A must-read article on the effects of change in construction projects by Arthur O’Leary called Coping with Changes during Construction takes a very savvy look at both the reasons changes happen, along with strategies around managing the risk. While O'Leary's focus is on construction projects, this advice and rules are equally valid for projects in any industry that have complexities such as: many moving parts, suppliers, subcontractors, customers, complex WBS, multiple resource types, etc.
“It is seldom that any construction contract can be pursued from start to finish without some changes having to be made. This is in spite of the best of intentions of all parties. Despite stories about fat contractor profits in changes during construction, in reality they are an onerous economic burden on all concerned. Contractors often have difficulty in breaking even on changes.”
So why is it that change has such a big effect on projects? O’Leary goes on to discuss exactly that point:
“Projects plagued by numerous changes can become mired in confusion if they are not administered in an orderly manner. Serious problems arise when multitudes of changes are in various stages of progress. Some in the stages of deciding what to do, redesign or engineering, pricing, reconsidering, negotiation of price, contention about responsibility, approval in part, final approval, or cancelation. Some changes will have a profound effect on scheduling while others will have unexpected effects on interfacing trades. Some parts of the work may have to be deferred while awaiting final decisions and ultimate approvals of proposed changes. In some cases the proposed changes, after careful consideration, are canceled, and the deferred work then becomes critical to the time schedule."
"Often, controversy develops among owner, architect, contractor, subcontractors, material suppliers, and separate contractors in respect to financial responsibility for changes that had to be made as well as their detrimental time and cost consequences."
"Anything that can be done to lessen the volume of changes or to simplify procedures for their administration will be a valuable advancement in efficient and economic construction.”
Project changes can also cause serious fall-outs between the various parties involved in the project; fall-outs that can often lead to legal disputes. It’s tragic that an otherwise good relationship can deteriorate to this when all parties involved essentially have good intentions. The breakdown, however, always occurs as a result of one thing: a lack of change management process and documentation. As onerous and tedious as it may seem sometimes, enforcing a process of documentation and audit trail around construction project changes is absolutely critical for managing project change risks; and keeping positive relationships with your partners. It’s a small upfront investment that has a big return when you can reduce the aggravation that project changes can cause; and even turn change into a positive revenue opportunity.
Without a written agreement or tracking procedure, changes are often managed “informally” as a discussion at the site, or initiated as an unwritten, hand-shake agreement. Consider these statements from O’Leary on informal or unwritten changes:
“Informal Changes. Some changes will occasionally occur outside the formal process. These are highly susceptible to dissatisfaction and controversy and should be avoided if at all possible.”
"Unwritten Change Orders. During construction some owners visiting the jobsite might enter into informal discussions with the contractor or job superintendent. The owner might ask the contractor to move a door opening, change a window, add an electrical outlet, or raise a ceiling. The contractor assents, assuming that the paperwork will catch up in due course of time. The owner is pleased with the ease of dealing with the contractor but fails to reach an agreement on costs and time. Later, after the changed work is carried out, the contractor quotes the cost and asks for additional time, say three days. At this point the owner expresses the view that the work would not have been authorized at this price and definitely would not be approved if the project time must be extended three days. Some owners in this situation would refuse to pay for the work, since there is no written change order as required by the contract. Most judges and arbitrators would not enforce this provision, however, if the extra work was one with the owner’s knowledge and consent."
The owner, contractor, architect and engineer all have an obligation to recognize and document changes as they occur. The need for this can’t be stressed enough. Costs, timing and schedule impact should all be agreed upon, documented, signed and tracked. This may seem a bit over the top when it comes to the day-to-day workings at the jobsite, because obviously everyone wants to be easy to work with and agreeable to the customer. So injecting a formal process in the middle of things might seem awkward and a little too process-driven – you might even see a few rolled eyes. Any owner or contractor that`s been around a while will have had experiences with project changes gone bad, so will respect your good judgement and management of project changes.