Change order language makes a difference

The term “change order” (CO) refers to the formal method by which contract documents for a construction project are modified. While generally used to add work to a project, a CO can be used to modify any item that is related to the construction process. It's fairly safe to say that COs universally are disliked and much maligned by everyone who is a part of the construction process, ...

By Leonard W. White, PE, RCDD, Senior Electrical Engineer, Stanford White, Raleigh, N.C. October 1, 2007

The term “change order” (CO) refers to the formal method by which contract documents for a construction project are modified. While generally used to add work to a project, a CO can be used to modify any item that is related to the construction process. It’s fairly safe to say that COs universally are disliked and much maligned by everyone who is a part of the construction process, with the possible exception of the contractor. It is unfortunate that COs have become synonymous with cost overruns, delays, and poor performance of the design team. A bit of thought about the construction process will reveal that the CO is a logical, cost-effective, and necessary component in the construction project delivery.

It has been said many times that “construction is not manufacturing.” The key ingredient of the manufacturing process—repetition—is missing from the construction process. It is rare that a construction design is erected more than one time, so there is no opportunity to refine the design by observation of problems encountered in earlier designs. It will be noted that in cases where the same design is erected in more than one location—a fast food restaurant, for example—the number of COs falls dramatically after the first use of the drawings.

In many projects, especially renovations, information critical to the design is available only after the demolition portion of the construction has begun. The construction contract must be issued before any work starts. After the contract for a project has been executed, the only way to change the design is through the CO process. The formal documents used by the American Institute of Architects (AIA) to accomplish project changes are the Change Order form (AIA Document G701) and the Construction Change Directive (AIA Document G714). While neither of these forms provide a place to enter the reason for the CO, many similar forms used by government agencies and private organizations require the design professional to enter a reason for the change. The information gathered by such agencies occasionally is used to evaluate the designer, so it is important to be certain that the correct cause be assigned to all change orders. While not all CO forms provide a place to accommodate them, the following are the most common causes for COs:

Designer request

Designer request COs originate when designers notice something during the construction process that should have been shown differently on the contract documents. There are many reasons for this type of CO, but the main reason is that the designer wants to improve the design. If this is the case, the CO will either reduce the project cost or add value at a relatively high value-to-cost ratio. A Designer request CO also can originate when the designer recognizes that a change is needed for any reason and is simply taking the initiative to issue the CO before someone else makes the request. In cases of this type, the Designer request designation is not really appropriate and obscures the true reason for the change.

Contractor request

A Contractor requested CO originates when the contractor wants the construction done differently from that shown on the contract documents. Reasons can be as simple as unavailability of building materials or time delays in obtaining specified materials, ease of construction, coordination with other trades, or cost reduction. Contractor requested COs rarely are used when any other category is appropriate, because most contractors do not want to take responsibility for design changes. Also, generally speaking, contractors are not bashful about pointing out some other reason for a CO.

Code conflict

A Code conflict CO arises when a building code or local ordinance changes between the time the project was designed and when construction begins. The fundamental reason for such conflicts is that the design process can overlap the code change cycle. In most jurisdictions the code that must be used for the construction is the one that was in effect at the time the construction permit was issued. Any project where the design process requires more than a few months is a candidate for a Code conflict CO. Most design professionals perform a code compliance review for major code changes immediately prior to release of a project for bidding, especially if the design has overlapped a code revision cycle.

Unfortunately, a delay in issuing contracts, with subsequent delay in obtaining construction permits, can cause the same problem. For the designer, the issue of Code conflict CO poses an unresolvable dilemma because some plan reviewers will not approve plans that are designed based on pending code changes that are not in effect at the time of the review. It should be noted that code conflicts, where the code was actually in effect at the time of the design, are called designer errors.

Inspector requirement

Occasionally a code inspection official who is acting on behalf of an authority having jurisdiction (AHJ) requires a change to be made on a project due to a perceived code problem or a personal preference. This is really a special category of the Code conflict category, in which the code section cited by the inspection official is interpreted differently by the inspector and the designer. The main element of the Inspector requirement category is controversy. The inspector may be right or wrong, but the change must be made because the project cannot be delayed while the code issue is being resolved. Changes of this type can be either major or minor; if a great deal of money is involved it is likely that the inspector’s position will be appealed to higher authorities. If the inspector’s position is confirmed, the CO falls into the Code conflict category. In general, projects that are being run on a very tight time schedule tend to accept more Inspector requirement COs than projects which are built in a more leisurely manner.

Owner request

An Owner requested CO is one where the owner alone desires the change. While the needs and requirements of an owner can certainly change during the design and construction process, the most common reason for an owner requested CO is that the owner becomes aware of what is actually being built only after construction has started. In this case, either the owner did not carefully review the contract documents during the design phase of the project, or did not fully understand what the drawings were portraying. Some owners are more familiar with construction drawings than others. Communication errors between the designer and owner can result in costly COs of this type. Part of the job of the design professional is to assist the owner with the contract document review process.

Usually, the only item of contention in an Owner requested CO is the cost of the change. If the changes are significant, an Owner requested CO can require additional design effort and project delay, all of which adds to the project bottom line.

Schedule change

A Schedule change CO generally comes from either the owner or the contractor. The reasons for such a CO can be the desire of the owner to accelerate the construction process or a response from the contractor to weather or other site conditions. In any case, the primary feature that distinguishes a Schedule change CO from other types is that the only thing in the contract being changed is the time of completion of the construction. At first glance schedule changes may seem simple, but the costs for such changes can be significant. If the schedule change extends the construction interval, the contractor typically is going to request additional money to cover increased costs for equipment, site expenses, insurance, etc. If the schedule change compresses the construction interval, the contractor may incur increased expenses due to overtime, additional manpower, and costs associated with expedited delivery of construction materials. The best way to avoid Schedule change COs is to carefully plan when the construction is needed and to cover reasonably expected events—such as bad weather—in the contract documents.

Concealed condition

Sometimes referred to as a “discovered condition,” this type of CO results when the instructions given to the contractor in the contract documents do not match what actually exists on the job site. The most common type of concealed condition is something that is covered by existing construction on a renovation type project. Except for the possibility of hidden underground items, Concealed condition COs are almost never seen on new construction.

The Concealed condition CO is probably the most common type; it’s also the most difficult to eliminate. In order to eliminate Concealed Condition COs in a renovation type project, the designer must know what is behind or within all floors, walls, and ceilings. In most cases an owner is unwilling to allow the type of demolition that would be required to obtain this information. Under these conditions the design professional uses the best information available: old drawings, information from building maintenance personnel, and experience gained from previous projects with similar construction features.

In some cases, when a concealed condition has been uncovered, it will be suggested that the design professional should have been aware of the problem and should have structured the contract documents to avoid the additional expenses. This situation is always difficult to resolve, because there are usually personalities as well as technical problems at question. There are certainly cases where designer errors have been classified as concealed conditions and vice versa.

Concealed condition COs tend to be expensive in terms of both time and money. For example, the discovery of a waste line concealed inside a wall that is to be demolished can result in a major expense to the project. In some cases discovery of a concealed condition can be so severe that the entire project is put into jeopardy. Obviously such potential for harm to the project requires the utmost vigilance of everyone on the design team.

Designer error

When most people think of COs, this is the type they have in mind. While it is obvious that a designer error occurs because a designer makes a mistake, it is not so obvious how this can occur. Errors can be as simple as typographical CAD mistakes or as complex as a conceptual errors involving the fundamental requirements of the project. In the middle are errors that result from a misunderstanding by the designer about the exact conditions or requirements of the construction. There is a wide range of costs for designer errors, from minor to very expensive. It is safe to say that Designer error COs are dreaded by every designer and are a major reason that design professionals carry professional liability insurance.

No easy answers

There are no easy answers to the problem of COs on construction projects. There are, however, a few rules for both owners and designers that will reduce the number of errors and minimize the costs of those that do occur:

Allow a reasonable amount of time for the design process. Projects that have compressed design and construction schedules are those most likely to have significant COs. Look carefully at the elements that are driving an overly ambitious design or construction schedule. Often it will be observed that the elements driving the fast pace of a project will incur no liability if there are design errors or construction problems.

Communication between owners, users, and designers during the design process is essential to minimize COs. After the start of construction, be sure to keep the contractor involved in the communications loop.

Encourage review, especially designer peer review, of drawings and other project documents. A good rule of thumb is to provide review drawings to anyone who will take the time to look at them and to make comments. It is much more likely that errors will be noticed by someone who is not closely involved with the project rather than someone who is very close to the design.

Pay attention to the construction process; catch errors before they become major problems. This item is especially important as it will tend to limit the scope of the CO that do occur.

Become familiar with the CO process. Each project has specific procedures for COs; failing to follow procedures can increase project costs and cause needless delays.

Insist that the true reason for the CO is entered on the CO form. Failure to pay attention to this small detail may expose the designer to liability or cause an owner to bar the designer from future projects.

Review and track COs in terms of the overall project. COs are by necessity generated in haste; be sure that an ill conceived CO will not require additional changes at a later time. Also, it’s a good idea to be sure that the item being changed has not already been previously incorporated into the project by addendum or other construction change directives.

It is probably not possible to completely eliminate COs from construction projects. Even if it were, the time and expense necessary to prepare “perfect” plans and specifications cannot be justified in terms of the overall cost to a project. The present industry standard of care in the preparation of contract documents represents a good balance between accuracy and cost of production. Although certainly not perfect, the dreaded change order is the most cost-effective way to deal with the imperfect world of construction.