Getting Paid For Changes and Claims: What Does It Take?

Guest Author:  Bill Haydt, Trauner Consulting Services, Inc.

 

Helping contractors and subcontractors prepare change order requests and claims is one of the things that I do day in and day out. In doing so, I often see them struggle with exactly what they need to include to make their change orders and claims complete and, most importantly, successful. Therefore, I thought it would be helpful to explain what a consultant needs in order to assist in asserting a change order or claim.

 

I always start with what I believe are the three main elements of a change order or claim. If I can satisfy these, we have a good chance at receiving payment for the change or claim. These three elements are:

 

— Entitlement (Was there a change? Who is responsible?)

— Impact (What were the effects of this change? How did it affect you? How did it affect your work?)

— Cost (What cost impacts did this change have?)

 

Each one of these steps require adequate documentation. Let us look at the  kind of documentation needed to include in a successful change order or claim.

 

Entitlement

 

What Does the Contract Say?

 

Referencing your contract and the applicable contractual provision is something that I cannot stress enough. By definition, a “change” is something that caused your work to differ from what your contract contemplated you would be responsible for. We need to understand what is actually being required and how that differs from your contractual provisions. This is the whole basis for your change order request or claim.

 

While this may sound black and white, there is often quite a bit of grey area to it. For instance, if you are involved in a GMP contract that is based on less than complete project documents, scope implications are generally covered by contingency. There is often a question as to items covered by the contingency, and what qualifies as a true “change.”

 

Description of the Change

 

First, you will need a description, or narrative, of the change. You should be able to tell the story of the change. This is the “who, what, when, and where” of the change order or claim. Describe who initiated the change, what scope changed, applicable dates related to the change, and where the change was located. I’m looking for a clear description of what actually happened and what caused that change.

 

Change Documentation

 

Documentation related to the change also plays a very critical role. Something I stress to every contractor and subcontractor is the importance of daily reports in your claim preparation. Once some time passes, contemporaneously prepared daily reports are a great reminder of what actually happened on the project.

 

Change documentation also includes any contemporaneous documentation, correspondence, directions from the owner, meeting minutes, and any other communications between you and the owner.

 

Project photos are valuable, as well. Comparing photos of the actual conditions against design documents not only provides great documentation of the changed condition, but is also very persuasive.

 

Impact

 

Description of the Impact

 

One of the biggest challenges with contractors and subcontractors is that they struggle with describing the impact. This is depicting the relationship between the change and its effect on you. It is not enough to simply show that a change occurred, or that your productivity, cost, schedule, etc. was affected on a project.

 

We need to show that the change experienced on the project caused that effect to your productivity, cost, schedule, etc. We need to answer: How did it impact your work? How did it impact you financially? How did it impact your schedule? In order to be successful in your request, we must connect the dots between the change and its impact on you.

 

We can connect these dots in several ways depending on the type of impact. If you are claiming a change to your work will cause a delay, a forward-looking time impact analysis can depict that causal relationship. If the delay has already occurred, there are various retrospective schedule analyses that you can use to identify the impacts attributable to this change, such as a contemporaneous schedule analysis or an as-planned versus as-built analysis. On the other hand, if you need to demonstrate that you have suffered from inefficient work as result of the change, you can prove this impact through an inefficiency analysis, such as a measured mile or with various industry studies. All of these methods make that necessary “cause-and-effect” demonstration required to depict the relationship between the change and the impact you have experienced.

 

Cost

 

Accounting and Cost Information

 

This is where we put a dollar value to the impact we just described. Sometimes we might look at time, but often there is a cost element. The calculations and accounting backup need to be included. Items such as labor rates, equipment rates, and man-hours should all be documented. It serves as a backup for the cost information in your change order request or your claim.

 

When preparing a claim for a contractor or subcontractor, I focus on demonstrating each of those main elements: entitlement, impact, and the cost associated with that impact. It is important to remember to keep these elements separate and not to comingle them. Why? Because by proving each step individually, it is easier for the owner to understand your request and harder for them to refute your claim.

 

If you are focusing on these same three elements during your change order request or claim preparation, you will have a better chance at being successful. If you are unsuccessful with your initial request, the work gets passed off to a consultant like myself. Fortunately, you will have done much of the initial work for me and developed a much better foundation. These efforts will save your company money.

 

There’s one last thing I want to stress. In the change order and claim preparation process, it truly is “garbage in, garbage out.”  Spending the necessary time and resources to prepare a comprehensive and persuasive request will provide better results.

 

About the Author:

Bill Haydt, Director

Trauner Consulting Services, Inc

Phone: (215) 814-6400

e: [email protected]

 

Mr. Haydt’s expertise includes delay analysis, claim review and analysis, change order evaluation, report writing, and liability analysis. His experience includes litigation preparation, and working closely with testifying experts on reviewing claim statements, devising questions for depositions, and preparing testimony.

Subcontractor Software Demo

Posted in Construction Software, Guest Posts.