The "Change Order" or "CO" | Electrical Estimating

The "Change Order" or "CO"

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August 13, 2013

Are you working with a Change Order generated from your contract or a Request For Pricing?

Well, on most construction projects the CO is a normal part of the construction process. Each change order must be clearly understood by both the customer and the contractor to eliminate any future misunderstanding. Often enough the contractor must deal with difficulties in collecting on change orders due to questions that arise about the work as it was completed, incomplete information, signatures and relevance to the base contract.

Written contracts are an absolute requirement on any project. The contract will limit responsibility of the contractor to the work that the contractor is providing. The contract will also outline the parameters on the project and provide structure for coordination, management and changes.  Jobs are rarely completed exactly as originally planned.  This can occur due to a number of instances.  Whenever there is a deviation, amendment, expansion, variation, etc. to the original job as planned and specified in the contract a change order should be executed in writing to modify the original contract and add the changes as being part of the original contract and overall job.

From the start, never sign a contract that states there are no extras or changes allowed.  These types of contracts only lead to significant grief for the contractor. In some cases, this is an indicator that the owner does not have enough money to complete the project and puts the contractor at severe risk. The best planners and design teams will never be able to create a perfect project, and changes are inevitable.  Never use or anticipate that a change order can be used to gain competitively bid work. Most owners recognize these situations and make it significantly difficult to obtain change orders that will be overpriced. In some instances, the owner will look to third party services to qualify change orders and negotiate very hard. On the other side of the spectrum, the contractor should never give away work in hopes of receiving additional work in the future. This can result in financial ruin for the contractor, which is another subject altogether.

Supervision of construction projects includes the management of field change orders. These changes disrupt the plan that has been developed for the project. To properly executed change order, follow these steps:

  1. Document the name of the project, the date and the date the change occurred,
  2. Describe the change in detail and the work involved to incorporate the change into the project,
  3. Provide impact on project in time and man hours, as this will validate overtime or an extension of the overall project completion date,
  4. Detailed cost of change.

To elaborate, item b, this is a critical component as the reason for the change must be documented. The person who requested the changes or RFP document number (Request for Pricing). In addition a complete description of the work must be provided listing the location, quantity, existing conditions, demo, etc., the more specific the information the easier it will be to negotiate the cost for the change order.

Item c, many change orders will not impact the overall project but the few that do, the contractor must review the overall implications. This includes project delay not only to this contractor but the other trades affected as well as the general contractor and owner. This is where the case is made for overtime, delay costs and extending the original contract completion date. The better the detail here will allow consideration and ease cost negotiation.

Item d, when pricing a change order do a complete full-cost analysis, not a quick, about, around, the last time it cost, or best guess. By failing here the contractor can jeopardize the change order or worse create a financial crisis. Properly costing a change order is essential to the contractor as this will be the final stage of negotiating a change order cost. The contractor should provide a complete material list with published pricing and labor units from a published source such as NECA Labor Units® to ensure the cost negotiation is in the contractors favor. Creativity in detail here represents higher return.

Remember that change orders cost more money in labor and material. Don’t ballpark your quote. It’s better to submit a price after a couple of hours or the next day before submitting a quote that may be wrong. It is poor policy to wait until the contract is completed before billing the customer for changes and extras. At that time, details may not be as clear. Invoice and get paid for extras as soon as they are completed.

It is important that all construction personnel comply with company policies including change orders. The responsibility of training those employees how to sell, document and cost change orders is that of the contractor. A complete written company policy can be developed for handling change orders and should be adhered to on all jobs as there can be significant financial and management benefits to the contractor.

The contractor on occasion may find himself or herself having to negotiate a change order. Be sure that if the company is going to be forced into a negotiation that through good practice of documentation and proper signature you may need to fight less to gain more.

Happy CO's !!!


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