Change management in construction refers to any alteration to the original scope of work after the project has commenced. Whether the changes are simple or complex, they often affect a project's budget, cost, or schedule — and so should be handled carefully to minimize risks and avoid delays.
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There are countless reasons why change orders may occur on a project. An owner could have a change of heart on a design element, a project delay could increase costs or a contractor could begin a project only to realize the original design won't work. Responsibility for any extra costs could depend on what triggered the change order.
While some changes may seem too inconsequential to require a change order, they may ripple out to significantly impact the project in time. For instance, the decision to move a wall from one place to another seems a small detail, but the change to project scope could have significant cost and time consequences. If building that wall did not originally involve an electrical contractor but does in the new location, bringing in that subcontractor could impact both schedule and cost.
When changes happen outside the original contract documents, change orders are needed to alert the owner that the project could cost more or take more time than originally planned. Change management allows contractors to recoup the extra expenses that may come with changing the scope of work.
Change order processes vary depending on the contractor, the project, or the construction agreement. However, the following are the basic steps involved in managing changes in construction projects.
During a project, it may become obvious that the original contract will no longer work. Contractors who come across indicators need to create a change order. No further work should be completed until the owner approves a change order.
Calculate the change's impacts. What costs will change? What subcontractors will need to be involved that weren't before? How will the change impact the project timeline?
Take the change order request to the general contractor and the owner with an honest assessment of what might be needed to fix any issues. When decision-makers decide the change is worth pursuing, it's time to get exact costs and further details on how the new plan will pan out.
Get a more detailed cost analysis with quotes from subs and materials suppliers. If actual costs exceed the original estimates for the change, some negotiation may be necessary to come to an agreement. After collecting cost documentation, send the information back to the owner for approval.
Finally, notify the field and the subs of the change by issuing a change order document. Make sure any change orders from subcontractors tie back to the original change for accurate billing later on.
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Contractors often need help to create and maintain change management procedures that work at scale for their employees. Without a consistent process, changes can quickly cost contractors time and money they can't recoup. The following are some of the main challenges to change management for contractors.
Assessing costs for a change in project drawings can be more complex than it seems. A contractor could put together a change order request believing that all costs are accounted for, only to realize later that another contractor will need to be involved in the change. This comes down to a clear definition of the change before starting the change order approval process.
If there are no protocols in place for communicating subs and field staff of the change, they could wind up continuing on the original project plan, only to have to backtrack later on to accommodate it.
Using spreadsheets to track change orders can lead to confusion and miscommunication about the status of a change order. Up-to-date information allows contractors to complete changes with the least impact on the project schedule. Complete data helps the subcontractor bill accurately for all costs associated with the change.
Contractors sometimes feel so time-pressured that they'll complete work on change orders without waiting for owner or general contractor approval. Changes sometimes seem inconsequential. The situation may be so immediate that there wasn't a chance to do the paperwork. Without prior approval on changes, the contractor runs the risk that the owner will reject the changes entirely, either because the owner doesn't want the extra charges or the contractor can't collect all the necessary documentation for its completion. Approval is necessary to ensure the contractor doesn't get stuck with paying the costs of the changes.
Changes that add to the original construction plan can extend the project timeline, especially if they require the help of a specialty contractor. Even the time it takes to get approvals for changes and alter project plans can delay the project schedule. Proper planning may allow contractors to slot in additional work strategically to avoid major delays.
When managed well, change orders offer contractors the security of knowing they will be reimbursed for costs they may not have previously anticipated. In fact, far from dreading change orders, some savvy contractors bake much of the project profit into their change order procedures. Here are some of the best ways to manage changes for better cost and schedule awareness.
Tracking change orders can get complex and be an ongoing concern for many contractors. Even if a general contractor has their change order process on lock within a specific software product, they have to track all the change orders involving their subcontractors who may not have access to internal systems.
Contractors need clear and consistent procedures to follow regarding all change orders to stay on top of the work and ensure payment on it.
Protocols only work if employees and subcontractors follow them closely. Educate employees on using any forms involved, who to notify about the change, when to follow up, and how to track expenses. Changes should never proceed without express owner approval and the paperwork to back it up.
Review daily reports and logs to catch any change order-related expenses that may have slipped through the cracks.
The danger is that changes will go ahead in the field without the administrative staff having any idea it happened. If a superintendent okays a change that's never tracked, any additional time and materials will not be invoiced, shortchanging the contractor on the work.
By going through logs, office staff can catch and follow up on cost overruns to find their source and bill them accordingly.
Logging changes is a critical first step in change management, but the process can't end there. Changes should be reviewed regularly to ensure all steps from initiation to payment are complete. This task will often fall to the project manager or whoever is responsible for the project's financial performance. Project management software can help keep changes manageable by allowing users to create potential changes so they're visible between departments and track any time and cost impacts they will have.
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Much of the process of change management depends on payment schedules and other contract details. Change order details may be far more critical to a contractor working under a time and materials contract than a lump sum contract.
Some contractors gather all the changes each month to submit a single monthly bill for changes. Changes that are communicated well, tracked consistently and invoiced promptly can help improve cash flow for better project performance.
Contractors must ensure contract documents set them up for success in the event of any alterations to the original plan.
Some contractors may deal with hundreds of change orders on a single project. Changes on a project can be a source of added income — or they can lead to lost time and unpaid expenses. Clear and consistent change order procedures can help builders identify, document, and communicate any alterations to the original construction documents.
