Change orders and rework can significantly impact the cost of construction projects. According to a Dodge Data & Analytics study, construction rework and delays cost the industry around $177 billion annually in the United States alone. This amount is equivalent to about 5% of the total construction spending in the country.
Change orders, which refer to modifications to the scope of work agreed upon in the original contract, can also be costly. The same study found that change orders account for an average of 10% of the total contract value, with some projects experiencing as much as 25% in change order costs.
Change orders and rework can also result in other costs, such as schedule delays, increased project management and administrative expenses, and potential legal disputes. Therefore, the construction industry must adopt effective strategies and best practices to minimize these costs and improve project outcomes.
Getting Control of Change Orders is Crucial!
Managing change orders effectively is crucial for construction firms to maintain client satisfaction, profitability, and project success. Here are some strategies that construction firms can adopt to manage change orders more effectively:
By implementing these strategies, construction firms can effectively manage change orders, mitigate the associated risks, and deliver successful projects that meet client expectations.
The Change Order Process Impacts Many Stakeholders
The construction change order process involves a range of stakeholders, including the owner/client, design professionals, contractors, subcontractors, suppliers, and project managers. Here’s how the change order process touches each of these stakeholders:
Owner/client: The owner/client initiates the change order process by requesting changes to the scope of work or project specifications. They must review and approve any proposed change orders and be informed of their potential impact on the project timeline and budget.
Design professionals: The design professionals, such as architects and engineers, must review change orders to ensure they comply with the project’s design intent and that any design changes are appropriately documented and communicated to all stakeholders.
Contractors: The contractors are responsible for implementing the changes requested in the change order and ensuring they meet the project specifications and regulatory requirements. They must also provide cost estimates for the changes and negotiate pricing adjustments with the owner.
Subcontractors: Subcontractors may be affected by change orders if they are responsible for the affected areas of the project. They must be informed of any changes that may impact their work and may need to provide revised quotes or schedules to the contractor.
Suppliers: Suppliers may need to adjust the materials or equipment they provide based on the changes requested in the change order. They must also offer revised quotes or lead times as required.
Project managers: Project managers oversee the change order process and ensure that all stakeholders are informed of the changes, their potential impact, and their cost implications. They must also ensure that all change orders are properly documented, approved, and tracked to prevent schedule delays or cost overruns.
The construction change order process touches every stakeholder involved in the project and requires effective communication, collaboration, and coordination using easy-to-use technology to ensure successful project outcomes.
High Costs of Manual Change Order Processes
Change orders are inevitable on projects, yet their potential for improvement often takes a back seat. With the numerous people involved in the process, the cost of inefficiency impacts everyone and is extraordinarily high. In addition to wasting the valuable time of your project teams and office staff, manual processes bring continued risks.
Trade Contractors that perform the work and document everything on paper Tags typically lose money that never gets reimbursed. In addition, the Tags that make it to the office, Labor, Material, and Equipment rates are difficult to keep current when pricing out CORs, resulting in costly mistakes when using the wrong rates. Also, let’s not forget the Tags that get rejected, adding to the total revenue at risk for every project.
For GCs, paper Tags and static Excel COR Logs leave major financial blind spots and place the project budget at risk of cost overruns. The profit margin of a change order for a GC is minimal, yet they carry the risk for the entire cost until they receive Owner approval.
By sticking with the manual processes, GCs and Trade Contractors expose themselves to high project cost risks and overspending on manual, error-prone tasks that impact project teams.
How Can Change Order Software Help Improve The Change Order Process?
Change order software can be a valuable tool for construction firms to help reduce the number of change orders in their projects. Here are some ways that change order software can help:
Improved communication: Change order software can provide a centralized platform for all project stakeholders to communicate and collaborate effectively. This can help ensure everyone is on the same page, reducing the likelihood of misunderstandings or miscommunications leading to change orders.
Real-time data: Change order software can provide real-time data on project progress, costs, and schedules, helping identify potential issues early on and enabling project managers to make informed decisions that prevent the need for change orders.
Standardized processes: Change order software can help standardize the process, making it more transparent, efficient, and consistent, reducing errors or omissions that can result in rework and more change orders.
Increased accountability: Change order software can track all requests, approvals, and rejections, increasing responsibility among project stakeholders and helping ensure all changes are properly documented, reviewed, and approved, reducing the likelihood of unauthorized changes.
Improved forecasting: Change order software can help construction firms analyze past projects to identify trends and forecast potential changes. This can help anticipate potential issues and proactively prevent them, reducing the need for change orders.
Change order software can help construction firms reduce change orders by improving communication, providing real-time data, standardizing processes, increasing accountability, and improving forecasting. By adopting this software, construction firms can better manage change orders and deliver successful projects that meet client expectations.