Mitigating the Costs of Changes During Construction
To paraphrase the Greek philosopher Heraclitus, change is the only constant in construction projects.
Let’s face it, change isn’t always bad, but on a construction project, it usually isn’t good either. Changes and subsequent change orders can wreak havoc on a construction schedule and raise project costs beyond the allocated budget.
An unexpectedly number of change orders on a construction project can quickly exhaust emergency funds, delay the project and increase project costs. While some changes are unavoidable, many can be circumvented if the project team works in collaboration with one another and relies on an in-place system that provides transparency and open communication.
The causes of change orders during construction projects are almost limitless, but they tend to fall into one of the following categories: design changes; unpredictable weather conditions; fluctuations in the cost of building materials; lack of coordination at design phase; additional work at owner’s request; lack of cost planning and lack of cost reports; lack of experience of project type and delay in construction, supply of raw materials and equipment by contractor.
Here are some practical tips for mitigating those construction change costs:
Communication, Communication, Communication!
Change orders may be inevitable, but the stress and strife around them is not. Prior to the start of work, good communication helps set expectations. Once the job is underway, it helps head off misunderstandings and confrontations.
When project teams work closely and have frequent and clear communication, problems that might otherwise become costly change orders can be identified early and resolved cost effectively.
As one project manager described, “The more brain power you have that understands what’s going to happen downstream, and the more eyes you have on something, the more apt you are to uncover future problems.”
If, for example, a timeline has been adjusted or expectations have been altered in any way, you need to communicate with team members, subcontractors and third-party vendors so that the new timeline is clearly understood, and all are in agreement to move forward with the revised plan.
Fact is, these days, email, text messages and photos taken with smartphones make it much easier to keep everyone apprised of issues that arise on the job, even if a team member is out of town or can’t reach the site.
Hint: Daily stand-up meetings are another good way of keeping everyone updated about the project status.
Hold a Kick-Off Meeting
Everyone involved in a project can agree that the secret, if there is a secret, is to get everyone onboard early on. Having everyone working from the same plan at the outset makes it easier to iron out any wrinkles before construction begins.
Holding a kick-off meeting among all the concerned parties can be a simple, yet effective way to work through the contract before breaking ground. Meetings not only set expectations for the contractor, like weekly or monthly progress reports, but also create an opportunity to address specifics with the contract. This helps ensure the terms most important to the owner are highlighted.
A kick-off meeting also gives the owner an opportunity to explain to all their construction development partners what they are looking for.
Hint: When needed, utilize face-to-face conferences to uncover problems. Only so much can be done on the phone, so at some point, you need to sit down in a quiet room, turn off the cell phones, and think about the project, carefully considering any potential problems.
The more visibility into potential changes and the sooner you can provide this information to key players, the greater the chances that a change can cost less, create less disruption to the schedule or, in a best-case scenario, be avoided entirely.
Transparency of information and visibility into potential problems enables everyone concerned to act quickly. The faster you respond to a change, usually the less expensive it is. As an astute project manager once said, “A dollar’s worth of change in the requirements becomes ten dollars in design, becomes a hundred dollars in construction documents, becomes a thousand dollars in construction, and becomes ten thousand dollars during occupancy!”
Remember, understanding that the risk of change cannot be completely avoided due to the thousands of internal and external factors that affect budget, scope and schedule, you can minimize risk by being more proactive and transparent.
Awareness of Safety, Code or Project Certification Requirements During Estimating
If a construction company’s protocols (internal) or OSHA requirements (external) for safety measures change. It’s important for estimating to consider those added costs as well as and/or ensure that subcontractors have them included in their bids. Compliance with these requirements can cause internal or external cost escalation, and must be accounted for in some way.
Implement a Comprehensive Quality Control Program
Collaborating with colleagues on a continuous quality control program is one of the best ways to avoid construction defect claims, improve safety and limit those costs associated with delayed deliveries and rework.
- Involve all parties early on, and form a quality committee to develop the project’s program and document in writing.
- Hold pre- meetings to review plans and specifications and discus potential issues.
- Have qualified personnel conduct regular inspections of work and materials
- Maintain project-related records, such as inspections, delivery schedules, etc. Having such records may also help your business avoid litigation
Complete and Thorough Contract Documentation
Construction documents having a high degree of accuracy are extremely important to the smooth field operation of a project. Good construction documents also lessen the necessity for and headaches of change orders.
Importantly, just as you walk the site, “walk” the contract. You should literally read through each and every contract clause and think: What’s different about this project? You might even ask the question, “What do you think is going to be a problem?”
The “Do It Later” Approach
This “do it later” approach often leads to a huge amount of time (i.e., lost profits) spent on the back end of a job trying to resolve disputes that could have been avoided if changes were dealt with before the work was done, to ensure that the contractor and owner agreed on and understood the scope of work and price for the proposed change. Many disputes between contractors and owners arise simply because they honestly had different perceptions of the requested changes.
Construction planning lays out the project’s timeline from start to finish, allowing managers to stay within budget, anticipate potential threats and make the necessary timeline adjustments in the moment. Delay allowances need to be built into the timeline, allowing management teams the necessary “wiggle room” to accommodate any inconveniences that inevitably arise. Prioritize accurate time estimates, cost estimates and resource allocation from Day 1 in order to avoid embarking on an unrealistic schedule.
Acceleration refers to the owner or general contractor’s choice to speed up the progress of a project to make up for lost time or reach an early completion. Though a knee-jerk reaction may be to accelerate what remains of a timeline in order to recuperate lost time, doing so is likely to put the project outcome in jeopardy. Instead, take the time to formally adjust schedules and accommodate for whatever delay has taken place.
Set Customer Expectations Upfront
A quite common and more likely effective strategy to alleviate changes during the construction phase is to manage a client’s expectations early in the process. This might include explaining early on how disruptive change orders can be, emphasizing customer “pain points” such as extra cost and delayed move-in dates. You need to make sure to carefully review the plans with client. As a prime example, do everything you can to encourage him/her to make all product selections before work begins.
Hint: Put a schedule on a Gantt chart and share it. A Gantt chart is a schedule of interdependent tasks, a critical path, leading and lagging events, milestones, resource loading all of which require buy-in.
Change cannot be entirely avoided, but its impact on the construction project can be minimized by clearly defining a plan of action before the project commences; building strong line of communication; and continuously assessing progress and any emerging problems. by working together and clearly defining goals and strategies from the outset, those parties involved can spot unexpected issues sooner and devise solutions that will keep the project on track.
Must-Haves on Change Orders
Okay, you’ve done everything you can to limit the number of changes, but, as we know, change orders are not going anywhere soon. That said, let’s take a look at some “must-haves” on any construction change order aimed at keeping costs to a minimum.
First, however, let’s agree upon the definition of a construction change order:
A construction change order is any change to the original contract regarding the scope of work, price or schedule agreed upon between any two parties in a construction process.
Get the Order in Writing
Perhaps the most important thing in putting together a change order is to have it in writing. Although some change orders are given verbally to save time, it’s simply good business to get written confirmation before proceeding. Keeping in mind that a change order can occur at any stage in the construction project, a written change order will simply prove that work you did or didn’t complete was, in fact, requested and approved in the change order.
Use Accepted Templates
Having an accepted, or standard change order will simply save time and money. You may want to consider purchasing software that includes change order templates.
Once all parties agree that a change order is necessary, make sure that the scope of work is written clearly with details. It should include revised costs, the scope of work, revised schedules and any other pertinent changes.
When a contractor comes across an issue that needs attention, he/she should include a photo of the situation in question along with the change order request. Photos are a powerful tool that allows one party to best explain the situation to someone who has not experienced it personally
Use a Dose of Digital
It’s quite clear that adequate documentation and record keeping is fundamental to the entire change order process. That’s why you need to consider a “dose of digital.” Digital documents have a number of advantages, including easier to create, manage and store. Digital change orders can be easily produced, sent back and forth, signed electronically, automatically dated and permanently stored!
There you have it, the solutions for mitigating the costs of changes in construction projects. Interested in exploring this further, simply contact PDDM Solutions.