Change orders. The words can turn the stomachs of administrators. Horror stories about change orders create fear and distrust among school officials, designers and builders. Can change orders be avoided? If car manufacturers can produce millions of intricately designed vehicles, why can't the same quality control be achieved on a construction project?
Unlike the manufacturing sector, most construction projects are unique undertakings. Cars are refined through years of research and development, and numerous prototypes are built to work out the bugs before the first model ever rolls off the assembly line. Yes, there are common elements in all schools, but these common elements are not exact replications. Dimensions differ, and local building codes vary. Each school board and administration has unique conditions.
By understanding the issues surrounding change orders, school officials can focus their efforts on controlling the areas that put them most at risk.
There's always a cost when the work outlined in construction contracts is altered. But how much money is too much? Barring any extraordinary circumstances, most experts would recommend carrying a contingency of 2 to 5 percent of construction costs for change orders. An even higher contingency is recommended for renovations or to accommodate difficult site conditions. The designer and builder can offer valuable advice regarding potential risks.
What causes change orders?
Change orders generally fall into three categories:
Unforeseen conditions include rock or unsuitable soils encountered during excavation, or problems uncovered during a renovation. This category also can include time delays because of severe weather or changes in building codes.
Design-related change orders can be more complicated. Interpretation of building codes, accommodating changes from manufacturers or utility companies, and modifying details to better suit field conditions all can result in change orders.
Changes in scope make up the third category. Most schools don't dispute the fact that if they add something to the project, a corresponding change order will be generated. But not all scope changes are viewed in the same way. Sometimes a scope change relates to something that administrators thought they told the designer. Problems also arise when many people are involved on behalf of a school, and each one adds input. Each school must designate a single representative to communicate with the designer and builder.
Controlling change orders
Eliminating change orders may not be possible, but administrators should try to minimize potential disruption:
- Investing upfront can reduce risks
Some conditions are unforeseen only because no one investigates thoroughly. For example, techniques are available that can test for the presence of rock beneath the surface. More sophisticated techniques can map the rock below the surface by using devices that detect differences in soil density. These extra steps cost money. On a site where rock is not expected based on past experience, these investigations may not be prudent.
Failing to invest properly in design also can add to the risk of change orders. A design with insufficient detailing to guide the builder effectively can lead to disaster. Many schools exclude design services from competitive bidding; using the low-bid designer won't save money if it results in more change orders.
- Allocate risks where necessary
Certain risks can be reallocated on a construction project, but they are never reapportioned for free. Many excavators will provide alternative pricing to perform all excavation on an “unclassified” basis. That means the materials they encounter during excavation are not classified as “rock” or “soil.” Whatever they encounter, they remove for one lump sum price. To do so, those excavators either will rely on geotechnical reports produced by experts or dig test holes on the site.
Using the design-build contracting approach essentially assigns the risk for any design errors or omissions to the design-builder.
Reallocating risk can effectively control the volatility of project costs. However, it also may reduce the number of builders that are willing or qualified to submit proposals.
- Use the right contracting approach
A well-written contract will help minimize the effect of change orders. Be clear about which risks the school is willing to take and which risks are to be borne by the builder.
Sometimes, the best decision will be for the school to carry the risk if it's too costly to identify all the unknowns. That can be the case with some renovation projects where the probability of unforeseen conditions is too great for a design-builder to offer acceptable pricing to the owner. In those cases, contract terms can focus on how the builder will be compensated for the inevitable surprises.
- Always keep a contingency
Regardless of the approach, construction projects all carry some degree of risk. It is wise to carry a contingency; how much depends on the nature of the project and the school system's financial constraints.
Gibeault, AIA, is vice president of business development for High Construction Company, Lancaster, Pa.