Construction Delays and Other Claims - Construction Project Scheduling and Control - page 345

A claim for only monetary compensation often forms the basis for a change order
(CO). A change order may be initiated upon the request of the owner, contractor,
subcontractor, and so on. For example, an owner may wish to change the color of the
brick, the type of floor tile, or the light fixtures. Such a change order may be initiated
by the owner submitting a change order request for a work directive. This could be an
owner's decision or a “what-if” inquiry. In the latter case, the owner sends a request
for a change order price or quotation, 4 along with relevant architectural/engineering
details (drawings/specifications), if necessary, to the contractor. The contractor eval-
uates the new changes, including their impact on the work plan, and issues a quote to
the owner. The contractor's change order proposal or quote typically includes a cost
estimate but also may include any impact on the schedule. In response, the owner
accepts, rejects, or negotiates the quotation with the contractor. Once the owner and
contractor agree on the terms of change, the owner issues a change order. The change
order signals the owner's acceptance of the cost and other terms already agreed upon
with the contractor, and authorizes the contractor to execute the work. A change
order can be for an addition, deletion, or substitution items in the original contract.
An example of a deletion change order is an owner deleting a swimming pool from the
contract to build a house. In such cases, the contractor is obligated to issue a credit to
the owner. This credit can be, and usually is, less than the amount originally estimated
in the contract for that item.
For this reason and in order to minimize the number of change orders, it is
strongly recommended that owners do a thorough job of defining the scope of
the project and selecting a competent designer or architect/engineer (A/E). Many
projects suffer from the “cost-creep” syndrome 5 when change orders keep adding to
the project budget and put it at a level that is far beyond what the owner originally
planned. From the contractor's perspective, change orders may be a source of
headache, but they can be a source of extra income as well. Many experts contend
that if all change orders were taken into consideration prior to designing the project,
the total cost to the owner would be a lot less. Some owners, when they are not sure
about certain major items, bid projects with alternates. For our example, the base bid
can be the house without a swimming pool with an alternate to add a pool. In this
case, the bidder must provide a base bid price and an additional amount for the pool
in case the owner decides to add it. If the owner is leaning more toward including
the pool, the owner may include the pool in the base bid with an alternate to
omit it.
Timing of the changes makes a big difference, too. The later the change is made,
the more expensive (and perhaps more time-consuming) it gets. Let us take a simple
example. An owner decides to change a few doors from 2 feet 8 inches wide to 3 feet
4 Some contractors called this a “request for price”; however, it should not be abbreviated as RFP, which is an
industry acronym for “request for proposal.”
5 Directly related to “scope creep.”