Change orders are inevitable on construction projects. On public works contracts, change order management requires understanding specific procedures, documentation requirements, and pricing methods that differ from private work. Proper change order management protects your profitability and maintains good agency relationships.
Understanding Public Works Change Orders
Change orders modify the original contract scope, price, or time.
Types of Changes
1. Directed Changes
- Owner-initiated scope additions
- Design changes by architect/engineer
- Third-party requirement changes
- Code or regulation changes
2. Constructive Changes
- Differing site conditions
- Defective specifications
- Impossibility of performance
- Owner acceleration orders
3. Cardinal Changes
- Changes outside contract scope
- May constitute breach
- Rare but important to recognize
Change Order vs. Change Directive
| Document | Description | Pricing | |----------|-------------|---------| | Change Order | Agreed modification | Price agreed before work | | Change Directive | Disputed change | Price determined later | | Field Order | Minor adjustment | Within contingency |
Public Works Change Order Procedures
Government contracts have specific procedural requirements.
Typical Process Flow
- Change identification - Need for change recognized
- Change request - Formal request submitted
- Impact assessment - Contractor evaluates impact
- Proposal submission - Cost and time proposal
- Negotiation - Price and terms discussed
- Approval - Required approvals obtained
- Execution - Change order signed
- Implementation - Work performed
Required Approvals
Public works changes often require multiple approvals:
- Project manager/resident engineer
- Contracting officer
- Legal review (for significant changes)
- Governing body (above certain thresholds)
- Federal approval (if federally funded)
Threshold Examples:
| Authority Level | Typical Threshold | |-----------------|-------------------| | Project manager | Up to $25,000 | | Contracting officer | $25,000 - $100,000 | | Agency head | $100,000 - $500,000 | | Governing body | Above $500,000 |
Pricing Change Orders
Accurate pricing is critical for change order profitability.
Pricing Methods
1. Lump Sum
- Agreed price before work
- Preferred by owners
- Requires accurate estimating
- Risk on contractor
2. Unit Prices
- Pre-established rates
- Quantities adjusted as-built
- Common for quantity variations
- Less risk than lump sum
3. Time and Materials (T&M)
- Actual costs plus markup
- Requires detailed documentation
- Used when scope unclear
- Risk on owner
4. Cost Plus Fixed Fee
- Actual costs tracked
- Fixed fee for overhead/profit
- Common on federal contracts
- Detailed record-keeping required
Cost Components
All pricing methods should include:
Direct Costs:
- Labor (including burden)
- Materials
- Equipment
- Subcontractor costs
Indirect Costs:
- Supervision
- Temporary facilities
- Small tools
- Job overhead extension
Markup:
- Overhead (typically 10-15%)
- Profit (typically 5-10%)
Public Works Markup Limitations
Many agencies limit markups:
| Component | Typical Maximum | |-----------|-----------------| | Contractor overhead and profit | 15% | | Subcontractor overhead and profit | 10% | | Self-performed work | 15% combined |
Federal Contracts (FAR):
- No set percentages but "fair and reasonable"
- Combined O&P typically 15-25%
- Tiered limits for subs
Documentation Requirements
Thorough documentation supports change order claims.
Essential Records
Daily Documentation:
- Daily reports with change-related activities
- Time sheets by task
- Equipment logs
- Material delivery tickets
- Photos and videos
Cost Records:
- Labor costs with burden calculations
- Material invoices
- Equipment rental agreements
- Subcontractor billings
Correspondence:
- RFIs related to change
- Submittals affected
- Meeting minutes
- Emails and letters
T&M Documentation
Time and materials work requires:
Daily T&M Tickets:
- Date and location
- Description of work
- Workers by name and classification
- Hours per worker
- Equipment used
- Materials installed
Signature Requirements:
- Contractor foreman signature
- Owner representative signature
- Daily submission and verification
Force Account Procedures
Some agencies require force account documentation:
Force Account Process:
- Notify owner before starting work
- Track costs separately
- Submit daily tickets
- Obtain daily signatures
- Reconcile weekly
- Submit for payment
Differing Site Conditions
DSC claims are common on public works projects.
Type I: Conditions Differ from Contract
Conditions differ from those indicated in contract documents:
- Subsurface conditions
- Hidden existing conditions
- Utilities not shown on plans
Required Documentation:
- Pre-bid site investigation
- Contract document references
- Actual conditions encountered
- Photos/videos of conditions
- Contemporaneous notification
Type II: Unknown Physical Conditions
Conditions differ from those ordinarily encountered:
- Unusual for type of work
- Unusual for geographic area
- Couldn't have been anticipated
Claim Elements:
- Description of condition
- Why it's unusual
- Impact on work
- Cost and time effects
DSC Claim Procedure
- Immediate notification - Before disturbing conditions
- Documentation - Thorough recording
- Preserve evidence - Don't disturb unnecessarily
- Written claim - Formal submission per contract
- Negotiate resolution - Work with owner
Time Extensions
Changes often require schedule adjustments.
Compensable vs. Non-Compensable Delays
| Type | Time Extension | Cost Recovery | |------|----------------|---------------| | Owner-caused | Yes | Yes | | Weather (excusable) | Yes | Usually No | | Contractor-caused | No | No | | Force majeure | Yes | Usually No |
Time Extension Requests
Include in your request:
- Description of change/delay
- Original schedule impact
- As-built schedule impact
- Net extension requested
- Supporting schedule analysis
Schedule Analysis Methods
As-Planned vs. As-Built:
- Compare original and actual schedules
- Identify delay causes
- Allocate responsibility
Time Impact Analysis:
- Insert delay into schedule
- Calculate forward impact
- Preferred by many agencies
Window Analysis:
- Analyze specific time periods
- Contemporaneous approach
- Good for complex projects
Disputes and Claims
When negotiations fail, formal claims may be necessary.
Claims Process
1. Contract Claims Procedure
- Follow contract requirements exactly
- Meet notice deadlines
- Submit certified claims
- Pursue administrative remedies
2. Federal Contract Disputes Act
- Submit certified claim
- Contracting officer decision
- Appeal to boards of contract appeals
- Court of Federal Claims option
3. State/Local Claims
- Varies by jurisdiction
- May require administrative hearing
- Litigation if necessary
Preserving Claim Rights
Essential Actions:
- Timely written notice
- Document everything
- Don't accept waiver language
- Reserve rights in writing
- Meet all deadlines
Certification Requirements
Federal claims over $100,000 require certification:
"I certify that the claim is made in good faith; that the supporting data are accurate and complete to the best of my knowledge and belief; that the amount requested accurately reflects the contract adjustment for which the contractor believes the Government is liable; and that I am authorized to certify the claim on behalf of the contractor."
Best Practices for Change Order Management
Proactive Management
- Review documents thoroughly before bidding
- Identify potential issues early
- Track all potential changes
- Communicate promptly with owner
- Document continuously
Negotiation Strategies
- Present well-documented proposals
- Be reasonable but firm
- Understand owner constraints
- Focus on fair resolution
- Maintain relationships
Common Mistakes to Avoid
- Missing notice deadlines - Follow contract requirements
- Poor documentation - Document everything contemporaneously
- Inadequate pricing - Capture all cost impacts
- Ignoring schedule impacts - Always evaluate time effects
- Waiving rights - Reserve claims in writing
Technology for Change Order Management
Document Management
- Centralized document storage
- Easy retrieval and searching
- Version control
- Access controls
Cost Tracking
- Separate cost codes for changes
- Real-time cost tracking
- Automatic markup calculations
- T&M ticket management
Schedule Software
- Critical path analysis
- Time impact evaluation
- As-built recording
- Delay analysis tools
Case Studies
Successful Change Order
Situation: Contractor discovered unmarked utilities during excavation.
Actions Taken:
- Stopped work immediately
- Notified owner in writing
- Photographed conditions
- Preserved evidence
- Tracked costs separately
- Submitted detailed proposal
Result: Full recovery of $180,000 in extra costs plus 15-day time extension.
Failed Change Order
Situation: Contractor encountered hard rock during trenching.
Issues:
- No written notice until 3 weeks later
- Continued work before owner inspection
- No separate cost tracking
- Verbal agreement not documented
Result: Claim denied due to late notice and lack of documentation.
Next Steps
Ready to improve your change order management?
- Review contract procedures - Understand requirements
- Implement documentation systems - Capture data in real-time
- Train field staff - Everyone should know procedures
- Establish pricing standards - Consistent approach
- Track all potential changes - Miss nothing
Related Articles
- How to Write Winning Construction Bid Proposals
- Davis-Bacon Act Compliance Guide
- Pre-Qualification Requirements for Government Contracts
Frequently Asked Questions
What's the typical markup allowed on change orders? Most public agencies allow 10-15% combined overhead and profit for self-performed work, and 5-10% for subcontracted work. Check your specific contract.
How long do I have to submit a change order request? Contract-specific, but typically 7-21 days after becoming aware of the change. Meet the deadline or risk waiving your claim.
Can I refuse to do directed changes? Generally no. Most contracts include "changes" clauses requiring performance pending price resolution. Document your disagreement and proceed.
What if the owner won't approve a legitimate change? Document thoroughly, follow claims procedures, reserve rights, and pursue administrative remedies. Consult construction counsel if necessary.
How do I prove delay impacts on schedule? Use critical path analysis showing how the change affected project completion. Contemporaneous schedule updates and daily reports support your case.
