Managing Changes to the work
Change Orders, the dreaded owner nemesis of construction, unfortunately the change order should not be dreaded but anticipated, it will happen. We have all seen the picture, it is funny,
but is it true that contractors love Change Orders, “that’s where all of the money is made!” Whether that is true or not is ultimately at the discretion of the client not the contractor. For us, we could live without them. To have a job with a clear scope we can push through and finish uninterrupted would be a God send, but it never happens.
Changes are costly both in service and in time, and it is difficult for a contractor to anticipate the overall impact of changes to the job. First each change request must be priced, takes time, and not every change will be accepted, so that is lost time and money. For the changes that are accepted, they need to be inserted into the schedule. Each subcontract impacted by the change must be updated to reflect the new cost of the work, the schedule needs to be adjusted to accommodate the work. All of this is time and money, most of which the contractor does not account for. Would be so much easier if they never happened.
Keep in mind, change orders are never the contractors fault, if you have a clear defined scope of work and a solid contractual agreement then you are good to go; unless something changes. The contractor is not permitted to make changes, so the source is either an unforeseen condition, unknown or not called out in the scope, or initiated by the owner. The unforeseen condition is unfortunate for everyone, you dig in and find, who knows what! An unexpected expenditure. Work stops, solutions are found and priced, accepted and implemented. Read, cost, time and money.
It should not be a Black hole of cost either. If you review the paragraph in your contract on changes it should read, that the contractor cannot stop the progress of the job pending cost resolution of a change. If you sign an authorization to proceed, you are contractually committed to pay, even partial payment for the agreed upon portion, upon agreement and they are obligated to proceed with the work; the other safety you should include is an up front agreement as to mark up for changes to the work. This leaves the change order review down to a simple cost of the work. But how much is reasonable? For mid-size residential remodeling 100% mark-up would be fair but most contractor s will never request that, and most clients would have a fit to pay that, good thing you do not know the mark-up on the sofa you bought, or you would be sitting on pillows. As expressed before changes cost a lot in hidden time and costs. They disrupt the schedule and on a job with a very linear schedule the impact is huge. Either way find a fair and reasonable number you both can live with.
The next question is cost of the work, you competitively bid the job to find a fair and reasonable price but now you can only go one place to implement the change. Remember you are the boss, you are making the decisions and writing the checks, you have every right to see every piece of supporting documentation you want to see to confirm the cost of the work. Add the agreed upon mark-up and you are done. Yes, it is a lot of work, but the choice is yours, either accept the change as submitted or do the work to confirm the cost. It is a lot of work and on a project with multiple changes the work can be endless, but this is the job you signed up for when you decided to move forward with the project. This is also where a consultant such as ourselves can help. If we are involved in the project we can review the changes and the costs associated. With our experience the review time will be greatly reduced, and the accuracy greatly improved.