In the construction industry, change orders can be contentious, but they don’t have to be! What I’d like to do in this space is look at how we can prevent change orders, how we can ensure pricing is fair, and how we should manage them.
How do we prevent change orders?
- Starting off the right way: from the very beginning of the project when the team prepares contract documents and assembles the bid, Bob Moore vets each bid for completeness. We perform our own quantity take offs and compare it to the bids received. Competitive subcontractor bids are essential, but they are only meaningful if they are also complete.
- Simple and clear bid qualifications & contracts: With detailed scopes of work in both the prime contract and subcontracts, and a clear understanding of contract terms; all parties can understand what is included and what is excluded so the owner and contractor can try to make changes unnecessary.
- Sometimes change orders are inevitable: We do our best to prevent them, but change orders still occur due to unforeseen conditions, owner requested changes, and design changes.
How do we ensure fair pricing?
- Preventing opportunistic pricing: Many owners feel change orders result in opportunistic pricing. This occurs when a subcontractor feels locked in once he is on the job; and as result, prices items higher than he would have prior to contract. We use the following tools to combat this.
- Checking the contract documents: first order is to confirm whether there has actually been a change. If there appears to be a true change, we’ll check the quantity and make sure the requested quantity is correct.
- Using historical data and unit prices: We’ll compare unit prices to baseline contract costs and historical data (we’ve been doing this for 70+ years so we have plenty of data). If we need a gut check, we have relationships with other subs we can use for a price check if we still feel a request is out of line. Oftentimes, a simple phone call for current market rates is all it takes.
How do we manage them?
- All change orders must be accompanied by a detailed take off with unit prices justifying the change.
- No change orders are performed unless prior approval has been granted in the form of a signed change order. This hard line is to protect the owner from having added work performed without the benefit of knowing the costs beforehand.
Change orders are inevitable because no contract is perfect and no plans and specs are perfect. What set’s Bob Moore apart is how we handle them. We wouldn’t have 50% of business from repeat clients otherwise.