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Change Order Protocol - Revisited

In keeping with our theme of managing Change Orders in your business we wanted to bring back one of our more popular Trimble Extensions articles, written by Giovanni Marcelli, detailing the Change Order Protocol.  This is the first in a three part series focusing on this topic and at the conclusion of this article you will find the links to the other two articles.

Introduction

Changes in the scope of work on a project have become an inevitable part of the construction process. The size and number of changes on a particular project can significantly alter the cost of the project. If handled improperly, changes can also lead to disputes and even litigation between the various parties on a project. The purpose of this Change Order Protocol is to provide a fair and reasonable process for the costing and pricing of change orders.

Guiding Principles

  • Changes in the scope of work may be inevitable; however a greater effort to diminish the volume of contract changes on construction projects is strongly encouraged.
  • When changes become necessary, change orders should have a 30-day maximum turnaround. Contractors should submit an appropriately prepared quotation within 15 days and owners should approve/reject within 15 days.
  • Change Orders should be fairly and reasonably priced and payment of approved changes should conform to contract terms.
  • Contractors are entitled to overhead and profit.
  • Reasonable disclosure of costs is encouraged, while excessive requests can be counter-productive, cause delays, and give rise to additional costs.
  • If it is necessary to issue a Change Directive in advance of approval pricing and all related approvals, this formal direction to proceed should not diminish the urgency to negotiate a final change order price.
  • The parties should be proactive in resolving disputes, and every effort should be made to ensure that these disputes will not impact the balance of the project.
  • Statutory holdbacks are a legal requirement; additional holdbacks are redundant and lead to avoidable disputes.

Change Directive

According to General Condition 6.3 of the CCDC2 Standard Prime Contract, the owner may issue a change directive when an owner requires a change in the work, and:

  • the change is urgently required and it would not be expedient to reach an agreement on the price, or
  • there has been a failure of the parties to agree on a price.

Upon receipt of a change directive, the Contractor must proceed promptly with the change on a cost plus basis as per CCDC2 general condition Article 6.3.

Prior to executing any work relating to a Change Directive the owner will advise as to the method of validation of man hours spent and materials and equipment used. The owner will designate his authorized representative, authorized to approve the hours shown on the Time Sheets and the related materials and equipment used to perform the work. The contractor will be able to bill for the approved labor, material, equipment and other expenses incurred under the change directive on the monthly progress bill.

Supplementary instructions such as site instructions, field orders, or stop work orders, are not change directives.
After a change directive has been issued, both parties must expeditiously continue efforts to achieve agreement on the price of the change, and then record this agreement in a change order.

Change Order

A change order is used when the owner and contractor agree on a price and the changes in scope of work and schedule.

Labor Rate*

The Labor Rate is the actual fully burdened cost per hour of labor consumed. It consists but is not limited to the following:

  • Base Rate
  • Vacation/Stat Pay
  • Union Deductions
  • Legislated Burdens
    • EHT
    • WSIB
    • EI
    • CPP
    • RST on H/W
  • Expendable Small Tools
  • Additional Unionized Charges
  • Finance Payroll
  • Rest Breaks
  • Idle Time
  • Safety
    • Job Box Talks
    • WHMIS
    • Fall Protection
    • Personal Protective Equipment
    • Committees
  • Labor Warranties
  • Parking

* Labor Rate is on a journeyman basis. The lower productivity rate for apprentices is offset by the hourly rate.

Man hours Calculation

In the absence of agreed-to pre-authorized rates and units, it is strongly recommended that industry standard labor units are used in calculating labor units required to complete a change notice. Each change may have a variety of non-typical or abnormal factors that will require adjustments. Factors that should be considered include:

  • Site Conditions Inadequate lighting and Housekeeping
  • Clean up
  • Material Handling Unloading, Storing, Moving
  • Scheduling
  • Time Keeping
  • Mobilization and Demobilization
  • Labor Warranties (if not included in labor rate)
  • Estimating
  • Fabrication Drafting
  • Measuring
  • Printing
  • Record Drawings and As Built
  • Interference Drawings
  • LEED Requirements
  • Garbage Sorting, Tagging, Disposing
  • Installation Height Installations above 10 feet require extra equipment and men.
  • Multi-storey Factor labor adjustment must be made for taller buildings to reflect the rate of productivity loss.
  • Environment Conditions extreme weather conditions either heat, humidity or cold may result in productivity loss. (Dust, restricted access, occupied premises, remote areas, etc.)
  • Availability of Personnel when an adequate supply of personnel is not available, the loss of productivity must be taken into account.
  • Stacking of the Trades a change order may require many trades to perform their work concurrently and in a limited work area resulting in productivity losses.
  • Abnormal Work Schedule deviations from a normal work schedule will have an impact on labor productivity and required supervision.
  • Crew Size Inefficiency changes may require the use of larger than planned workforces.

Labor units shall be derived from the NECA Manual of Labor Units*, MCAA Labor Estimating Manual*, SMACNA Manual* and other such standardized trade units that may existIt is understood that mitigating circumstances may exist that impact such standardized units.

*On a journeyman basis

Disclaimer

The Change Order Protocol outlined above has been designed for Canadian use, however it can readily be used in the U.S. with minor modifications.
View the rest of the articles in this series via the links below:

Change Order Protocol Part II
Change Order Protocol Part III