Managing and Negotiating Change Orders Presented by Daniel Williams, P.E. May 1, 2008

1.Discuss CO procedures before construction begins 2.Develop a potential change order (PCO) log and filing system 3.Distribute a PCO log at each progress meeting 4.Evaluate each PCO before making a recommendation 5.Never lower your standards of professionalism 6.Evaluate and resolve each PCO as fast as possible 7.Choose your battles wisely Guidelines for Change Order (CO) Management

Construction Management 1.Quality Assurance 2.Contract Administration 3.Change Order Management

Definitions Potential Change Order (PCO): An issue that could affect the cost or duration of a contract. Change Order (CO): A change to the cost or duration of a contract. Claim: A potential change order.

Issues that initiate PCOs  Drawing error  Specification error  Contract document discrepancy  Code violation  Engineer-requested change  Submittal review comment  Request for information  Owner-requested change  Contractor-requested change  Substitution request  Permit agency request  Permit requirement  Easement requirement  Property owner request  Utility conflict  Value engineering proposal  Changed site condition  Safety  Code change  Code interpretation  Tax increase or decrease  Quantity increase or decrease  Weather  Material availability  Labor availability PCOs that correct the design EX: $18K LS vs $31K T&M

Number of PCOs to Expect $10M$50M Tunnel10 to 2020 to 50 Reservoir15 to 3030 to 60 Pipeline30 to to 150 Pump Station 50 to to 200 Treatment Plant 75 to to 500 EX: Salem & Clearview

Time and Cost to Resolve PCOs PCO $1,000 Hours 3 Cost $500 $10,0008$1,000 $25,00016$2,000 $100,00040$5,000 $1,000,000160$20,000

Percent (%) Change Orders to Expect Pump Station – 1.5% to 5% Reservoir – 1.5% to 5% Treatment Plant – 1.5% to 5% Pipeline – 5% to 10% Tunnel – 10% to 30%

Paying for Change Orders Lump Sum Time and Materials Unit Price

Meet and Discuss CO Procedures before Construction Begins Proposed Agenda PCO log Number of PCOs / COs to expect Forms Recommendation and Owner approval process Lump sum vs. time and materials Quantity overruns on unit price bid items Markups on labor, materials, and equipment Contract documents governing PCO and CO procedures Liquidated damages Distribution of PCO log at weekly progress meetings #1

Develop and maintain a PCO log and Filing System Never remove an unresolved PCO from the PCO log Maintain a file for each PCO PCO file should document the event that initiated the PCO Correspondence regarding a PCO should reference the PCO number Develop and maintain a CO log and filing system #2 EX: Hajek & Curran

Distribute a PCO log at each Progress Meeting Include PCOs as agenda item Distribute PCO log and review status of each outstanding PCO Ask if there are there any PCOs that should be added to the log #3

Evaluate each PCO before Making a Recommendation to the Owner Scope Cost Schedule impact #4 EX: Valve Stem EX: Math error EX: T Bailey valve/labor cost EX: Gas monitors EX: Clearview Attorney & River Crossing PCO EX: Use baseline schedule, schedule of values, certified labor rates, equipment rates, RS Means

Never lower your standards of Professionalism Always treat the people with respect Let the other side have its day in court (i.e., listen) You do not have to come to an agreement at a PCO meeting Never infer that someone has deceived or lied Public works contracts are a marriage not a date #5 Disagreements regarding PCOs are professional disagreements not personal disagreements EX: Peter Falk (Columbo) EX: Ted & Munkdale EX: Sheffield and Landis EX: Kenko “run off road” EX: Gaynor and Cox EX: Hajek and Alia

Evaluate and Resolve each PCO as Fast as Possible The longer a PCO goes unresolved the more time everyone has to determine its impact on cost and schedule. #6

Choose your Battles Wisely You do not need to win every battle to win a war. #7

EXAMPLE – Choose your Battles Wisely $29,270 Weak$12,695 $28,168Very Strong$14,093$15,609 $10,454Strong$7,200 $5,272Strong$2,909 $996Very Weak0$996 $74,718$36,897$37,893 Contractor’s Request Strength of Contractor’s Request Engineer’s Proposal Agreement

$20K $40K $30K $10K $300K $266K $200K $250K $150K $100K $50K $171K Contractor’s Proposal Negotiated Change Order EXAMPLE – Choose Your Battles Wisely

EXAMPLE – Pump Station Change Orders $403,000 $288,000 $115,000 Contractor’s Proposal Agreement Savings Bid Amount -- $8.5M Final Cost -- $8.8M PCOs – 140 COs – 41 = 28.5%

Time to Resolve PCO Low Animosity High Cost of CO EXAMPLE – Resolve PCOs as Fast as Possible

Owner’s Letter: “I conclude that the information received was designed to deceive and mislead. We have been led down a path of compromise and cooperation that has resulted in delivery of equipment that will not function as the contract requires. Given the now visible pattern of misinformation and misleading actions, the Contractor’s plan is rejected in its entirety!” Contractor’s Response: “While I would prefer to ignore this rejection letter in its entirety, to be silent would give the impression that it is accurate. The letter is full of inaccuracies and misinformation. It qualifies as “hate mail” rather than professional, accurate criticism. We deserve compliments not criticism. Instead we received slanderous criticism.” Example – Never infer that Someone has Lied