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What’s the Difference Between a Change Order and a Contract Revision?

What’s the Difference Between a Change Order and a Contract Revision?

When it comes to general terminology in project management, project controls and procurement, not all organizations use the same terms when describing the same common concepts. For one simple example, some may refer to the lowest level of the Work Breakdown Structure as the “Activity”, whereas others may call it the “Task”.   As a provider of project-driven software, we at 4castplus need to always provide a consistent and standardized lexicon for all terms that are used in the software platform; and ensure those terms, where possible, are based on industry standards.  It is our policy to adhere to standard terminology, formulas and workflows where such standards exist.  Despite our efforts however, not every term out there has a standard or a standard meaning, so we’re forced to go forward in some cases with terms that, to us, make the most sense, or appear to be most widely used.

change order Management

The funny thing is, even when there are standards, people and organizations are nevertheless free to use whatever terms they choose to mean whatever they want.  This works fine of course as long as they’re working in isolation; but it can cause confusion and misunderstanding when it comes time to communicate to the outside world.  Similarly, when it comes time to adopting a standards-driven solution like 4castplus, organizations will often go through a translation in terminology that takes place to normalize people’s use of core terms in the software. 

It’s common, for example, for there to be more than one definition of a “Change Order”.  Depending on a company’s perspective, and how they setup their project budget and commitments, a change order can take on two meanings:

  1. A change in scope that will potentially affect the overall project budget
  2. A change in scope that will potentially affect the commitment value of a purchase order or subcontract

The difference between those two definitions is typically borne out of the perspective of where changes originate.   From an Owner’s point of view, change orders are driven by subcontractors and suppliers; so they see it as a change in commitment value rather than a change in the project budget.  To them, the ‘project budget’ is considered to be the AFE or other internal approved budgetary mechanism.  For owners, changes in scope are mostly absorbed by contingency in the AFE and can sometimes result in request for a supplemental AFE.  Contractors, on the other hand, are faced with scope changes the originate from multiple places – including from vendors, customers, site conditions, RFIs, and hundreds of other issues that crop up during the execution of a project. 

As usual, context is everything.

The 4castplus system supports both types of changes (i.e. budget changes and contract commitment changes), however does not call them both change orders.  In 4castplus, a Change Order is specific to enabling scope changes or budget transfers to the project budget after it has been baselined.  4castplus sees the project budget is the overall scope of the entire project. Within that project budget, there may be dozens or hundreds of purchase orders or subcontracts that are committed against that project budget.  To ensure standardization of terms, the 4castplus system refers to changes to commitment value of a purchase order or contract as a “Purchase Order Revision”.  The use of the word “Revision”, within the domain of procurement and supply chain management, is a standard term for changes that occur the commitment value of a contract or purchase order. POs can go through many revisions during their lifecycle and the system carefully tracks all changes that occur in each revision.

So there you have it: a Change Order is the way to modify scope of the Project, and a PO Revision is the way to modify the scope of a specific contract or purchase order.  Projects normally undergo many change orders and revisions throughout the whole execution. Additionally, within 4castplus, users can link change orders with one or more purchase order revisions, since often it’s the case that a change order can result in multiple PO revisions, or vice versa.

 

By Claire Beckham | July 04, 2019 | Categories: project management construction software, Project Budgeting, Change Order Management, Purchase Order Management | 0 Comments

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