Changes to the Contract Price and Time
Almost every construction project will inevitably require a change to the originally agreed upon price and time. From deficiencies in the contract documents and drawings, to unforeseen circumstances on the construction site, to mandates from authorities having jurisdiction – there are plenty of things that can (and will) result in extras or credits to the contract.
The Change Process Visualized
The flowchart to the right (click for a printable PDF) starts with the 3 most common actions that will kick-off the change process. Each kick-off action is followed by a series of intermediate actions and decision points that will ultimately lead to either:
- a change to the Contract Price and Time, or
- A clarification or instruction that does not affect the Contract Price or Time, or
- a rejection of the kick-off action or resultant quote.
▬ Rectangular elements represent action steps that will result in further actions or decisions.
◆ Diamond-shaped elements represent decision points. The question posed at each decision point will require a simple Yes/No answer.
● Circular elements represent final action steps. When you reach a circular element, you have finished the process for the kick-off action.
Walking the Flowchart
Start at any kick-off action (A, B, or C) and follow the arrows through the connecting intermediate actions and decision points until you get to a final action. You probably already do this every day, even if you don’t think about it quite so algorithmically.
I’ll assume you are an Architect. You can substitute Engineer, Interior Designer, Contract Administrator, or the generic term “Consultant” for “Architect” anywhere below and the message will be the same.
The Change Process in a Nutshell
Regardless of how a change request kicks off, there is a basic process that will be followed.
STEP 1 – Will the issue affect the Contract Price or Time?
If YES, then proceed to the next step.
If NO, then you can respond with a clarification for answers that can be found in the existing contract documents. For more complex changes that require new information that is not already found in the contract documents, you can respond with an Architectural Instruction. Skip to Step 4.
STEP 2 – Is There an Urgent Need to Proceed with the Work?
If YES, then you should issue a Change Directive to authorize the Builder to begin the Work immediately.
If NO, then you should respond to the Builder with a Change Notice. Work will not proceed until the Builder provides a quote for the Work, and it has been approved by Owner. This approval will formally be recorded by issuing a Change Order to the Builder.
When should a Change Directive be issued?
Imagine that a sub-contractor needs to stay on for an extra few hours. If you wait for an approved Change Order, they’ll have to be brought back another day at a greater expense. Since their hourly rate is known, and it is cheaper to keep them onsite to finish the work, a Change Directive should be issued to authorize this.
STEP 3 – Has the Owner Approved the Builder’s Quote, or Have you Received an Invoice from the Builder as a Result of Work Authorized by an Change Directive?
If YES, then you should issue a Change Order to adjust the Contract Price and Time. If you issued a Change Notice in the previous step, then the Builder will now be authorized to perform the Work required by the Change.
If NO, provided that the Change has not been initiated due to a legal requirement – then it will be your job to enter negotiations with the Builder for a revised quote. If a revised quote can be provided that is agreeable to all parties, then you should issue a Change Order as discussed above. If no agreement can be reached, then you will issue a rejection letter to the Builder, and the work will not proceed.
STEP 4 – All Done
That’s it! When you reach this point, the change process for any single issue is complete, and the Work has either been formally approved or rejected.
Understanding the Impact of Changes to the Contract
Changes to the contract can happen for a variety of reasons. Perhaps the Owner requested different finishes, or an authority having jurisdiction required changes due to violations. Perhaps unforeseen site conditions have forced an expensive change of schedule. These types of events will be brought to your attention, and it will be your job to evaluate them and enter discussions about the scope and impact of the issue.
It is critically important to keep a log of the reason and initiating party behind every change. This log can cover your back when your client demands to know why there are cost overruns. It’s a lot easier to have that conversation when you can demonstrate that the extras are due to factors outside your purview.
Better Change Management
If you use Microsoft Office to log and track changes to your construction projects, you’re going to have a bad time. You probably won’t be surprised that I’m recommending a purpose-built database-driven software solution instead – after all, we offer one. What might surprise you is that even if you don’t see a fit with our solution, I recommend taking a look at our competitors offerings.
Relying on Microsoft Office will makes it difficult to understand the relationship between documents and events, and the reasons why the contract is being changed. You may balk at the idea of paying for more software when you already have Office, but this is a false economy. Performing your CCA tasks in Office is the bare minimum in terms of efficiency, and the only thing worse would be to use pen and paper. Purpose-built CCA solutions are highly optimized to the tasks at hand, and using one is the only way to get ahead of the curve. So have a look around the web and find a CCA solution that works for you – you won’t regret it.
The only thing worse than using Microsoft Office for CCA would be to use a pen and paper.