Project Management: Change Orders

Once upon a time in Philadelphia, a charity hospital was seeking to modernize and expand its facility. Fundraising and design work had proceeded for a number of years, however, there never seemed to be quite enough money in the building fund to begin the project.

Nevertheless, each spring the administrator Sister Margaret would call the project manager at the A/E firm to inquire about the current cost projection for the work and to provide him with the current building fund total. Old Bill (the project manager) related this story to me some years ago.

Finally, one year it did appear that the building fund would be able to finance the new construction that was planned. Hearing the news, Sister Margaret authorized Old Bill to put the project out for bid and began the process of selecting contractors. As Old Bill started to receive bid information from the contractors, he realized that it would still be difficult to fund the entire work using the current building fund. Sister Margaret decided to proceed with the construction insisting that in order to save on costs Old Bill should accept the lowest bids submitted by the contractors. Knowing that this was a dangerous approach, Old Bill nevertheless notified the contractors and organized the initial meeting on-site.

As Old Bill sat in the meeting room waiting for the administrator to arrive, he looked around the room and realized that he had managed to select the most difficult, change order-oriented and contentious group of contractors that he had ever encountered on a project. As Sister Margaret entered the room, she greeted each contractor and said she looked forward to a successful and timely project. Along with Sister Margaret came Sister Mary who was introduced as the hospital coordinator for the project. Old Bill observed that Sister Mary might not of yet turned 20 years of age and his concerns for her ability and the hospital to control the project became much more pronounced.

Sister Margaret opened the formal meeting by advising the contractors that she had put in place two rules for the conduct of the meetings. Number one was that each meeting would start with a prayer and number two, that the gentlemen would not smoke their cigars at the meetings. With this guidance Sister Margaret left the meeting advising that Sister Mary would keep her informed of progress and be conducting the weekly project meetings.

Old Bill was now certain that this project would go down as one of his most difficult and frustrating construction projects. As requested by Sister Margaret and conducted by Sister Mary, each weekly meeting started and ended with a prayer. Old Bill noticed that the meetings were moving along without the typical conflicts, swearing, threats of delays and change orders that he expected to see. Surprisingly, the subcontractors were offering suggestions on how they could save both time and money in completing their work.

Unfortunately for the project, a significant structural change order of over $1.5 million  arose through no fault of any of the contractors on the project. Over a number of weeks Old Bill and his structural engineers worked on solutions to this budget-busting problem. No workaround or altering of construction was found that could avoid the additional costs, which would now place the project completion in jeopardy due to the funding constraints. Surprisingly the contractor agreed to perform the work and simply requested a change order be paid at the end of the project. This allowed work to proceed but Old Bill was certain this serious problem would eventually have to be dealt with. At the completion of the project, the contractor advised Old Bill of his intention to take the matter of the unpaid change order to arbitration. The arbitration was a no contest situation — the change order was properly priced and should have been paid in the normal course of work.

Upon receiving the written award, the contractor visited Sister Margaret and presented her with a check for $1.5 million for the hospital building fund. The contractor explained that he had no choice and on behalf of his company he had to properly represent their interest and process a valid change order.  However, nothing was to prevent him from correcting the situation through a donation.

It’s likely that this is a unique situation in the annals of construction disputes. Unfortunately, MDC Systems^® has found many projects which were formulated and pursued on the basis that a miracle will occur and save the project.

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We at MDC Systems^® are not able to provide miracles.  However, prior effective planning can avoid the need for divine intervention on your next project.

author: Robert C. McCue, PE, MDC Systems^®

Article Featured In the September, 2017 MDC Advisor