the flow of information through the process, for example, having first been recognized by the field team, a project manager is to document the change in writing, compile all pricing and backup for the change, submit to the client for approval, and release work to all subcontractors once approved.
Step 2: Standardize Documentation
The key to replicating this process across the business is generating standardized templates for change order requests, proposals, and logs. This makes it easy to plug and play relevant information and makes it harder to miss information skip steps. These templates should include essential information like project details, scope changes, cost estimates, timelines, backup, and legalities. Standardization of these documents will help reduce errors and streamline the review and approval process. Here are a few examples:
- Change request form: An initial document used to propose a change typically filled out by a client or subcontractor. It should clearly outline the reason for the change and all relevant details associated. Additionally, it should include information about cost changes or schedule delays and any other potential impacts to the project.
- Change order proposal: A document created by the GC to effectively communicate proposed changes to the project contract. This includes changes to the budget, project scope, or schedule, and upon approval from the client and general contractor, results in a legal change to contractual obligations.
- Change order log: A one-stop-shop for all relevant and up to date information on where a change order is in its lifecycle. This log should include key information regarding the change like deadlines, responsible parties, and ball-in-court. Information tracking methods like this are imperative to driving accountability throughout the project team.
Step 3: Perform Accurate Cost Estimation
Before submitting a change order, conduct a thorough cost analysis. Consider material costs, labor, equipment, and any potential delays or disruptions to the project schedule. This cost estimation is not limited to the costs of your subcontractors and the quotes they submit for potential impact, but also could include internal cost changes that might affect the budget or potential profits. For example, adding in supervision costs associated with added scope can help bridge the gap to profitability, as well as including the addition of markups and overhead costs. Accurate estimates help you negotiate fair pricing, avoid unexpected expenses and can help increase your profit margins with appropriately priced markups.
Step 4: Outline Detailed Scope Descriptions
By clearly defining the scope of work for each change order, you’re more easily able to communicate changes and reduce the chances of misinterpretation and disputes. These scope descriptions should include specifics like materials, dimensions, sketches, and other relevant details. It should also be clear who will be completing each portion of the scope of work and the timeline associated with when these changes are to take place.
Step 5: Execute Timely Communication
Effective communication is crucial to making sure the change order does not slip through the cracks and is executed in a timely manner. The methods and channels you use for communication should be uniform because it keeps information related to different aspects of the process organized and easily accessible. Whether it’s through email, chat, or other software, ensure the information is easy to access clients, subcontractors, and team members when they need it.
Step 6: Streamline Review and Approvals
This step poses the most risk to general contractors because if it moves too slow, you’re in danger of needing to front costs to keep the project moving. A well-defined review and approval process lets you quickly release work and avoid that risk. A workflow outlining key stakeholders and their individual responsibilities in the approval process will streamline the process.
Step 7: Document Everything
Maintaining meticulous records throughout the change order process could make or break your ability to recover costs. When it comes to change order disputes or even litigation, documenting how and why decisions on changes were made will go a long way in protecting yourself.. This includes generating standard operating procedures for how these changes are kept track of as they arise in the field, by request, in meetings, through email, etc. Decisions happen quickly in construction and by monitoring and tracking any changes in decision making, it will be much easier to justify evolving costs.
👉🏼 Download an editable change order process that you can post up in your office.
What Goes Wrong Without a Good Process for Change Orders?
Why should you take the time to implement an effective process for change management? Change orders are one of your biggest risks because failure to document, execute or get a response to the changes in a timely manner can result not only in loss of profits, but also in possible delays in schedule, poor quality of work, impacted relationships with clients, and ultimately a loss in ability to gain repeat work to grow as a company. Can you relate to any of the following?
1. Impacts to the project budget – Sudden changes are made to the scope of work that result in cost implications. Without proper documentation, changes can slip through the cracks and these cost impacts can cause a delayed cost overrun on the budget. You may be unable to recover these costs from the client after the work has already been put in place.
2. Extensions of the project schedule – We all know work does not get completed on site without documented approvals. ubcontractors are very careful about how they expose themselves to risk and most will not proceed until written approval is achieved. This means that until approval is met, work halts on site and the schedule is at risk of delay.
3. Quality control issues – Changes are not documented or communicated effectively, resulting in confusion or misunderstandings and rework. ushed work can result in poor quality as scope changes are rushed to completion after being improperly managed.
4. Post-project disputes and claims – Poorly documenting changes and unclear communication can cause the stakeholder to misunderstand the changes taking place, resulting in potential disputes and conflict.
I’ve been on countless projects where poor change management resulted in all of those issues. For example, the last data center project I worked on was knee deep in scope changes without proper client approval. We were executing on change orders totaling over 200k just to keep the project moving and to meet our schedule guidelines. We ended up having so many disputes with the client that they halted payment for two months, causing us to be even more at risk with the work we were continuing to put in place. On top of that, we could not pay our subs, causing a chain reaction of animosity and difficulty in getting them on site. At the end of the project, our client relationship was destroyed, as well as the relationships with our subs, making it very difficult to use them for future work, and impacting our ability to stay profitable on the project or gain repeat work with a huge client.
In the construction industry, where changes are unpredictable but inevitable, it’s more important than ever to have an effective and streamlined plan of action to deploy when changes inevitably happen. Because of the frequency of these rapid changes, the ability to respond and adapt will continue to be a differentiator for business across all industries, but especially in construction.
We all want to stay competitive and maintain profitability— it’s the ultimate measure of success. The only way to accomplish both of these objectives is to protect your company and profit margins from avoidable and controllable risk. Effective change management is key to unlocking the ability to grow as a company and streamline the way business is conducted. When you apply these standard procedures company-wide and replicate across every project, you are able to establish long term business sustainability and success.
The CrewCost Team consists of men and women who have worked in the construction industry as project managers, general contractors, sub contractors and more. They share their decades of experience on our blog as a way to help other contractors grow healthier and more profitable businesses.