These best practices will help you establish a change order process that is manageable to ensure prompt payment.
Change orders are a way of life in construction. With all the different moving parts on a project, changes on the job will happen. Throw a global pandemic into the mix, and change orders become even more likely. From increased competition driving low bids to the lack of stakeholders present on the job site, a tight change order process is more important than ever to ensure payment.
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COVID-19 Effects on Change Orders
A number of project owners have delayed or canceled construction projects due to uncertainty around COVID-19. To maintain or build up the backlog, 38% of contractors surveyed by Construction Dive responded to bidding on more projects than usual. This has increased competition among contractors especially when some contractors may be providing a low price to win the work. Unfortunately, low-balling proposals create even low margins. In that case, contractors rely heavily on change orders to help increase revenue and profit margins.
Remote Work and Change Orders
Social distancing protocols reduce the number of individuals permitted at the job site—especially in the trailer. Without being on the job site, many owners rely more on collaboration tools and documentation to stay connected. Without stakeholders on the job site, daily reports, photos, and videos are more important than ever. Many project owners rely more on documentation tools to keep them informed of issues on the job site without being there.
Design-Build Projects and Change Orders
In design-build projects, the design-build team operates as a single entity. Because they act as a single entity, the design-build team completes the plans in stages rather than working off a complete set of plans from the beginning of the project. This puts trade contractors, who still serve as subcontractors in the project, at a disadvantage. The trades bid on projects with an incomplete design.
As the projects are getting started earlier in the design process, it becomes even more critical for trade contractors to document diligently throughout the project. For example, one must document the assumptions of the future design’s expectations to document the changes to the design and its cost impacts. While these changes are being made continuously, the work must continue not to delay the overall project. This puts the trade contractor at risk of proceeding with the work and assuming the work’s cost without the appropriate approvals.
#ChangeOrder Goals: Get Paid
Because of these circumstances, it is essential to do everything you can to get paid on your change orders. More importantly, in a recent eSUB webinar nearly 50% of contractors see 10-25% of their final contract due to change orders. Because of this, it is important that your change order process is as transparent and streamlined as possible.
Managing change orders through manual methods and spreadsheets are cumbersome. Even worse yet, change orders can slip through the cracks. To prevent that, here are a few tips on how to improve your change order process:
Document work easily
The delta in what we bid versus what we did is first realized in the field. Historically, that is the area where its most difficult to document the extra work that is going on. The General Contractor asks your Foreman for a quick favor or damage by another trade that requires extra work. These are items that mostly go undocumented but can be billed as needed.
The field team is busy doing the work to stop and document the work. Using a daily report mobile app makes the field documentation process a breeze. Using a smartphone, the Field Supervisor can take pictures and annotate the images. Through talk-to-text, the Field Supervisor can add detailed notes quickly to provide context. Adding the keyword #changeorder or #extrawork to the notes allows the Project Administrator or Project Manager in the office to take the appropriate action.
Develop a standardized process and templates
Construction project management software makes it easy to create standardized templates and process for change orders:
- Create the document – Using a standardized change order template with proposed costs (either as a total or separated by line items) and appropriate legal language.
- Attached relevant backup information – Photos, plan with appropriate markup, specifications, daily reports, time cards, and other documentation help create the change order’s justification.
- Email to customer – Integrated email functionality in a construction project management system centralizes the communications. This gets communications out an individual’s inbox. More importantly, this provides visibility to all team members on who the Change Order was sent to and when it was sent to receive more timely approvals, which is the most considerable challenge in getting paid in full for change order work.
Track budget impacts in real-time
One of the leading indicators that change orders are at risk of not getting paid is how they track over time. The further you get from receiving approval, the risk of rework and not receiving payment increases signficantly. It’s important to track your change orders, their status, and the budget impact regularly.
When change orders come fast and furious on a project, construction project management software serves as the central repository for all project documentation and communication, including change orders. This creates complete transparency and visibility. Everyone knows exactly where to find the change order and its status. No more fighting with cumbersome spreadsheets or suffer the effects of lost documents.