Skip to main content
Procore

M04: Change Order Management

  1. Last updated
  2. Save as PDF

I. Module Objective 

After completion of this module the participant will be able to:

  • Identify and describe the steps in the Change Order process
  • Describe the purpose and application of the Change Event
  • Describe the process for generating Potential Change Orders (PCOs) and Prime Contract (Owner) Change Orders (PCCOs)
  • Identify the procedures for processing PCCOs and Commitment Change Orders
  • Identify the procedures involved with back charges
  • Understand the Project Manager’s role in dispute management

II. Overview

  • The Project Manager must be thoroughly familiar with the provisions of the Owner Agreement that govern changes, Change Orders, and claims.  In instances where the Owner, Architect, other consultant, or field conditions require a change in the scope of work, the Project Manager must notify all affected parties within the time limits detailed in the Owner Agreement.  Generally, extra work may not be performed until the required Prime Contract (Owner) Change Order (PCCO) or Potential Change Order (PCO) has been executed and returned to KAST. 
  • Occasionally, the Owner Change Order process may require work to be performed prior to the formal issuance of the Change Order.  In these circumstances, the Project Manager must obtain a signed Potential Change Order (PCO), or written acknowledgement via email or otherwise prescribed in the Owner Agreement, that the work in question is recognized as the subject of a Change Order and that we have been given authorization to price and proceed with the work while the formal documents are being processed.
  • Set this precedent at the beginning of the project by stressing to the Owner and Architect that we cannot proceed with extra work without an executed PCCO or PCO.

III. Workflow

 

                                                 

diagram-change-events-2tier.pngFrom an RFI Create Change Event RFQ Respond RFQ Respond RFQ as rec. Review Resp RFQ Create PCO Email PCO PCCO Create CCO Review PCCO Review CCO

IV. Change Events

  • KAST Project Staff must create a Change Event any time there is a possible change to KAST’s contract scope of work or a subcontractor’s or vendor’s contract scope of work, whether that change impacts TIME or COST or BOTH.  Whenever the Project Manager foresees a chance of incurring cost not currently budgeted and/or committed, the PM must create a Change Event.  Examples include changes initiated by the Owner or Architect, an RFI response, field conditions, AHJ (Authority Having Jurisdiction) requirement, potential backcharge claim from a subcontractor, etc.

                                                         Click here for KAST-specific instructions on how to Create a Change Event in Procore

  • When creating a Change Event, it is critical to use the proper Type and Change Reason. Use the following categories.
    • Types (used for the Change Event only)
      • Allowance: used when reconciling an Owner allowance from the GMP
      • Contingency: used when funding a change from KAST Contingency
      • Internal: used primarily for backcharges, correcting jobsite accounting errors, etc.
      • Owner Change: used for any changes affecting the Prime Contract
      • TBD: used when the Type is unclear, should always be changed to one of the above prior to issuing PCO, PCCO, or CCO
    • Reasons (appears on the PCO)
      1. AHJ: used for changes required by the Authority Having Jurisdiction
      2. Allowance/Alternate: used for reconciling allowances and alternates
      3. Backcharge: used for backcharges
      4. Client Request: used for Owner requested changes
      5. Design Development: used for design changes due to errors & omissions

Existing Condition: used for changes due to unforeseen existing conditions

  1. KAST Initiated: any internal non-backcharges, limited use on Prime Contract Changes
  2. Weather: used for weather delays or cost impacts due to weather
  • If costs are determined to potentially impact the Owner, KAST Project Staff must prepare a PCO in Procore, even if the cost for the change has not been finalized.  Notify the Owner of this potential change informing them of the additional costs.

V. Potential Change Orders

  • Potential Change Orders are prepared based on costs submitted by the affected subcontractors and/or suppliers, direct costs incurred by KAST, and the cost of general conditions, insurance, SDI, bond premiums, overhead and profit.  The Project Manager must review the contract to determine the allowable overhead, profit, insurance, SDI, bond premiums and similar items.
  • The Project Manager must make sure that the proposal being presented to the Owner is fair and reasonable.  Do not simply pass on subcontractor’s requests without confirming their costs and quantities.  Provide as much documentation as possible to support the pricing submitted. Subcontract terms restrict the cost of changes orders to actual cost of material and labor plus an agreed mark-up percent for Overhead & Profit. Refer to section V. Commitment Change Orders for full explanation of change order review. 

                                                            Click here for KAST-specific instructions on how to create a PCO in Procore.

  • When issuing PCOs for Owner signature, route the document through DocuSign.
    • KAST Lead PM signs first signifying the cost has been verified, then Owner signs accepting the costs & time.
  • PCOs that require time extensions and associated general conditions must include both of these at the time of submission.
  • At each OAC meeting, review the complete PCO Log with the Owner at each OAC meeting.  KAST Corporate has created a custom Report Template PCO Log in the Procore Reports tool, which you may modify as-required for your use.

VI. Prime Contract Change Orders (PCCO's)

  • A PCCO (or Owner Change Order) is comprised of One or Multiple PCO’s. All PCO’s should be written into a PCCO on a monthly basis or sooner. Standard life cycle from first Submission of the Subcontractor Change Request to Execution of the PCCO should be 30 Days. Maintaining a 30 day cycle will allow you to stay current with billing and avoid Subcontractor delays in execution of the work.
  • You never want large dollar amounts pending on your PCCO log, discuss this with your Project Executive as to the amount you should not exceed on your PCCO log for your specific project.
  • There are two options for executing PCCOs:
    1. Best Practice: Whenever possible and agreed-to by the Owner, utilize DocuSign for execution of PCCOs 
      1. When PCCO are executed via DocuSign, the person who created the DocuSign must download a copy of the fully-executed document (best practice is to click the link in the confirmation email from DocuSign) and save it to:
        1. The PCCO in Procore as an attachment
        2. folder 34.PCCOs in Egnyte
    2. When the Owner refuses to utilize DocuSign, the Project Admin or Project Accountant shall prepare 3 copies of the PCCO for execution. Once Executed:
      1. Return one original each to the Owner and Architect.
      2. Scan one original and save in the Operations project file.
      3. Return last fully executed copy to Corporate Office to be maintained in the Projects Corporate Office Top File.  
  • Signature Routing shall be:
    1. KAST Project Executive or Vice President
    2. Owner Authorized Representative (stipulated in Contract)
    3. Architect, if required
      1. review the Prime Contract to determine, contact procorehelp@kastbuild.com if not required to have removed from form
  • The Lead Project Manager must Notify accounting (or, by delegation, cause accounting to be notified) of the Change in Contract Amount. Forward a copy of the Signed PCCO along with the Cost Code allocations for the appropriate budget item increases. Accounting will enter the changes in Sage Intacct.  Unlike CCOs, PCCOs cannot be sent to Accounting via the ERP link in Procore.  If you fail to send the executed PCCO your PCCO will not be available for your Owner billing.
  • Save a PDF copy of the fully-executed PCCO to the project documents
    • 300.Admin\330.Owner\334.PCCOs
  • Add your newly executed change order to your Owner Payment Application.
  • Click here for Procore instructions Create a Prime Contract Change Order (PCCO)

VII. Construction Change Directives (CCD)

  • Definition: CCD; A directive received from your Client / Owner to perform scope which differs from that of which is contained in your Construction Contract Documents.
  • In today’s fast-paced construction industry the way of Formal Notices and transmittals from your Owner and/or their Design Professionals has become a thing of the past. You will most likely receive an email with a set of revised plans or just a statement from your Owner with a “request”; and thus the Change Order Process begins.
  • Let’s talk about the difference between a Construction Change Directive (CCD) and a Request for Pricing (RFP). Once you receive a notice from your Owner/Architect you must identify and document which notice you have just received. An RFP is just that – a request for pricing (only). The Owner has requested a price for an change they are considering but have not directed you yet to incorporate into the project. Obtain accurate, fair, and competitive pricing and present to the Owner.  A directive, as stated in the definition above, is the intention for you the General Contractor to incorporate the change into the Contract Documents and implement the changes in the field. Prior to proceeding with added work, it is preferred that pricing is completed and a signed PCCO or at least a signed PCO is in place before performing any changes in the work. However, refer to the terms of your prime contract. There are provisions in place where “time is of the essence” and the Owner can direct you to proceed without agreed pricing. There are specific conditions you must follow in this case. Thoroughly review the contract and adhere very closely to all the ways in which you must document your costs. Always work diligently to avoid such situation. If a “Directive to Proceed” is unavoidable, upon receipt of the directive from the Owner, reply to them and advise that we are accepting their directive as a Construction Change Directive in accordance with the Agreement and will track it using a CCD Number.  Advise them of the CCD Number assigned, maintain a log of CCDs, and provide it to the Owner regularly at OAC Meetings and in other correspondence as appropriate.  This process allows us to divert random directives back into a contract-defined process, track them, and keeps them fresh in the Owner’s mind so that they are not forgotten.  While we are proceeding with the work directed, it is important to price the change and convert it to an executed PCCO as quickly as possible for billing purposes and to reduce our exposure.
  • As with all aspects of Construction Management, Organization and documentation control are key. Use the following process to document and track the CCD’s. 
  • Initiate a Change Event & PCO. Use the PCO log to track the CCD and this, along with your letter, will serve as your notice to the owner that the CCD will / or may have a Time and Cost Impact on the Project, and you will be in compliance with your contract terms for Timely notice.
    1. Initiate an Cahnge Event & PCO. Use the PCO log to track the CCD and this, along with your letter, will serve as your notice to the owner that the CCD will / or may have a Time and Cost Impact on the Project, and you will be in compliance with your contract terms for Timely notice.
    2. Notify your Subcontractors. Issue your subcontractors the same CCD you received from your Owner and request their review for any potential Time and Cost impact via the Request for Quote tool within the Change Event in Procore. Again, timing is very important. Obtain pricing from your subs in a timely manner to avoid delays in the field or changes to the work after it is in place. Once you have received all of your pricing, review thoroughly for completeness. You should verify unit costs and attach the appropriate supporting documentation from your Subcontractor. Proper Material and Labor breakdowns should be presented along with contract allowable mark ups for Overhead, Profit, insurances, bonds, tax, etc….
    3. Submit your PCO: refer back to section II above for PCO process.
    4. Implementing the CCD: Once you receive your approved PCO / PCCO you may proceed to issue your Subcontractor Change Orders.
    5. CCD Documents: Plan revisions. You can proceed with updating your Permit Set of documents by submitting to your building department plan reviewers and Slip-sheet the revised drawings into your Current Set.
  • Remember, from inception to completion, your Goal to complete the lifecycle of a CCD is 30 days.

VIII. Commitment Change Orders (CCO's)

A Senior Project Manager or Project Executive must approve all Subcontractor Change Orders before they are issued.

  • When you first receive a Subcontractor Change Order Request ask yourself these two questions.
    • Was this a Solicited Request? If so, then the subcontractor should be providing pricing to you for one of the following:  
      • Subcontractor is providing pricing for a CCD.
      • We are purchasing additional scope from the Subcontractor (part of our budget and buyout plan)
      • Subcontractor is providing pricing in response to an RFQ you issued.
      • Solicited requests should be fairly simple to review and process. Follow the above steps we have discussed for Submitting the PCO / PCCO’s to your Client.  
    • Is this an Unsolicited Request? If so, then the subcontractor is probably asking you to reimburse them for any one of the following: 
      • Missing plan information or ambiguity in the construction documents
      • Price escalations
      • Overtime
      • Delays. Inefficiencies in the field which have caused delays to their production
      • Field conflicts
      • Damages to work in place
      • Scope discrepancies
      • "We just missed it. It’s not in our budget,” says Subcontractor.  
  • Carefully review and evaluate the Change Request for validity. Contact your Subcontractor and have a discussion or meeting to evaluate their reason for the claim in your decision. How you proceed can have a great impact on your working relationship with your Subcontractor and ultimately the success of your project. Handle the situation objectively with careful consideration of the Subcontractor’s contract obligations. Make a determination to reject the request or to investigate further.
  • Follow the steps in the ”Subcontractor Dispute Management” section for rejection or moving the Request along for further review and possible approval.
  • Each Sub request shall include a detailed Unit Cost Breakdown as follows:
  • LABOR
    • Each worker shall be identified by skill classification (ex. Supt, Journeyman, helper, laborer, etc.)
    • Each hourly Unit rate shall be listed. Refer to the Subcontract agreement for Unit Rates. Confirm Subcontractor is billing in accordance with labor rates in the contract. If the contract lacks labor rates ask the subcontractor to provide actual payroll information as backup evidence of the billed rate. Unit rates listed in the subcontract agreement shall already include the labor burden. Actual payroll rates shall be the hourly rate paid to the worker plus and agreed labor burden rate. Labor burden rate can range between 25-50%.  
    • If the work was already performed as directed by KAST and field tickets were ordered then the field tickets shall be submitted and signed daily by an Authorized KAST Superintendent. The daily field ticket shall include, workers name, classification, hours worked, and work performed. The Change order request shall contain copies of all signed daily tickets for your review. Please see tutorial on Handling T and M Tickets for more information,
    • Amount of hours: If the subcontractor has included an estimated amount of hours to perform the extra work you must attempt to compare to bid breakdowns or other information you may have to assist you with the quantity evaluation. Research production rates and breakdowns of material units. Labor hours and material quantities shall be reasonably proportioned in a manner that can be justified. If you cannot agree on the quantity of hours, and/or your Owner rejects the RCO then you may direct the work to be performed on Daily Field tickets.
  • MATERIAL
    • All materials shall be listed separately
    • Breakdown: Quantity >>> Description >>> Unit Rate >>> Subtotal
    • Material costs shall be supported with purchase orders or quotes from suppliers with actual cost of goods subcontractor is purchasing.
    • Additional supporting documentation may be requested; cancelled checks, or credit card statement as evidence of actual cost.
    • If you have questions as to the documentation provided, conduct internet search or obtain your own material quotes for comparison.
    • If you feel the Subcontractor has not obtained the best and most competitive pricing, request additional quotes from other suppliers. 
  • EQUIPMENT
    • Rented Equipment: This cost is easily verified. Supporting documentation shall consist of Rental company’s quotes for equipment including delivery / pick up charge, unit rates by the day, week, or month, and any insurance, added costs, tax, and fuel costs.
    • Subcontractor Owned Equipment: Use rental equipment rate quotes for comparison and evaluation of the charges the Sub is claiming for owned equipment. Conduct a market search for comparable equipment.
    • Final Totals: the summary of costs shall be in a format similar to below and include the final lump sum costs.
    • NEVER DO YOUR SUBCONTRACTOR’S FORMULATING FOR THEM. Inevitably this will result in a dispute of the actual lump sum total. Do not accept the request.
  •                                                                         2019-09-24 15_49_39-MODULE 4 - CHANGE MANAGEMENT - Word.jpg
    • Once you have fully vetted the subcontractor’s RFQ, include the RFQ in the final PCO to the Owner.  Should the Owner reject or request revisions to the Subcontractor’s pricing, reject the RFQ back to the subcontractor with comments.  Once you receive the updated pricing, revise the PCO accordingly.  Do not issue CCOs without first receiving an Execute PCCO for the work.  See the workflow above.    

    • Should the subcontractor’s RFQ not constitute a change to the Owner, but does constitute a change to the subcontract, you must determine a funding source (e.g. backcharge, buyout, contingency, etc.) and create a Budget Change to transfer the appropriate amount(s) to the appropriate cost code.  KAST Corporate Accounting will not approve Commitment Change orders that result in the Committed Costs exceeding the Budget.

IX. Subcontractor Dispute Management 

  • Rejection of a Change Request: Despite clear and apparent Contract Language which holds the Subcontractor responsible to provide material, labor, and equipment for the claim they are making, they are still looking for you to reimburse them. Use the following letter format to officially respond, providing them with detailed explanation for the rejection and cite all contract language that applies. It is important that you respond timely to every claim made by your Subcontractors. Rejections of submitted claims if further pursued by your Subcontractor can lead to many issues; refusal to perform the work, refusal to provide a satisfactory release of lien, deterioration of the Contractor / Subcontractor relationship, filing of a lien, filing of a claim with the Courts.
  • It is your job to timely address and attempt to resolve all claims immediately. Consult with your Senior PM or Project Executive to discuss your course of actions and the results. All Change request rejections and disputed claims must be presented with your monthly executive report and discussed in individual detail. 
  • Back charges to Subcontractor: In the course of construction you and/or your field staff may need to put your Subcontractor on Notice to correct or repair deficient work, or to maintain your project schedule. Before issuing your Subcontractor any notice, discuss the situation with your team and ask yourselves the following questions:
  • Has the team given the Subcontractor fair and equal opportunity to perform successfully?
  • Has the team conducted a Prework Meeting with the Subcontractor and outlined specific expectations?
  • Has the Team properly scheduled and planned the work with the Subcontractor allowing the Subcontractor equal and reasonable time to properly prepare?
  • Has the Team completed the required Checklist from preceding Subcontractors and has verified that the area/areas are inspected and ready for the next scope of work?
  • If you can answer “YES” to all of these questions and have determined that your Subcontractor is in violation of the terms and conditions of their subcontract agreement, then you shall proceed with placing the Sub on notice to correct said work. Please refer to the Subcontract agreement for your actions to remedy and the proper notifications required in order for you to proceed with correcting the deficient work on behalf of your Sub.
  • Utilize the “3 Step Method to Subcontractor Supplementation”.
    • NOTICE #1: Warning Letter. Use the sample letter attached to document and describe the deficient work needing correction. Specifically establish the deadline for which the work shall be corrected by. Refer to the subcontract agreement for contractual required notice. Standard is allowing 72hrs for your sub to correct.
    • NOTICE #2: Intent To Remedy: If you Subcontractor fails to comply with your Warning Letter, issue Notice #2 notifying them of your intent to proceed with correcting or completing the work on their behalf
    • NOTICE #3: Invoice: Upon completing the work for them, issue a deductive change order with all unit costs itemized. Attached sample cover letter and deduct the amount from their contract.
  • Be sure to establish the proper rules of engagement for Subcontractor Back charges with your Field Staff. Performing any Subcontractors scope of work without issuing the Proper Notices and allowing the Subcontractor sufficient time to comply with the Contract WILL result in KAST having to pay twice for the work. We will not be able to collect or deduct the money from the Subcontractors account, and the Subcontractor may have legal rights against us for Breach of Contract.
  • Backcharges from Sub to Sub: Charges between Subs need to be handled as such “between subs”. Manage the claim by first evaluating the costs as described above and determining if the claim is valid. If there is a valid claim against another subcontractor, present this claim to them. If there is a dispute bring the two subcontractors in for a meeting. Work to mediate the claims and get the Subcontractors to settle amongst each other to avoid any costs incurred by KAST.

X. Document Management 

  • In each of the sections above we discussed the processes and provided guidelines for handling and addressing Change Orders. Keeping track of your documents and being Organized are key to your success in effectively resolving and executing Change Orders timely.
    • RFQ:  Proper and conscientious use of the RFQ (Request for Quote) tool within the Change Event(s) in Procore will allow project staff and subcontractors to track pricing and proposals in near real-time.  Failure to properly utilize the RFQ tool results in time-consuming, inaccurate, and confusing subcontractor change management.
    • PCO: Maintain up to date information in Procore. Refer to the KAST Training Center for more information regarding PCOs and associated logs.
    • PCCO: Maintain up to date information in Procore. Refer to the KAST Training Center for information regarding PCCOs and associated Logs
    • CCD: Construction Change Directives
      • Revised Plans: Maintain a complete drawing log which contains every plan sheet with issue and received date listed. As you receive plan revisions update your current set of drawings.  Always perform overlays of the new documents over the previous current to ensure there are no hidden changes.  Maintaining current plan revisions allows you to keep plans current with work being placed in the field. Insist from your client that the design professionals issue you plan revisions accurately reflecting the change in work in accordance with the CCD’s.
      • Permitting Revised Plans: Obtain Signed/Sealed original sets from the Design Team for submission to the building department. Make sure you timely submit and receive revised permit plans for inspection of the work. Avoid any delays in inspections and field progress due to not having plans which accurately depict what has been built.

*** END ***