Change Orders Part 3

March 20, 2003

Change Order Processing

Below are some example procedures which project managers can use for processing change orders:

The obvious first step is the realization that a change order situation exists or that the existence of a change order situation is a strong possibility. All potential deviations in the work need to be analyzed by the project manager.

It is essential that you give timely notification to the customer anytime something occurs that is beyond the requirements of the contract (contracts often limit your rights to claim if notice is not given within a stipulated time period). Waiting on a customer representative to issue change order notices inexcusably places your firm at undue risk. The representative is not working for your firm, and will not have your firm in mind at all times--this is your job.

Records and documentation
As change orders become known or expected, you should attach a specific reference number to each one. Every potential change order must have an identifying number!

Once numbered, you must set up a file for each, indicating your Job Number, Change Order Number, and a brief description such as Replace Valves. The file should include all worksheets, notes, diaries, and other pertinent data. In setting up the file, organize the following data:

1. Notices and all pertinent correspondence
2. Notes and meeting minutes
3. Sketches, drawings, and specifications
4. Pertinent technical data
5. Cost estimates with backup data
6. Takeoffs and quotations
7. Extra work-sheets and invoices
8. Change-order impact analysis
9. Pending or change-order estimate sheets

The Change Order File is very important, as it could become the basis for large claims, time extensions, or legal actions. The completeness of this file will often be the difference between your firm making or losing money on a job.

Change order logs
All change order proposals are logged, whether approved or not. Your firm’s C.O. logs should include at least the following items:

1. Status: Status is a summary log of all change orders and potential change orders. It is a summary of all key facts relating to the change order: number, description, estimated cost, key dates, and current status. As change orders are completed, or otherwise resolved, make the appropriate entries.

2. Modifications: The modifications section includes copies of all change orders and executed contract modifications.

3. Rates: The rates section will list agreed-upon rates for labor, equipment, materials, and markups. This section is set up from your agreements reached at the pre-job negotiations conferences.

4. Budget: The budget section provides a running total of the project starting with the control estimate. As each change order is finalized, the budget total is increased or decreased accordingly, and is then included in subsequent cost reports.

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