Managing change orders for construction projects is widely regarded as complex and often time-consuming. Construction project managers usually approach change orders with some trepidation. As they often say, “Change order” is a similar concept to taboo. These arrangements lead to stress and are often a source of conflict. In the construction industry, this feeling is widely understood. Change orders have the potential to be the Achilles heel of an otherwise strong professional relationship. They can turn negotiations into disputes, turning the cooperative relationship between the owner, general contractor, or subcontractor into conflict.
Maintaining a positive relationship with the various parties involved in a construction project is essential. The reason is simple: a solid working relationship is often the key to project success. Negotiations tend to go more smoothly when dealing with a team member rather than an adversary. Achieving common goals becomes more feasible. And realistically, working with someone you get along well with is always more pleasant. Fostering a sense of camaraderie and teamwork is vital and is only possible in a nurturing and positive work environment.
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6 steps to successfully negotiate a construction change order
Traditional negotiation strategies might fall short when the focus shifts towards maintaining relationships. Therefore, it’s essential to reconsider how we approach negotiations, especially regarding change orders. To enhance the process of negotiating change orders, here are six vital steps:
1. Understand the initial contract
Beginning change order negotiations starts with a thorough examination of the existing contract. This includes clearly understanding the terms and clauses associated with change orders. Specifically, the contract should explain the definition, submission, approval, pricing, and registration of change orders. In addition, it should detail the specific roles and responsibilities of each involved party, describe the conflict resolution procedures, and explain how change orders affect the project schedule and financial plan. In cases where the agreement lacks clarity or comprehensiveness, it may be necessary to consult with legal counsel or negotiate an amendment to the agreement before submitting change orders.
Real-life example:
In a suburban housing development project, the construction company was asked to add an additional pool area that was not covered in the original contract. The project manager carefully reviewed the contract, which outlined the procedures for submitting change orders, approvals, and pricing strategies. The contract detailed the construction company’s and the client’s responsibilities for such changes but was vague about the impact of significant additions on the project’s schedule and budget.
To solve this, the project manager consulted with legal experts to draft an amendment to the existing contract. This amendment specifically addressed the addition of the pool, detailing additional costs, an extended timeline, and revised responsibilities for both parties. After extensive discussions, the construction company and the client agreed to the change, ensuring a clear and mutual understanding before proceeding. This careful and specific approach helped to integrate the new feature seamlessly into the existing project plan.
2. Ensure transparent and timely communication
An important step in the change order negotiation process is establishing transparent and timely communication with all stakeholders. Given that change orders can significantly impact project scope, quality, cost, and schedule, maintaining an informed and engaged group of stakeholders is critical. Establish a formal, unified process for managing change order communications. This may include using a common submission form, providing written updates, holding frequent meetings, and accurately recording every decision and action taken. It is also important to clearly communicate the rationale, benefits, and potential drawbacks of change orders while actively soliciting and considering stakeholder feedback and input.
Real-life example:
A change order was required to upgrade the electrical system during the hotel’s renovation. The project manager quickly implemented a communication strategy using a standard change request form and held weekly meetings with the client, electricians, and suppliers. In these meetings, they discussed the need for the upgrade, the cost, and the impact on the schedule. The project manager ensured all decisions and updates were well documented and shared with the entire team. This effective communication led to the seamless integration of the electrical upgrade into the existing renovation plan, keeping the project on schedule and budget.
3. Evaluate impact and practicality
In the third stage of negotiating change orders, assessing their impact and practicality is crucial. This includes a detailed examination of the potential effects of change orders on project objectives, outcomes, resources, and risk factors. In addition, it is important to consider the technical, operational, and legal viability of implementing these change orders. Identifying potential difficulties or obstacles is also crucial. Once this analysis is complete, sharing this knowledge and recommendations with stakeholders is important, clearly identifying any available trade-offs and alternative options.
Real-Life Example:
In a large-scale housing development project in Miami, a client requested the inclusion of solar panels on all rooftops midway through construction. The contractor conducted a detailed analysis, considering the additional costs, structural implications, and installation time. They also evaluated the legal aspects regarding local regulations on solar panel installation. The findings showed increased costs, a three-week extension to the project timeline, and significant long-term energy savings for homeowners.
After presenting these findings to the client, highlighting both the short-term impacts and long-term benefits, the client recognized the value of this sustainable addition. They approved the change order. The contractor then meticulously updated the project plan, ensuring that the new phase of solar panel installation was seamlessly integrated with the ongoing construction work.
4. Discuss cost and timeline adjustments
The fourth step in the change order negotiation process involves discussing and agreeing on the cost and schedule implications of the change orders. Using a transparent and fair approach when evaluating these adjustments is important. Common methods include unit pricing, fixed lump sum agreements, cost-plus contracts, or time and materials calculations. Determining these figures should consider factors such as the quality and value of the work, current market conditions, and the nature of your relationship with the contractor. The goal should be to reach a mutually beneficial agreement that meets the needs and expectations of both parties, avoiding confrontation or high-pressure negotiation tactics.
Real-life example:
In a home renovation project, a client requested to replace the planned laminate flooring with hardwood flooring after the project had started. The contractor evaluated the additional cost and time needed for this upgrade. After sourcing the hardwood, they presented the client with an updated quote and timeline, highlighting its durability and aesthetic appeal. The client agreed to the increased cost and extended timeline, valuing the long-term benefits of the higher-quality flooring. The contractor then efficiently scheduled the installation, successfully integrating the change without significant disruptions to the overall project.
5. Record and Execute
A crucial phase in negotiating change orders is the documentation and execution of these changes. This step involves drafting a formal agreement outlining the change order’s scope, cost, timeline, and specific conditions. The authorized representatives must sign this document to ensure mutual agreement and understanding. Subsequently, updating all project-related documents, including the plan, budget, timeline, and risk assessment, is important to reflect these changes. These updates should be clearly communicated to the project team and all relevant stakeholders to maintain transparency. Throughout the implementation of the change orders, it’s vital to continuously monitor their execution, keeping track of progress and evaluating the impact on the project’s overall performance.
Real-Life Example:
In a residential construction project, the homeowner upgraded the bathroom fixtures after construction had started. The contractor quickly prepared a change order document detailing the new fixtures, additional costs, and the impact on the project timeline. Both the homeowner and the contractor signed off on this change order. The contractor then updated the project schedule and budget and communicated these changes to the construction team. As the upgraded fixtures were installed, the contractor closely monitored the work to ensure it stayed on track and met the revised timeline, regularly updating the homeowner on the progress. This approach ensured the seamless integration of the changes with minimal disruption to the overall project.
6. Reflect and improve
The final step in navigating change management negotiations involves reflective analysis to gather lessons learned and improve future practices. This requires a detailed review of the entire change order process, identifying its effective aspects and areas for improvement. Engaging with stakeholders to gather their feedback and gauge their overall satisfaction is also important. This feedback should be carefully recorded along with lessons learned and practical strategies. This knowledge is then applied to improve future project management and any subsequent change orders.
Real-Life Example:
In a major commercial construction project in Seattle, the project management team faced challenges with their manual change order process. They implemented Bauwise, a software designed to streamline change order management to improve efficiency.
With Bauwise, the team experienced:
- Easier creation of change orders with user-friendly templates.
- Faster approvals through an automated workflow.
- Real-time tracking of change order status.
- Comprehensive documentation of all change order activities.
After the project, a review revealed significant improvements in processing time and accuracy, with positive feedback from stakeholders on the system’s efficiency and transparency. These insights led the team to adopt Bauwise as a standard tool for future projects, ensuring more efficient change order management in their subsequent construction endeavors.
How Bauwise Helps in Change Order Negotiations?
Bauwise plays a central role in streamlining change order negotiations for construction projects. Providing a centralized platform for managing change orders facilitates clear and effective communication between all parties involved. The software’s intuitive interface allows you to quickly create and submit change orders, ensuring every detail is accurately captured and easily accessible. This transparency helps reduce misunderstandings and disputes during negotiations. Bauwise’s automated approval workflow speeds up the decision-making process, enabling quick approval or review, which is critical to maintaining project momentum. In addition, Bauwise’s real-time tracking feature provides an updated view of the status of each change order, allowing project managers to resolve issues proactively and negotiate effectively based on current project conditions. Bauwise’s comprehensive documentation capability ensures that every aspect of the negotiation is recorded, providing a clear audit trail that can be referenced in future discussions. Overall, Bauwise increases the efficiency, transparency, and accountability of change order negotiations, leading to smoother project execution and better results.
Written by
Taavi Kaiv
Taavi Kaiv is a construction specialist with over ten years of experience in the construction industry. Taavi is an accomplished construction project manager with many successful projects that have been completed under his guidance. Taavi holds a master’s degree in construction management from the Tallinn University of Technology. View profile
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