Change Orders: Maximizing Benefits for Owners

Owners involved in ongoing construction projects are virtually unanimous in recognizing the need to minimize the number and amount of change orders as a way to keep the project costs within budget. In viewing change orders with only this in mind, however, owners may tend to overlook the benefits that the change order process offers to owners. The primary benefits afforded by the change order process are that it allows owners the flexibility to respond quickly, to capitalize upon opportunities and to mitigate problems — both of which frequently arise during the course of construction.

Negative Aspects of Change Orders

Owners often focus upon the negative aspects of changes, primarily the increased costs and delays to project completion. Project changes can often be attributed to the problems of others, (e.g., design deficiencies), unknown field condi­tions, or even unnecessary modifications by the end-user. As we discuss in the Primer column on page 3, these three factors account for the majority of change orders. However, by careful planning, investigation and design, many of these factors can be mitigated and incorporated into the original project scope. The Primer provides practical suggestions to minimize change orders needed to cover these matters.

Benefits of Change Orders

Flexibility and speed are the two key benefits that the change order process provides to owners. Flexibility is a benefit, in that change orders allow the owner to accommodate modifications without having to renegotiate the entire basic agree­ment with the contractor. Often work can proceed on the base contract while allowing changes within the overall general scope of the work. Further, flexibility is accomplished by modern change order clauses that provide for various methods of proceeding with the work and pricing the costs. For example, the parties can agree to a fixed price for the change, stipulated unit prices, or time and material pricing. Change order provisions allow the parties to “agree to agree” on an equitable pricing arrangement.

The change order process allows for a relatively quick method to accommodate needed revisions. A short turnaround time is essential for the owner to capitalize on opportunities as well as to minimize the cost and time impact of dealing with problems that arise. Without an effective change order process, the complete procurement cycle may have to begin again, and the ultimate cost of the project will be increased by both price escalation as well as suspension costs.

Examples of Opportunities

Change orders can be a valuable proactive management tool for project owners. Certain positive opportunities for owners can be maximized through the prudent use of the change order process.

These include:

• Changing occupant needs
• New tenants or occupants
• Revised facility use
• State of the art equipment changes
• Early occupancy requirements
• Newly discovered life cycle im­provements
• Changing regulatory environment

The change order process allows owners to quickly revise and adapt the facility under construction to maximize the value of these opportunities. In the same way, when problems arise, the change order process allows for the quick response needed to minimize the cost and time impact of resolving problems such as:

• Emergency repairs
• Design errors/omissions
• Subsurface obstructions
• Field conditions/interferences
• Asbestos and other hazardous materials

If appropriate, the costs of dealing with these problems can be passed on to others, and the owner can demonstrate that it has fulfilled its duty to mitigate such costs by expeditious change order action. Even if the owner is responsible for the problem, expeditious change order action will provide the most cost effective method to mitigate the overall impact to the project.

Conclusion

While owners have a valid interest in minimizing project cost increases due to unwarranted change orders, they should view the change order process with a positive and proactive orientation. Change orders allow owners to respond quickly and to maximize the value of the project by capitalizing on opportunities that have developed after construction has commenced.