Construction Change Order and Variation Management

Change-Orders-Construction-VariationsTo paraphrase the Greek philosopher Heraclitus, change is the only constant in construction projects.

Changes in scope occur as projects progress from design through practical completion. In fact, initial site works can be in motion long before all necessary planning permits have been obtained, designs have been finalized and construction contracts have been negotiated.

Design and construction teams follow a number of interdependent processes to communicate changes and variations in project scope. Many of these processes have been standardized throughout the industry as commonly accepted tools for raising, clarifying and resolving issues. Examples include construction change orders, requests for information (RFIs), instructions, and variation requests.

In a previous post, we offered pragmatic tips on the RFI management process to improve efficiency and reduce risk. Now we’ll focus on best practices in managing scope-of-work changes and variations to ensure successful project delivery.

Project Impact: Change, Productivity and Risk

Industry research[1] indicates that approximately 40% of all construction projects undergo more than 10% change, as measured by the ratio of final project costs to estimated project costs. When change is limited to 5%, productivity exceeds planned rates on approximately 60% of projects. However, when change exceeds 20%, productivity falls below planned rates.

Research data also points to a correlation between productivity and performance to schedule and budget. As the percentage of change increases, productivity declines, and this leads to schedule delays and cost overruns. Effective change management is critical to mitigating project risk. The larger and more complex the project, the higher the risk – and the greater the imperative to manage change.

Project teams should agree up front on standard processes for communicating changes and variations and managing their impact on workflows. Accountability and timelines for initiating, processing and approving change should be transparent across the team.

Change Orders and Variation Requests

A change order or variation request identifies a possible change in scope from what is documented in the project contract. Each request should succinctly state the extent and implications of the change in design or scope of works. This provides a clear baseline for the ensuing discussions between project participants.

Change orders most often originate with the project manager or design team and are directed to the project owner. Variation requests come from the contractor or subcontractors and go to the design team, and from there to the owner. It’s not uncommon for variation requests to follow change orders as contractor responses to alterations in design or project scope.

Change orders can result from design reviews and other project processes involving the owner and/or the design and construction teams. Changes can also emerge from the RFI process, due to missing information, inability to build as specified, or procurement issues in sourcing a required product.

Typically, the lead consultant is responsible for notifying the contractor of any changes. The lead consultant may be an architect, an engineer or a project or construction manager. Change requests are named accordingly – architect’s instruction (AI), engineer’s instruction (EI), project manager’s instruction (PMI), or construction manager’s instruction (CMI).

Change Order and Variation Workflows

After receiving an instruction regarding a change, the lead consultant collaborates with the other primary disciplines – structural or civil, mechanical, electrical, and plumbing – as well as the quantity surveyor or cost control consultant. Together, this team reviews the potential impact of the request on the project’s technical feasibility, schedule and budget. The lead consultant then summarizes the findings and recommendations for the owner.

After the owner approves the expected project impact, the design team revises the project documentation as needed, and then packages and issues it to the contractor as an instruction. The contractor reviews the instruction and replies within a contractually specified period of time, including implications for feasibility, timelines and cost.

Documents related to these instructions are either attached directly or issued separately under a transmittal that is cross-referenced to the instruction. For example: “In reference to Engineer’s Transmittal No. 1234, we hereby instruct the following changes to your scope of works.”

The instruction to the contractor may state that the scope changes aren’t expected to have any impact on project timing or cost. In the event of a disagreement, the contractor can respond with a variation request or notice of a time extension or claim. Depending on the contract, the contractor may file a claim for time-related costs.

Change Order Process

Best Practices to Mitigate Project Risk

Here are practical tips for managing changes and variations in construction projects:

  • Within the collaborative culture of the project, any participating organization that identifies a change in the contracted scope of works is expected to report that change and provide evidence to support it.
  • The change order should be submitted to the appropriate consultant, contractor or subcontractor for project impact assessment and approval before it goes to the owner.
  • Project documents that have already been registered and issued to the team shouldn’t be updated and circulated until the change order has been approved by the owner. Erroneous document revisions and distributions could compound project risk, leading to schedule delays and cost overruns.
  • All registered documents should reflect approved changes resulting from change orders. Details of the approved changes – such as date, request number and description – should be recorded within the relevant documents, and the updated documents should be transmitted to the appropriate project team members.

For more insight into change order and variation management from a consultant’s perspective, see “Managing Change Order Costs in Construction Projects: How Owners Can Stay on Top” on the blog of Faithful+Gould. The author, Lead Cost Manager Ramani Sundaram, sums up his key message as follows:

“Effective communication and collaboration between all the project participants is necessary for successful management of the process. The spirit of cooperation between all the entities is also essential. If owners can stay on top in managing change orders, most litigation and contractual disputes can be avoided or minimized.”

How Aconex Helps

The Aconex platform is the world’s most widely used Software-as-a-Service (SaaS) solution for managing construction project information and processes between different organizations. Aconex has been used to support more than 15,000 projects worldwide, with an aggregate value of over US$880 billion and a user network of nearly half a million.

Aconex automatically tracks consultants’ instructions from origination through review, approval (or rejection) and implementation. The platform links instructions and associated project information with corresponding responses from the project team. All exchanges are captured in a permanent audit trail to avoid and resolve disputes that may arise between project participants.

Aconex reduces ambiguity, miscommunication and misunderstanding regarding changes and variations between team members. They’re able to share documentation in real time, according to consistent, pre-defined workflows for review and approval. Reports on scope-of-work changes are coordinated across all phases of a project.

Contact us today for a demo, and see for yourself how Aconex can help you manage changes and variations to ensure successful delivery of your next project.

Image: http://www.herd.typepad.com/



[1] Ibbs, William; Construction Change: Likelihood, Severity, and Impact on Productivity; American Society of Civil Engineers; Journal of Legal Affairs and Dispute Resolution in Engineering and Construction; August 2012, http://theibbsconsultinggroup.com/uploads/Likelihood__Severity_of_Change_and_Impact_on_Productivity.pdf

Tod Bottari
Follow Me

Tod Bottari

Communications Director at Aconex
Tod Bottari is the Communications Director for Aconex, the world's leading collaborative construction management software.
Tod Bottari
Follow Me