WHAT IS A CONTRACT CHANGE?

A contract change happens when any

condition modifies the work as it was de-
fined in the contract documents at the time
of bidding. Contract changes typically in-
clude:
Additions and/or deletions to the pre-
scribed work.
Changes in the sequence in which con-
struction activities are to be performed.
Changes in the methods or materials to be
used.
Changes to correct defects in the specifi-
cations or drawings.
Changes in the kind, quantity, or timing of
equipment furnished by the owner or gen-
eral contractor.
Changes in the schedule.
Changes resulting from unexpected nat-
ural events or activities from other trades.
1
Copyright, Mechanical Contractors Association of America, Inc., 1996
Change Orders
Bulletin No. CO 1 Revised
(Replaces 1976 and 1987 versions)
File: Change Orders
Foreword
Although changes on a construction project are common, there is often significant disagree-
ment among owners, architects, engineers, and contractors when it comes to defining a fair
approach to price adjustments when changes are required.
In the absence of special conditions or provisions in the specifications, contractors can base
their original estimates on optimum crew size and the most economical pacing. When changes
require that work be completed in other than the most economical time period, costs increase.
The intent of this bulletin is to suggest basic fair standards for change orders on which all
parties can agree. It also shows how contractors, through effective change order man-
agement, can minimize cost overruns and restore project profitability when changed con-
ditions are the result of another partys action.
Types of Changes
Most change orders will fall under one of
the three categories described below.The cat-
egory into which a particular change order be-
longs will have a definite impact on the amount
of effort a contractor will have to put into his
effort to obtain a satisfactory outcome and
payment.
1. Directed or owner-acknowledged
changes: The most common type of change,
it is also the easiest to recognize and is usu-
ally the easiest to resolve.
In this kind of change, the owner tells the
contractor to perform in a way that differs from
the original specifications of the job. It can in-
volve additional or less work, or a change in
the construction sequence or schedule.
What the contractor must do in response
to an owner-directed change is to fully iden-
tify and document all impacts involved, in-
cluding direct costs, indirect costs,
consequential costs and time impact. He
must, in addition, successfully convince the
owner of the authenticity of the costs and time
involved in the change.
2. Constructive changes: In this cate-
gory falls any action or lack of action by the
owner (or any agent of the owner) that
though not a formal change orderhas the
effect of requiring the contractor to perform in
a manner different from the terms of the con-
tract. These constructive changes are often
expressed verbally or in writing, but some-
times they occur as acts of omission by the
owner that have an impact on the contractors
work or schedule. The most common kinds of
constructive changes are:
Defective plans and specifications
Over inspection
Changes in methods of performance
Changes in construction sequence
Misinterpretation of specifications
Impossibility of performance
Rejection of or equal submission
Owner non-disclosure.
Since there is often no recognition by the
owner that these conditions imply the exis-
tence of a change order, constructive changes
are a major source of construction disputes.
In fact, what happens in these cases is that a
contractor believes that an action or inaction
on the part of the owner (or owners agent)
has resulted in a change in the contract re-
quirement, while the owner often disagrees
that a contract change has occurred. This dis-
agreement lays the foundation for a claim sit-
uation.
Some contract forms do not have provi-
sions for constructive changes, so a contrac-
tor must take care in performing work not
covered under the original contract without a
written change order. When told to proceed
with work under dispute, the contractor must
immediately take steps to ensure the eventual
recovery of all cost and time impacts. To do
this, the contractor should:
Research the contract documents thor-
oughly to confirm that a change condi-
tiona claimactually exists.
Prepare and submit a change order re-
quest proposal, giving the owner a clear
and detailed description of the change.
Be alert to any notice requirements and
respond properly.
Issue notice of intent to file a claim if the
change order is denied.
2 CO 1
Change Orders
Document all responsesor lack of re-
sponsescarefully. Inform the owner of
response times and schedule impacts.
Be alert to any notice requirements and re-
spond properly.
Issue notice of intent to file a claim if the
change order is denied.
Document all responsesor lack of re-
sponsescarefully. Inform the owner of
response times and schedule impacts.
Respond promptly and properly to any
final decisions.
3. Consequential changes: Like a
constructive change, a consequential change
is often difficult to identify. As a result, it is often
equally difficult to convince an owner of its
soundness and significance. Consequential
changes represent additional work or costs
that results as a direct consequence of some
other more obvious change. The cost impact
of a consequential change includes some or
all of the same impacts as any other change
(i.e., direct and indirect costs, interference
costs, and/or impact costs).
The contractor should include all conse-
quential effects in his proposal for the directed
change whenever possible. Unfortunately,
consequential impact is often not foreseeable
until after the original change order is settled.
If a dispute comes up over a consequential
change, the contractor should follow the steps
called for when facing a constructive change.
WHY ARE CHANGES SO NUMEROUS?
Contractors need to acquire a sound un-
derstanding of why changes occur so often on
construction projects so those involved can
be more aware of the major circumstances
leading to changes. Some reasons for
changes are very obscure, but most changes
fall into one of the following groups:
Interference/delay by third parties or gen-
eral contractor
Owner changes
Defective specifications
Latent conditions
Nondisclosure
Changes required by regulatory or using
agency and
Contractor improvements.
Owner Changes
Because of the change clause, owners
have the right to make any change they are
willing to pay for. Owner changes usually af-
fect a contractors scope of workas with
changes in a projects configuration or space
requirementsand can also impact the
schedule and/or sequence of work through
changes in scheduled deliveries of owner-fur-
nished equipment.
Defective Specifications
Defective specifications are perhaps the
most frequently cited and easily identified
causes for change orders.The term defective
specifications cover a multitude of change-
causing circumstances that result from badly
prepared or incomplete specifications. Some
changes that result include:
Incomplete specifications. This change
situation occurs when the contract docu-
ments do not provide the contractor with ad-
equate detailed information necessary to
execute the work. Changes of this nature
often occur when construction details are
coordinated between design disciplines.
CO 1 3
Change Orders
Conflicts. Conflicts happen when the pro-
posed design results in two or more items
occupying the same space. It is a rare con-
struction project where conflicts of this
kind do not result in changes.
Discrepancies. It is also hard to think of
a design without discrepanciesdiffer-
ences between the plans and specifica-
tions, differences between details,
dimensional errors, or differences be-
tween planned equipment details and ac-
tual equipment cut sheets.The details and
dimensions required in the design of a
construction project, it seems, are just too
numerous to lack errors of some kind.
Duplication. Duplication describes a sit-
uation where the same item is specified in
different specification sections or the
same item is specified differently in the
same specification. Duplication often re-
sults in disputes over which trade con-
tractor is intended to perform the work or
which method or material the designer ac-
tually had in mind.
Omissions. Omissions happen when a
specification section, drawing, or scope
item is left out of a contractors package.
For example, it often happens that the mis-
cellaneous metals specification is ex-
cluded from all packages other than to the
structural steel subcontractor. Then, when
a mechanical contractor is required to
make welded attachments to the structural
steel, a change order could be due if the
requirement to touch up welded surfaces
was included only in the miscellaneous
metals specification.
Impossibility. It is common to meet up with
design details that, for some reason, can-
not be implemented as designed. Changes
due to impossibility occur when a contrac-
tor is unable to perform work because of in-
accessibility, sequencing problems, dis-
continued products, or lack of space.
Latent conditions. This term refers to
project conditions, unknown at the time of
bidding, that affect the contractors perfor-
mance. Change orders for latent condi-
tions usually result from either subsurface
soil conditions or conditions within the ex-
isting facility that diverge distinctly from
what the contractor could have reasonably
expected at bid time.
Nondisclosure. Either intentional or un-
intentional nondisclosure refers to a situ-
ation in which the contractor is not told of
all critical design or construction informa-
tion necessary to project completion. A
change order is warranted when the pre-
viously unknown information has an im-
pact on the contractors performance.
Changes required by regulatory agen-
cies/using agency. It is the job of the de-
signer to make sure that the project design
meets all applicable building code and reg-
ulatory requirements. Except when a con-
tractor fails to perform in a workmanlike
manner, added work or changes required
to meet code or regulatory requirements
should result in a change order.
Contractor improvements. A contractor
will frequently introduce changes when
superior methods or materials become ap-
parent. When a contractor initiates such
changes purely for the reason of using an
improved method or material, an owner
frequently resists changing the contract
price. In cases where contractor changes
are initiated to overcome some owner-re-
lated problemssuch as to address an
owner-caused delaycontractors should
be awarded for any impacts.
4 CO 1
Change Orders
The Change Clause
Most construction contracts include a
change clause which allows the owner the
right to make alterations, addition or deletions,
provided that the changes are within the orig-
inal scope of the contractors work. It also pro-
vides the contractor with a way for including
suggestions and delineates how changes are
to be incorporated into the contract. In some
cases, the change clause will outline proce-
dures for processing change orders. The fol-
lowing provisions are usually found in most
change clauses:
No work, outside the contractors original
scope, is to be performed without a writ-
ten change order. In most cases, this pro-
vision includes allowances for emergency
situations that cover work required to pre-
vent personal injury or property damage.
A written change order, signed by the
owner and/or approval agent, is the only
means for effecting change.
The work to be performed under the
change order is within the scope of the
contractors original contract.
The approved change order must include
adjustment for both cost and time.
Contract Sum/Contract Time
The adjustment in contract sum (cost)
and/or contract time is usually negotiated be-
tween the parties to the contract by accep-
tance of an agreed upon lump-sum price by
the contractor or by the contractors cost and
a mutually acceptable fixed or percentage
fee.
If the adjustment is by lump-sum, the per-
centages allowable for overhead and profit are
usually stipulated in the contract, and the con-
tractor must determine the cost. If the adjust-
ment is by cost-plus, the contractors cost
must be determined prior to application of the
fixed or percentage fee.
It is essential, therefore, that if the con-
tractor is to be fairly compensated for a
change order, he must know his costs. And he
must be able to properly identify and present,
if requested, all his costs prior to the addition
for overhead and profit.
A mechanical contractor cannot make up
for the cost items missed in computing a
change order simply by adjusting the currently
allowable percentages of overhead and profit.
COST ELEMENTS
There are three cost elements involved
in a change order:
Direct and Indirect Job Costs
General and Administrative Overhead
Profit.
Direct and Indirect Job Costs
The elements of direct and indirect job
costs vary over a wide range depending on
many factors and it is usually these variations
which are at the heart of change order dis-
agreements. Direct costs are the costs of the
materials, supplies, equipment and subcon-
tracted work and labor that go into, and which
can be clearly identified with, a particular seg-
ment, phase or unit of a project. Indirect costs
are those costs that cannot be attributed to a
single item or unit of a project. Indirect costs
are generally divided into two categoriesjob
overhead and general overhead. In order to
establish acceptable standards, it is neces-
sary to identify the six basic elements of di-
rect and indirect job costs. These are:
CO 1 5
Change Orders
1. Collective Bargaining Agreement
Payments, including:
a. Wages
b. Industry Fund
c. Health Fund
d. Apprenticeship Training
e. Journeyman Training Fund
f. Vacation, Welfare Retirement Fund
g. Jury Duty, Sick Pay Allowance
h. Travel Expenses
i. Other agreed payments similar to
above.
2. Supervision On-Site
3. Material
4. Equipment
5. Subcontract Work
a. Keeping subcontractors advised of
all changes
b. Keeping subcontractors advised of
schedule changes and time exten-
sions
c. Responding in timely manner to all
subcontractor queries
d. Providing follow-up information and
material to subcontractors when re-
quired
e. Keeping subcontractors aware of re-
quired lead time for shop drawing
and material submittal involved in
change orders
f. Reviewing subcontractors submittal
for concurrence with contract docu-
ments.
6. Other Direct and Indirect Job Costs
a. Indirect Labor, On-Site
b. Indirect Labor, Off-Site (general
superintendent, draftsmen, etc.)
c. Payroll Taxes
d. Payroll Fringe Benefits
e. Travel and Subsistence Expense
f. Job Insurance
g. Small Tool Expense
h. Equipment Rental
i. Job Supplies (ice water, photos, etc.)
j. Telephone and Fax, On-Site
k. Truck and Equipment Expenses
l. Taxes
m. Construction and Performance
Bonds
n. Permits
o. Temporary Services and Facilities
p. Clean-up
q. Drayage
r. Warranty, Guarantee, Call Back
s. Delay Penalties, Liquidated
Damages
t. Association Dues
u. Miscellaneous Costs (instruction
manuals, tags, move on/move off ex-
penses, certification, etc.)
v. Safety
w. Cost to Develop Change Order
x. List Productivity
y. Drug Testing
z. Re-stocking Costs
aa. Engineering
bb. Schedule Impact.
Material, Equipment and Subcontract
costs are usually identifiable. Even other di-
rect and indirect job costs are either a factor
of the other elements or are available from
company records. However, labor costs are
difficult to determine and not easily itemized.
The following should help identify some
of the factors to consider when determining
labor costs.
The number of man-hours required to
complete a change order under normal condi-
tions can be estimated using accepted labor
units. Adjustments must be made for abnormal
6 CO 1
Change Orders
or less-than-optimum conditions existing at the
job site. Some factors to be considered are:
1. Overtime Requirements
Overtime has been shown to lower both
work output and efficiency through physical
fatigue and poor mental attitude. Proving that
overtime has caused a decrease in produc-
tivity could help contractors recoup losses in-
curred in running a job at less than normal
standards of productivity. (Refer to Bulletin
OT1How Much Does Overtime Really Cost)
2. Multi-story Buildings
Labor costs increase in a multi-story
building even when a man and material hoist
is furnished, and available and drinking water
and toilet facilities are provided on at least al-
ternate floors. The increase is substantially
larger if only stairs or ladders are provided and
drinking water and toilets are remote.
3. Manpower Availability
High construction activity in an area cre-
ates a shortage of skilled workmen which, in
turn, has a substantial effect on labor costs.
4. Productivity Losses Because Of:
Excessive heat or cold
Contaminated air
Obsolete plans and specifications
Unusual scaffolding requirements, daily
erection and dismantling, having to move
on bare ground, etc.
Having to protect furniture, fixtures,
machinery, stock, or finished surfaces
Daily clean-up of tools and work
Interference by owners, employees or cus-
tomers
Large areas, reducing accessibility to ma-
terial stores and tool lockers
Poor lighting
Work in tight spaces with unsure footing,
interfering tie wires, piping, ducts, hang-
ers, etc.
Work in small rooms where working room
is limited
Poor housekeeping
Hazardous surroundings.
Consideration of the above factors
should enable the contractor to determine ac-
curately the cost of performing the work that
is required in the change order.
5. Impact on Performance
Now, consideration must be given to the
Impact of the change order or the effect the
change order will have upon the performance
of the other work or the work remaining to be
done that is not of itself changed. The term
Impact refers to the indirect delay or inter-
ference that a change on one phase of work
may create on another phase. The costs of
such delay or interference should be recog-
nized as a consequential cost to be consid-
ered as a part of direct cost. A change order
issued to one contractor more often than not
has impact upon other contractors.
Some factors which affect the comple-
tion of the basic contract as a result of a
change order are:
Fatigue: Overtime may be required to
complete the base contract work within the al-
lotted contract time because of a change
order. Overtime breaks the established
CO 1 7
Change Orders
rhythm of a project and lowers work output
and efficiency through physical fatigue.
Morale and attitude: Skilled workmen
have intense pride in their work, in its progress
and in the final result. Change orders, if not
properly planned, may cause interruptions in
the work schedule, require adjustments in size
and makeup of crews, or require moving men
to other parts of the project prior to completing
the one they are currently working on and with
which they are intimately familiar. Frequently,
work is required on a phase for which detailed
plans have not been completed.
If overtime is required on a part of the
project because of a change order, men on
another part of the project not requiring over-
time will compete for some part of it.
The competition for overtime may con-
tribute to poor morale and attitude which re-
duces productivity and lowers efficiency.
Stacking of trades: Delays in the
planned activities of a project result in a de-
terioration of the construction schedule. A
change order, if not properly integrated in the
average schedule, can transform an orderly,
sequenced work plan into one in which many
operations must be performed concurrently.
The workmen of several trades could be
stacked in a limited work area creating a sit-
uation in which work cannot be done effi-
ciently. A contractor who was the low bidder
and who scheduled his performance on an op-
timum time-minimum cost program may find
himself faced with a minimum time-maximum
cost fiasco.
Reassignment of manpower: Re-
assignment of workmen is generally required
when changes to work in progress come un-
expectedly, when changes are major, or when
a demand is made to expedite or reschedule
completion of certain phases of the work.
Productivity could decrease if sufficient time
is not allowed to plan an orderly effort to en-
sure work proceeds smoothly and efficiently.
Crew size inefficiency: Productivity is
adversely affected when workers are indis-
criminately added to work crews to complete
a project. Changes could create this situation
by requiring additional work within the same
time schedule. There is a definite limit on the
number of workmen and quantity of equip-
ment that can effectively be used on a work-
site at any one time.
Dilution of supervision: Field activities
necessary to and associated with the integra-
tion of change order work into the work of the
basic contract requires a diversion of supervi-
sory attention from the basic contract work.
While the superintendent is engaged in ana-
lyzing the change, organizing and assigning
workmen, procuring the additional material,
equipment and tools, etc., productivity on the
basic contract could be adversely affected.
Learning curve: When workers are
added to perform additional work because of
change orders, a period of familiarization will
be required until these men are oriented to the
job, plans, specifications, tool locations, work
procedures, etc. If more than one crew is re-
quired to do certain installation work, the
learning curve productivity is correspondingly
multiplied.
Errors and omissions: When additional
work is required because of a change order
being issued, often the impact on the basic
contract work is not properly considered. This
gives rise to possible errors and omissions
which can be very costly to correct.
Beneficial or joint occupancy: A
change order which delays completion of the
8 CO 1
Change Orders
project could result in work having to be per-
formed after the area is occupied by the
owners employees. Security or badging re-
quirements, restrictions from certain areas,
noise limitations which must be observed, etc.,
all adversely affect productivity and efficiency.
Access to the project areas becomes
congested or restricted at the time the work
is scheduled for that area. Time in gaining ac-
cess is costly.
Logistics: Delay can occur because of
problems in procurement and delivery of ma-
terials, equipment, etc., due to a change in
scope. Prolonged overhead and escalation of
material and equipment prices and projection
of labor into a new and higher wage period
also contribute to additional costs.
Ripple: A change order issued to one
contractor more often than not has a profound
effect on the work of other contractors. The
other contractors may find themselves faced
with additional costs due to having to change
the schedule or sequence of operations.
Time modifications: Time modifica-
tions associated with change orders must be
processed on a timely basis to preserve the
integrity of the contract schedule. An acceler-
ation in completion dates may result in re-
duced efficiency in that the contractor may be
obligated to use premium time or to add fur-
ther resources which cannot be used effi-
ciently. Conversely, an extension in time will
generally result in additional overhead
charges. Therefore, time and price should be
agreed upon together, and unless required by
operational exigencies, should be agreed
upon before work is begun.
Delayed completion: A change order
causing extension of the basic contract com-
pletion into a new labor agreement period re-
sults in additional costs to the contractor.
These costs should be reflected in the change
order Summary.
Escalation of costs: If the change order
delays completion of the project, additional
costs are incurred in off-site storage of mate-
rial and equipment or in possible escalation
of prices if delivery must be postponed. Sub-
contracts may also be subject to escalation.
Financing charges: Delays caused by
change orders extend the completion and ac-
ceptance of the project during which time ad-
ditional costs are imposed on the contractor
by his having to finance retainages for a longer
period of time.
Other direct and indirect job costs:
Most of the elements of other direct and indi-
rect job costs which were listed earlier in this
bulletin are increased if completion of the pro-
ject is delayed.
General and Administrative Overhead
Because the general contractors
change order will be made up of many change
order requests from several Subcontractors,
and since the General and Administrative
(G&A) Overhead level of different types of
specialty contractors vary widely, G&A should
be shown as a percentage separate and apart
from that shown for Profit. Sometimes the per-
centage for G&A is stipulated in the contract
documents.
Profit
Profit should be applied as a separate
percentage figure. It should be applied after
all costs are included with the appropriate
addition for G&A Overhead. Sometimes the
percentage for Profit is stipulated in the con-
tract documents.
CO 1 9
Change Orders
Additional Cost Elements In
Administration of Change Orders
Time for acceptance: A time limitation
for acceptance of a change order should al-
ways be stipulated by the contractor in his re-
quest. If not accepted within the stipulated
time, the quoted price would be subject to es-
calation.
Additions and/or deductions:
1. Where additions only are involved, the
contractor is entitled to an addition to the
contract Sum in the amount of direct and
indirect job costs, plus G&A Overhead
and Profit. If requested, the contractor
may be obligated to provide a detailed
breakdown to verify his quotation.
2. Where deductions only are involved, the
contractor should calculate the reduction
to the contract Sum only in the amount
of the reduction in direct and indirect job
costs.
3. When both additions and deductions are
involved, each should be calculated as
separate change orders in accordance
with 1 and 2 above, whichever is applic-
able. If both omitted work as well as
added work is involved in the same
change order, then the total amount of
the change order will be equal to the dif-
ference between the additions and the
deductions in accordance with 1 and 2
above.
Unaccepted change order: If an
owner-initiated change order is not accepted
and authorized, the contractor should be re-
imbursed for all costs incurred in the prepa-
ration of the quote. The contractor should
have a prior understanding that such a billing
will be forthcoming and will be paid in the
event the change order is not accepted and
authorized.
AUTHORIZATION PROCEDURES
Persons authorized to act on work
changes should be designated as early as
practical after a basic contract has been
awarded. Representatives of the building
owner having authority to make changes, and
representatives of the contractor(s) having
authority to accept and to implement change
orders should be clearly specified.
The authority to proceed with work in-
volved in a change order must be in writing and
conform to procedures for changes as pro-
vided in the basic contract.
LUMP SUM CHANGE ORDER AND COST-
PLUS CHANGE ORDER PROCEDURES
AND FORMS
Having outlined criteria to consider when
making changes to a basic construction con-
tract, we will now present a comprehensive
set of forms and procedures to use in prepar-
ing estimates for tracking the costs of such
changes.
Two distinct and different types of
change orders are discussed in detail:
Lump Sum (Fixed Cost) change orders,
and
Cost-Plus change orders.
The instructions and forms presented for
both types apply equally to additive and de-
ductive changes. The central purpose of any
change order procedure is to ensure that the
contractor is paid for change-related work. In
the case of a lump sum (fixed cost) change,
this means that the contractors original esti-
10 CO 1
Change Orders
mate for the change must include all items
needed to do the work. For a cost-plus
change, it means accurately tracking all ex-
penditures, for a contractor can be reim-
bursed only for costs he can verify.
The forms and procedures (Exhibit 1
through 15) are designed to serve both situ-
ations. Part 1 deals with lump sum changes;
Part 2 with cost-plus changes. Included in Part
2 is a Field-Authorized Change Order Form.
Designed primarily for field use, it provides a
means not only for tracking costs but also for
obtaining written authorization for additional
work, when necessary.
Before adopting the procedures pre-
sented here, evaluate them carefully and re-
vise them as necessary to meet the
requirements of local conditions and your
companys operating procedures.
Part 1: Lump Sum (Fixed Cost) Change
Orders
Of the two types of change orders dis-
cussed in this bulletin, lump sum types are of
greater advantage to the contractor for two
reasons. First, a lump sum change order per-
mits the contractor to estimate all costs be-
fore work begins. If he is careful about
including in his estimate all items necessary
for the work, he is almost certain to make a
fair profit. Second, a lump sum change order
requires far less tracking and paperwork in the
field than does a cost-plus change. This
means that fewer labor and materials ex-
penses go unrecorded, and field personnel
spend less time filling out forms. Despite its
advantages, however, a lump sum change
order must be handled properly. The following
procedures and forms will help make that
handling accurate and efficient.
Recommended procedures:
1. The key document in controlling
change order activity is the Change
Order Status Sheet (Exhibit 1). The
Project Manager should record any po-
tential change on the Change Order
Status Sheet as soon as the possibil-
ity of a change is identified. Formal
changes should be numbered se-
quentially and recorded on the Change
Order Status Sheet.
2. Prepare a Change Order Proposal
(Exhibit 2) and use it as a cover letter
when submitting your change order cost
estimate to the project owner or general
contractor. Be sure the proposal letter
states that you reserve the right to mod-
ify your estimate if additional work not
covered by it is required. Also state a
time limit for the owners or general con-
tractors acceptance of the proposal.
3. Summarize all estimated costs (itemized
on forms discussed in steps 3 through
10, below) on Change Proposal Cost
Summary Sheet (Exhibit 3).The sheet is
self-explanatory and may or may not be
attached to the Change Order Proposal,
depending on your companys proce-
dures. Keep a copy readily available for
review with the approving authority
should questions arise.
4. Itemize estimated equipment and ma-
terials costs on an Equipment Cost
Estimate Sheet (Exhibit 4) and a
Materials Cost Estimate Sheet (Exhibit
5). Because changes usually involve rel-
atively small amounts of materials, and
therefore do not qualify for large volume
discounts, it is suggested that all mate-
rials be estimated using standard over-
the-counter discount prices.
CO 1 11
Change Orders
Restocking charges should also be con-
sidered where credits might be in-
volved. Be sure to estimate required
quantities of all items and to calculate
the material subtotal cost, using figures
in the Total Cost columns. Add to sub-
totals all additional costs, such as sales
taxes, drayage charges, warranties,
start-ups, etc.
5. Estimate all miscellaneous direct job
costs on an Other Direct Job Costs
Estimate Sheet (Exhibit 6). Once com-
puted, the labor cost estimates on this
form should be transferred to the Labor
Summary Sheets (Exhibit 9) and the
materials costs to the Change Proposal
Cost Summary Sheet (Exhibit 3).
6. Complete an Equipment and Tool
Rental Estimate Sheet (Exhibit 7).
7. Complete a Vehicle Operating Cost
Estimate Sheet (Exhibit 8), include all
gasoline and oil costs anticipated for
each vehicle.
8. Itemize all labor costs on the Labor
Summary Sheets (Exhibit 9), using
standards detailed in MCAAs Labor
Estimating Manual.
Rates, fringe benefits, travel allowances,
etc. for the various labor categories
should be shown on the matrix at the top
of Sheet #1 of the Labor Summary Sheet.
Use items 1322 (Exhibit 9) and 2340
(Exhibit 10) to indicate percentages of in-
crease or decrease to the labor estimate
due to factors affecting productivity.
(Refer to Bulletin PD 2, Factors Affecting
Labor Productivity) Once you have item-
ized the various labor factors, calculate
and total the estimated labor costs using
items 41 through 52 on Exhibit 10.
9. List all subcontractors and subcontract
quotes and total the estimated cost
of subcontracts on a Subcontracts
Summary Form (Exhibit 11).
10. On an Extended Overhead Cost Sheet
(Exhibit 12) compute all overhead costs
not included on the other estimate
forms.
11. Use the Special Inclusions and
Exclusion Form (Exhibit 13) to list any
additional items that should be part of
the change order, as well as specific
items that should not be. Be sure that
items listed on this form are referenced
in either the Change Order Proposal
Form (Exhibit 2) or a special cover let-
ter to the proper project authority.
Document, Document, Document; the
key to effective change order management is
documentation. While contractors have been
reacting to the present litigious atmosphere in
construction with more attention to documen-
tation, it is still not a tool that most contractors
use effectively. Good documentation of the
events leading to and supporting a con-trac-
tors contention that a change has occurred
can mean the difference between settling a
claim order and filing a claim.
As a guide to proper documentation, a
contractor should, at a minimum, include the
following information on every change:
1. Date of discovery
2. Person and/or company making discov-
ery
3. Detailed description of changed condi-
tions
4. Documents supporting assertion that a
change does exist
12 CO 1
Change Orders
5. Notification to owner (date and person)
6. Pertinent records and documents, such
as:
Affected plans or sketches
Daily reports
Meeting minutes
Letters, notes, memos, and tele-
phone logs
Payroll records
Equipment reports
Material invoices;
Photographs
Subcontractor/supplier cost and
schedule impacts
Impacted schedules.
7. Notification to subcontractors/suppliers
8. Notification to bonding company (if re-
quired).
Conclusion:
By using the above procedures and the
Exhibit forms, a mechanical contractors es-
timate for a lump sum change order should
cover all the necessary bases, ensuring that
he does not lose money on the proposed
work. In addition, the completed estimate
forms provide ample material to present to
a project owner or general contractor during
a change order review.
Part 2: Cost-Plus Change Orders
A cost-plus change order demands that
the mechanical contractor carefully track all
expenditures made on a change while doing
the work. This requires his field personnel to
keep accurate records and increases the
chances that some expenses will slip through
the cracks unrecorded.
Three steps can help alleviate problems
related to cost-plus changes:
1. Use a Field-Authorized Change Order
Form (Exhibit 14) and Work Authorization
Form (Exhibit 15) for all cost-plus change
orders, both to ensure that change work
is duly authorized and to track costs.
2. Incorporate the Sample Instructions for
Field Authorized Changes (Exhibit 16)
into your companys operations, modify-
ing them as necessary.
3. Educate on-site supervisory personnel in
the concept of cost-plus change orders
and the proper use of the Field-Authorized
Change Order Form. Emphasize the im-
portance of controlling and recording all
expenditures, and enforce their doing so.
Few areas of contracting offer as much
opportunity for financial loss as do mishand-
led change orders, particularly cost-plus
change orders. But losses can be eliminated.
It is largely a matter of established practical
policies for controlling changes and then mak-
ing sure your personnel follow them.
NOTE: MCAA wishes to thank and acknowl-
edge the contribution of Ernst &
Young Construction Services Div-
ision to the revision of this bulletin.
CO 1 13
Change Orders
EXHIBIT 1
CHANGE ORDER STATUS SHEET
CO 1 14
JOB NAME: JOB NO: CONTRACT DATE:
Location: Owner: Address: Our Job Phone:
Gen'l Cont: Address: Phone: G.C. Proj. Mgr.: G.C. Supt:
Cont.No. & Start Date: Compl. Date: Penalty: Priority: G.C. Job Phone:
Architect: Engineer:
Scope:
Clarifications:
Base Contract Price:
Change Order - Description Date Amount Contract
Requested Quoted Authorized Change Order Invoice Change Order Revised
By Date By Date No. Date No. Date
Contract Date
(1) Piping changes per schedule
A-1
Smith 8/31 Smith 9/10 6 9/11 $5,000.00 $140,000.00
101
EXHIBIT 2
SAMPLE CHANGE ORDER PROPOSAL FORM
15 CO 1
TO:
RE: Job No._______________________________
Job Name_____________________________
Proposed Change No. ___________________
Gentlemen:
We enclose a breakdown of costs for the changes requested by ________________________________
on ___________________, designated as ________________________, Change No. ______________
We were furnished the following drawings and specifications:
We propose to:
We do not include any of the following:
The total net change to our contract is as follows:
Total adds per breakdown: __________________________________________.
Total deducts per breakdown: ________________________________________.
Net Change: ______________________________________________________.
This change proposal covers only the direct costs associated with the change order work described
above. We reserve the right to assess the impact of this change order at a later date and to submit
these costs as they become known.
It is anticipated that all work required by this change will be done on a straight time basis.
Overtime work, if required, will be billed as an additional item.
Sales tax is/is not included in this proposal.
This proposal is for acceptance within _________days and is subject to escalation thereafter.
An extension of time of _________ calendar days is required.
We are proceeding with the changes listed above per your instructions.
-OR-
Please advise as soon as possible if we are to proceed.
Yours very truly,
GC/Owner's Name
101
Owner or A/E
Number and Date
List exclusions specifically. Don't include work of other crafts.
Project Manager's Name
EXHIBIT 3
CHANGE PROPOSAL COST SUMMARY SHEET
CO 1 16
Company No. _____________
G.C. No. _____________
Owner No. _____________
Contract ____________________________ No. _____________________________ PM ________________________________
Date Requested ______________________ Date Submitted ___________________ PM ________________________________
Description of Change _______________________________________________________________________________________
_________________________________________________________________________________________________________
DESCRIPTION OF COSTS LABOR MATERIALS TOTALS
1. Equipment
2. Material
3. Subtotal: Item 1 + 2
4. Freight, other delivery charges
5. Subtotal: Item 3 + 4
6. Material Return and Cancellation Costs
7. Other Direct Costs
8. Equipment Rental
9. Gas & Oil
10. Subtotal
11. Labor Costs
12. Payroll Tax & Insurance
13. Subtotal Labor
14. TOTAL COSTS BEFORE SUBCONTRACTS
15. Subcontracts
16. Home Office Overhead @ _________%
17. Field Office Overhead @ _________%
18. Profit @ __________ % on
19. Profit @ __________ % on
20. TOTAL COSTS AND PROFITS BEFORE BONDS, INSURANCE & OTHER COSTS
21. Bonds, Subcontractors
22. Bonds, Performance and Payment
23. Financing Costs
24. Special Insurance and Other Charges
25. Extended Overhead
26. TOTAL PRICE OF CHANGE PROPOSAL
27. Extension of time because of this Change Order is _______ Workdays deferred* to be
applied in proper Schedule Sequence to each Category of Work
28. This proposal is based on Straight Time Overtime Shift Work
29. This proposal is void unless a written Change Order or Written Notification to Proceed is received
by ____________ (45 calendar days if no date shown)
30. Extended Overhead Cost: Included Deferred* Not Applicable
Submitted By: _____________________________________ Date: ___________________
Signature Title
Approved By: _____________________________________ Date: ___________________
Signature Title
*If deferred, cover letter should describe.
EXHIBIT 4
EQUIPMENT COST ESTIMATE SHEET
17 CO 1
Date: ______________
QUANTITY EQUIPMENT UNIT COST TOTAL COST
SUBTOTAL EQUIPMENT
Sales Tax _________ %
Drayage _________ %
Escalation _________ %
Warranty _________ %
Start-up, Test & Punch _________ %
Total Costs
0.00%
0.00%
0.00%
0.00%
0.00%
EXHIBIT 5
MATERIAL COST ESTIMATE SHEET
18 CO 1
Date: ______________
QUANTITY EQUIPMENT UNIT COST TOTAL COST
SUBTOTAL EQUIPMENT
Sales Tax _________ %
Drayage _________ %
Consumables _________ % (of Labor)
Escalation _________ %
Warranty _________ %
Start-up, Test & Punch _________ %
Total Costs
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
EXHIBIT 6
OTHER DIRECT JOB COSTS ESTIMATE SHEET
Date: ______________________
OTHER DIRECT COSTS LABOR MATERIALS
Resident Management and Expenses
Superintendent Expenses
Other Nonmanual Labor Supervision Expenses
Field Office Management and Expenses
Estimating & Cost Analysis and Expenses
Labor Planning (SLP) and Expenses for Update
Field Engineering, Detailing, Reproduction, Supplies, Expenses
Purchasing, Expediting, Traffic and Expenses
Inventories, Management and Expenses
Tools & Equipment Management and Expenses
Payroll Management, Time Keepers, and Expenses
Secretaries, Clerk Typists and Expenses
Welding Qualification and Expenses
Welding Inspection & Testing (NDE)
Instruction of Owner's Personnel
CPM Scheduling or Update
Revising As-built Drawings
Progress Photos
Parking Expenses (other than on direct labor)
Permits, Licenses, Fees, Dues
Extraordinary Estimating Expenses
Engineering or Design Expenses
Deliveries, Company
Special Freight Charges
Temporary Wiring
Temporary Power
Temporary Heat
Temporary Water
Temporary Toilets
Temporary Air
Temporary Weatherproofing
Temporary Site Work
Safety Barricades, Gates, Other materials
Ventilation
Tags, Charts, Identification
Office, Furniture and Office Equipment
EDP Cost
Prefabrication Facilities
Storage Facilities - On-site
Storage Facilities - Off-site
Office Heat and Electricity
Office Telephones
Copier Expense and Office Supplies
Warranty Reserve
Contingencies
Sales Tax on Applicable Items Above
Total Costs
19 CO 1
EXHIBIT 7
RENTAL COST ESTIMATE - EQUIPMENT AND TOOLS
Project Type of Work Date
Location Estimated By
EQUIPMENT/TOOLS COST UNIT
PER MONTH TOTAL COST
Automobile ________ mos. @
Station Wagon ________ mos. @
Pick-up Truck ________ mos. @
Stake Body Truck - 1-1/2 Ton ________ mos. @
Stake Body Truck - 1-1/2 Ton w/A-Frame & Winch ________ mos. @
Flat Bed Truck - 2-Ton ________ mos. @
Hydralift Truck ________ mos. @
American Crane - 18-Ton with 30 ft. Boom ________ mos. @
Austin Western Crane ________ mos. @
Motor Crane - 25-Ton ________ mos. @
D-6 Crawler Tractor ________ mos. @
Backhoe ________ mos. @
Trenching Machine ________ mos. @
Air Compressor ________ mos. @
Gasoline Driven Welding Machine ________ mos. @
Electric Motor Driven Welding Machine ________ mos. @
Hellarc Welding Machine ________ mos. @
Acetylene Rigs Complete ________ mos. @
8" Pipe Machine ________ mos. @
4" Pipe Machine ________ mos. @
2" Pipe Machine - Power Vise ________ mos. @
Pipe Bending Machine ________ mos. @
Metal Cutting Band Saw ________ mos. @
Cut-Off Saw ________ mos. @
Power Hoist ________ mos. @
Water Pump ________ mos. @
Trailer Van ________ mos. @
Portable Building ________ mos. @
Dewatering Equipment ________ mos. @
Fork Lift ________ mos. @
Portable Hoist ________ mos. @
Scaffolding ________ mos. @
Other ________ mos. @
EQUIPMENT & TOOLS TOTAL COSTS ________________
CO 1 20
EXHIBIT 8
COST ESTIMATE - GASOLINE AND OIL
Project Type of Work Date
Location Estimated By
EQUIPMENT/TOOLS COST UNIT
PER MONTH TOTAL COST
Automobile ________ mos. @
Station Wagon ________ mos. @
Pick-up Truck ________ mos. @
Stake Body Truck - 1-1/2 Ton ________ mos. @
Stake Body Truck - 1-1/2 Ton w/A-Frame & Winch ________ mos. @
Flat Bed Truck - 2-Ton ________ mos. @
Hydralift Truck ________ mos. @
American Crane - 18-Ton with 30 ft. Boom ________ mos. @
Austin Western Crane ________ mos. @
Motor Crane - 25-Ton ________ mos. @
D-6 Crawler Tractor ________ mos. @
Backhoe ________ mos. @
Trenching Machine ________ mos. @
Air Compressor ________ mos. @
Gasoline Driven Welding Machine ________ mos. @
Water Pump ________ mos. @
Fork Lift ________ mos. @
GASOLINE & OIL TOTAL COSTS ________________
21 CO 1
EXHIBIT 9
LABOR SUMMARY SHEET
Page 1 of 2
1. Project and No. 2. Estimate No.
3. Owner and/or Architect-Engineer
Change Order Request Number 4. Date
HOURLY RATES
5. 6. 7. 8. 9. 10. 11. 12.
Job Base Park/Travel Wage Zone
Description Rate Fringes Subsistence Escal. Pay Total
Sheet Metal
Journeyman
Sheet Metal
Foreman
Sheet Metal
General Foreman
Fitter/Plbr.
Journeyman
Fitter/Plbr.
Foreman
Fitter/Plbr.
General Foreman
Laborer
Labor Foreman
Operator
Teamster
Millwright
Other
JOURNEYMAN HOURS
13. Sheet Metal Journeyman Hours Hours
14. Fitter/Plbr. Journeyman Hours Hours
15. Material Handling ______ % of Lines 13 & 14 Hours
16. Non-Productive Labor (Relief Break, Tool Pick-up, etc.) Hours
______ % of Lines 13 & 14
17. Safety ______ % of Lines 13 & 14 Hours
18. Clean-up ______ % of Lines 13 & 14 Hours
19. EEO Implementation & Training ______ % of Lines 13 & 14 Hours
20. Equipment Repair ______ % of Lines 13 & 14 Hours
21. Height Factor Hours
22. Base Journeyman Hours Hours
CO 1 22
EXHIBIT 10
LABOR SUMMARY SHEET Page 2 of 2
Labor Corrections
Date ________________________
23. Percentages are applied to the total affected manhours of
the current contract, and to the labor of the proposed
change As of _____________ ________________ (A)
AFFECTED MHRS OF MANHOURS OF
CURRENT CONTRACT PROPOSED CHANGE
MHrs _____________
NEGATIVE PRODUCTION FACTORS % of Loss MHRS Lost % of Loss MHRS Lost
24. Fatigue
25. Stack of Trades
26. Morale and Attitude
27. Reassignment of Manpower
28. Crew Size Inefficiency
29. Concurrent Operations
30. Dilution of Supervision
31. Learning Curve
32. Errors and Omissions
33. Beneficial Occupancy
34. Joint Occupancy (Other Trades)
35. Site Access
36. Logistics
37. Ripple
38. Overtime Adjustment
39. (B) (C)
40. B + C - MHrs = Adjusted direct MHrs Move to Line 41
HOURS AND LABOR AMOUNT
41. Journeyman (with corrections) Hours @ = $
42. Foreman ( % of Journeyman hours) Hours @ = $
43. Gen. Foreman ( % of Journeyman hours) Hours @ = $
44. Laborer ( % of Journeyman hours) Hours @ = $
45. Laborer Foreman Hours @ = $
46. Operator Hours @ = $
47. Teamster Hours @ = $
48. Millwright Hours @ = $
49. Other Hours @ = $
Hours @ = $
50. TOTAL DIRECT LABOR
51. Total Replacement ______ % of Line 50 $
52. TOTAL LABOR COSTS $
$
23 CO 1
EXHIBIT 11
SUBCONTRACTS SUMMARY FORM
Job No. _________________ Date _________________
Project __________________________________ Type of Work ____________________________
Location __________________________________ Estimated by ____________________________
SUBCONTRACTS QUOTE
Temperature Control
Insulation
Fire Protection
Air & Water Balance
Excavation
Rigging
Painting
Electrical
Demolition
Core Drilling
Nondestructive Testing
Other
TOTAL COSTS
CO 1 24
EXHIBIT 12
EXTENDED OVERHEAD COST SHEET
Job No. _________________ Date _________________
Project __________________________________ Type of Work ____________________________
Location __________________________________ Estimated by ____________________________
EXTENDED OVERHEAD COST TOTAL
TOTAL COST
25 CO 1
EXHIBIT 13
Date _______________
Special Inclusions and Exclusions Form
CO 1 26
EXHIBIT 14
FIELD-AUTHORIZED CHANGE ORDER
Purchaser Change No. ___________________
Change No. ___________________
Purchaser Date
Job No.
Address Job
Work Complete Sheet
QTY MATERIAL PRICE EA. AMOUNT DESCRIPTION OF WORK
EQUIPMENT & TOOLS
_______ Shop Deliveries @ ___________
_______ hrs Backhoe @ ___________
_______ hrs Weld Machine@ ___________
_______ hrs Truck @ ___________
_______ Miles Travel @ _______/mile
_______ @ ___________
_______ @ ___________
TOTAL EQUIPMENT & TOOLS
LABOR & LABOR BURDEN
_______ hrs Supt. @ _________/hr
_______ hrs Foreman @ _________/hr
_______ hrs Mechanic @ _________/hr
_______hrs Operator @ _________/hr
_______ hrs Laborer @ _________/hr
_______ hrs @ _________/hr
_______ hrs @ _________/hr
TOTAL LABOR, FRINGES, TAXES
TOTAL MATERIALS COST
TOTAL EQUIPMENT COST
TOTAL LABOR COST
SUBTOTAL
PLUS _____ % OVERHEAD
TOTAL MATERIALS COST TOTAL COST
PLUS ______% TAXES PLUS _____ % PROFIT
TOTAL MATERIALS & TAXES TOTAL BILLING
Supervisor who authorized the work. Authorized By
PURCHASER'S REPRESENTATIVE
_____________________________________________ Company ________________________________________________
27 CO 1
EXHIBIT 15
FIELD-AUTHORIZED CHANGE ORDER FORM
WORK AUTHORIZATION # ___________
SHEET NO. _____ of _____
DATE __________ CUSTOMER ORDER NO. __________
PROJECT _____________________________________________________ JOB NO. ________________________
WORK PERFORMED BY _________________________________________ FOR ___________________________
AUTHORIZED BY _______________________________________________ TITLE __________________________
DESCRIPTION OF WORK ___________________________________________________________________________________
_________________________________________________________________________________________________________
_________________________________________________________________________________________________________
LABOR MATERIAL
NAME TRADE DESCRIPTION QTY
ACTUAL HOURS WORKED
STRAIGHT PREMIUM
TIME TIME
EQUIPMENT & TOOLS
DESCRIPTION TIME DESCRIPTION TIME
REMARKS: _______________________________________________________________________________________________________________
CONTRACTOR OWNER SUBCONTRACTOR
ARCHITECT
BY BY BY
ADDRESS ADDRESS ADDRESS
JOB COMPLETED 9 YES 9 NO
NOTE: COMPLETE A SEPARATE DAILY WORK ORDER FOR WORK AUTHORIZATION NOT SIGNED BECAUSE:
(1) EACH JOB AND (2) EACH DAY.
DO NOT ATTEMPT TO COMBINE JOBS OR DAYS.
9 UNABLE TO CONTACT REPRESENTATIVE
9 AUTHORIZED BY PHONE
9 FORM ISSUED FOR RECORD PURPOSES ONLY.
AUTHORIZATION IN DISPUTE
29 CO 1
EXHIBIT 16
CO 1 30