CHANGE ORDER PROTOCOL

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M. Syal _2010

CHANGE ORDER

PROTOCOL

ELECTRI International

Prof. Matt Syal, Ph.D., LEED® _AP

Construction Management

School of Planning, Design and Construction

Michigan State University

January 2013

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M. Syal _2013

Prof. Matt Syal, Construction Management, MSU

PARTS OF THE PRESENTATION

1. Introduction

2. Justification

3. Goals and Objectives

4. Work Plan

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M. Syal _2013

Introduction

• Change orders are an essential part of every

construction project

• One of the main area of disagreement and,

even litigation, is their costing and pricing.

• All types of change orders can have these

disagreements but the unwritten change

orders with non-agreed upon price are

particularly prone to these

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M. Syal _2013

Total Cost

Direct Costs

Labor _Material _Equipment _Profit

Home Office Costs Prep. Costs Overhead Consequential Costs Indirect Costs Field Supervisory Costs and Project Fees Labor Disruptions and Inefficiencies Project Delay and/or Acceleration Field Conditions and Others

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M. Syal _2013

Potential Consequential Cost Factors

I. Labor Related Disruptions and Inefficiencies

II. Project Delay and/or Acceleration

III. Field Condition and Others

Interferences and disruptions Acceleration Season and weather change Strikes Project delay costs: capacity

issues

Working in finished areas Stacking of trades Project delay costs: lost

opportunity costs

Suspension of work Morale and attitude Project delay costs: cash flow

interruption

Havoc in purchasing materials Reassignment of manpower Project delay costs: retainage

release

Increased contract administration Crew size inefficiency Altered anticipated sequences or

conditions

Increased job cost accounting Errors, omission and mistakes Canceled contracts Extra manpower requirements Fatigue Lost profit Congested drawings

Overtime Ripple effect Negotiation cost

Aggravation and stress Others Adverse impacts caused by others Others Coordination time

Logistics Others

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M. Syal _2013

Justification

• The single most area of dispute in the

change order process is the cost

• Majority of these disagreements are due to:

o

Lack of standardized process for overall costing

and pricing of change orders

o

what costs to include as the direct costs and

what to include as the overhead costs

o

what are the consequential/impact costs and

how to quantify them in the change order

pricing

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M. Syal _2013

Justification (cont.)

• Recently, the NECA chapter of Greater Toronto, jointly with other Canadian subcontractors associations, took the lead in developing a “Change Order Protocol” document.

• I understand that the Toronto documents is pretty

successful in streamlining the change order process for NECA and other subcontractor groups in Canada

• Many feel that a similar and expanded effort in the U.S. will be beneficial for the industry

• Giovanni Marcelli and I jointly presented a seminar at

recent NECA Convention on the overall change order topic and introduced the Canadian document to the participants. It led to a strong request by the participants to undertake this effort for the U.S.

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M. Syal _2013

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M. Syal _2013

Justification (cont.)

• Below is an email received from a NECA member

and it is representative of several similar inquiries.

Dear Dr. Syal and Mr. Marcelli:

I had the opportunity to attend the talk on change order protocol given by you at the recent NECA convention. Your presentation painted a hopeful road map for resolving many of the problems facing our industry

concerning change orders. I was wondering, after downloading and

reading the document "Change Order Protocol" if there were any plans for releasing a "U.S." version (vs. the "Canadian" version) of that document. I would very much like to use such a document as the basis for starting

discussions with our local architects, and the document would carry much more weight with them if the document referenced the corresponding AIA General Conditions, U.S. legislated labor burdens (FICA, Federal

Unemployment Insurance), etc. Please let me know there are any plans for moving forward with developing one. Thank You.

Chris J.

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M. Syal _2013

Change Order Protocol - Toronto

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Goals

• The goal is to provide a standardized and

fair process for the costing and pricing of

change orders

• The document will be similar to the one by

NECA - Toronto but additional details

about the U.S. requirements of various

contractual documents (such as, AIA,

Consensus, and EJCDC) and various

labor burden costs, will be incorporated

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M. Syal _2013

Work Plan

• Analyze the NECA - Toronto document and its development challenges and lessons learned

• Analyze change order related requirements in various

contractual documents as well as various labor burden costs • Compile similar initiatives / data published by other major

subcontractor groups and invite them to participate*

* ASA and New Horizons Foundation (SMACNA) are considering collaboration

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M. Syal _2013

January 14, 2013 Matt,

We will participate and believe that deliverable would be benefit if broadened to include

mechanical and HVAC, especially if the objective is to establish an industry standard/protocol. We have a significant number of companies that are active in both areas.

Dennis

Dennis Bradshaw, Executive Director New Horizons Foundation

Sheet Metal and Air Conditioning Contractors’ National Association

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M. Syal _2013

Work Plan

• Analyze the NECA - Toronto document and its development challenges and lessons learned

• Analyze change order related requirements in various

contractual documents as well as various labor burden costs • Compile similar initiatives / data published by other major

subcontractor groups and invite them to participate*

* ASA and New Horizons Foundation (SMACNA) are considering collaboration

• Survey NECA members to compile various consequential costs and a process to quantify their impact

• Develop and finalize the change order protocol with the help of Industry Task Force

• Develop a MEI seminar presentation package**

** MEI has already stated interest in a seminar package based on this project

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PROS and CONS

PROS

• A standard document compiled by an independent entity such as MSU, with participation from more than one

subcontractors group, will provide uniformity and credibility • Will give industry members a stronger basis to state their

case

• Will help to bring the impact of consequential costs to the forefront

• Can benefit from the work already done by NECA-Toronto

CONS

• Difficulty in bringing and finding common ground among various subcontractors groups

• Time and efforts needed for disseminating and gaining acceptance of the document

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M. Syal _2013

Output and Dissemination

• The outcome of this project will be:

o a protocol document o a Seminar Package

• The output will also be shared with various

industry groups affiliated with GC’s/CM’s, owners

and major subcontractors

• Presentations will be made at various industry

meetings and articles will be published in industry

magazines

• In addition, we will work with MEI’s and NECA’s

PR staff to publicize the protocol and the

seminars

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M. Syal _2013

THANK YOU.

Prof. Matt Syal

Michigan State University

[email protected]

www.msu.edu/~syalm

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M. Syal _2010

Comments at NECA Convention Seminar

Recommendations/comments on how to improve seminar: - Open-Ended Response

• Bring in other trades..

• More time for this subject matter.

• The mentioned paperwork to review the subject matter was not available for the class. • Too short time frame for information

• Excellent!

• Too short would like the seminar to be longer. • More time to present.

• Handouts should be available during presentations.

• This is not an area that could or should be standardized. Education of contractors on cost

behavior is the best outcome from this course/project but the presenters should steer away from trying to standardize the process.

• Very important topic -> very popular seminar->bigger room please. • Little dry mono tone

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M. Syal _2010

Classification of Costs

20

Direct Costs Overhead Costs Labor Home office overhead

Material costs Off-site supervision

Site supervision Change order preparation, negotiation and associated travel

Handling, carrying and shipping costs

Restocking and/or cancellation costs Time delays

Performance and payment bond premiums Guaranty and warranty durations Temporary protection

Additional performance and payment bond premiums

Temporary heat, light and power _{Property taxes, business licenses, auto} insurance

Safety equipment staging, scaffolding and lights

Items directly related to the changes Dues and subscriptions All applicable taxes Postage and courier

(non-job related) Material escalation

Labor escalation Advertising and telephone Clean-up and disposal Legal and accounting fees Estimating/Engineering Sales and marketing

As-built drawing and schedules President's salary and benefits CPM revisions and updating Sales force salaries and benefits Cost analysis Support Staff salaries and benefits Purchasing and Expediting Dispatcher's salary and benefits Timekeepers Support staff salaries and benefits Mobilize and demobilize _{Purchasing salaries and benefits}

(estimating only) Contract Administration

Audit cost contingency _{Estimators salaries and benefits} (except for change orders) Travel, room and board expenses

Permits and licenses fees

Small tools

Equipment and tool rental Job-related insurance, warranty and interest Job site office and storage rental Job site equipment, furniture and supplies Salaries and benefits for job site management and clerical staff