WHAT IS A CONTRACT CHANGE?

A contract change happens when anycondition modifies the work as it was de-fined in the contract documents at the timeof 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 beused.

• Changes to correct defects in the specifi-cations or drawings.

• Changes in the kind, quantity, or timing ofequipment furnished by the owner or gen-eral contractor.

• Changes in the schedule.

• Changes resulting from unexpected nat-ural events or activities from other trades.

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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 fairapproach to price adjustments when changes are required.

In the absence of special conditions or provisions in the specifications, contractors can basetheir original estimates on optimum crew size and the most economical pacing.When changesrequire 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 allparties 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 party’s action.

Types of Changes

Most change orders will fall under one ofthe three categories described below.The cat-egory into which a particular change order be-longs will have a definite impact on the amountof effort a contractor will have to put into hiseffort to obtain a satisfactory outcome andpayment.

1. Directed or owner-acknowledgedchanges: 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 thecontractor to perform in a way that differs fromthe original specifications of the job. It can in-volve additional or less work, or a change inthe construction sequence or schedule.

What the contractor must do in responseto 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. Hemust, in addition, successfully convince theowner of the authenticity of the costs and timeinvolved in the change.

2. Constructive changes: In this cate-gory falls any action or lack of action by theowner (or any agent of the owner) that—though not a formal change order—has theeffect of requiring the contractor to perform ina manner different from the terms of the con-tract. These constructive changes are oftenexpressed verbally or in writing, but some-times they occur as acts of omission by theowner that have an impact on the contractor’swork or schedule.The most common kinds ofconstructive 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 theowner that these conditions imply the exis-tence of a change order, constructive changesare a major source of construction disputes.In fact, what happens in these cases is that acontractor believes that an action or inactionon the part of the owner (or owner’s agent)has resulted in a change in the contract re-quirement, while the owner often disagreesthat 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 notcovered under the original contract without awritten change order. When told to proceedwith work under dispute, the contractor mustimmediately take steps to ensure the eventualrecovery of all cost and time impacts. To dothis, the contractor should:

• Research the contract documents thor-oughly to confirm that a change condi-tion—a claim—actually exists.

• Prepare and submit a change order re-quest proposal, giving the owner a clearand detailed description of the change.

• Be alert to any notice requirements andrespond properly.

• Issue notice of intent to file a claim if thechange order is denied.

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• Document all responses—or lack of re-sponses—carefully. Inform the owner ofresponse times and schedule impacts.

• Be alert to any notice requirements and re-spond properly.

• Issue notice of intent to file a claim if thechange order is denied.

• Document all responses—or lack of re-sponses—carefully. Inform the owner ofresponse times and schedule impacts.

• Respond promptly and properly to anyfinal decisions.

3. Consequential changes: Like aconstructive change, a consequential changeis often difficult to identify.As a result, it is oftenequally difficult to convince an owner of itssoundness and significance. Consequentialchanges represent additional work or coststhat results as a direct consequence of someother more obvious change. The cost impactof a consequential change includes some orall of the same impacts as any other change(i.e., direct and indirect costs, interferencecosts, and/or impact costs).

The contractor should include all conse-quential effects in his proposal for the directedchange whenever possible. Unfortunately,consequential impact is often not foreseeableuntil after the original change order is settled.If a dispute comes up over a consequentialchange, the contractor should follow the stepscalled 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 onconstruction projects so those involved canbe more aware of the major circumstancesleading to changes. Some reasons for

changes are very obscure, but most changesfall 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 usingagency and

• Contractor improvements.

Owner Changes

Because of the change clause, ownershave the right to make any change they arewilling to pay for. Owner changes usually af-fect a contractor’s scope of work—as withchanges in a project’s configuration or spacerequirements—and can also impact theschedule and/or sequence of work throughchanges in scheduled deliveries of owner-fur-nished equipment.

Defective Specifications

Defective specifications are perhaps themost frequently cited and easily identifiedcauses for change orders.The term “defectivespecifications” cover a multitude of change-causing circumstances that result from badlyprepared or incomplete specifications. Somechanges that result include:

• Incomplete specifications. This changesituation occurs when the contract docu-ments do not provide the contractor with ad-equate detailed information necessary toexecute the work. Changes of this natureoften occur when construction details arecoordinated between design disciplines.

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Change Orders

• Conflicts. Conflicts happen when the pro-posed design results in two or more itemsoccupying the same space. It is a rare con-struction project where conflicts of thiskind do not result in changes.

• Discrepancies. It is also hard to think ofa design without discrepancies—differ-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 anddimensions required in the design of aconstruction project, it seems, are just toonumerous to lack errors of some kind.

• Duplication. Duplication describes a sit-uation where the same item is specified indifferent specification sections or thesame item is specified differently in thesame specification. Duplication often re-sults in disputes over which trade con-tractor is intended to perform the work orwhich method or material the designer ac-tually had in mind.

• Omissions. Omissions happen when aspecification section, drawing, or scopeitem is left out of a contractor’s package.For example, it often happens that the mis-cellaneous metals specification is ex-cluded from all packages other than to thestructural steel subcontractor.Then, whena mechanical contractor is required tomake welded attachments to the structuralsteel, a change order could be due if therequirement to touch up welded surfaceswas included only in the miscellaneousmetals specification.

• Impossibility. It is common to meet up withdesign details that, for some reason, can-not be implemented as designed.Changesdue 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 toproject conditions, unknown at the time ofbidding, that affect the contractor’s perfor-mance. Change orders for latent condi-tions usually result from either subsurfacesoil conditions or conditions within the ex-isting facility that diverge distinctly fromwhat the contractor could have reasonablyexpected at bid time.

• Nondisclosure. Either intentional or un-intentional nondisclosure refers to a situ-ation in which the contractor is not told ofall critical design or construction informa-tion necessary to project completion. Achange order is warranted when the pre-viously unknown information has an im-pact on the contractor’s performance.

• Changes required by regulatory agen-cies/using agency. It is the job of the de-signer to make sure that the project designmeets all applicable building code and reg-ulatory requirements. Except when a con-tractor fails to perform in a workmanlikemanner, added work or changes requiredto meet code or regulatory requirementsshould result in a change order.

• Contractor improvements. A contractorwill frequently introduce changes whensuperior methods or materials become ap-parent. When a contractor initiates suchchanges purely for the reason of using animproved method or material, an ownerfrequently resists changing the contractprice. In cases where contractor changesare initiated to overcome some owner-re-lated problems—such as to address anowner-caused delay—contractors shouldbe awarded for any impacts.

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The Change Clause

Most construction contracts include achange clause which allows the owner theright to make alterations, addition or deletions,provided that the changes are within the orig-inal scope of the contractor’s work. It also pro-vides the contractor with a way for includingsuggestions and delineates how changes areto be incorporated into the contract. In somecases, the change clause will outline proce-dures for processing change orders. The fol-lowing provisions are usually found in mostchange clauses:

• No work, outside the contractor’s originalscope, is to be performed without a writ-ten change order. In most cases, this pro-vision includes allowances for emergencysituations that cover work required to pre-vent personal injury or property damage.

• A written change order, signed by theowner and/or approval agent, is the onlymeans for effecting change.

• The work to be performed under thechange order is within the scope of thecontractor’s original contract.

• The approved change order must includeadjustment 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 bythe contractor or by the contractor’s cost anda mutually acceptable fixed or percentagefee.

If the adjustment is by lump-sum, the per-centages allowable for overhead and profit areusually stipulated in the contract, and the con-

tractor must determine the cost. If the adjust-ment is by cost-plus, the contractor’s costmust be determined prior to application of thefixed or percentage fee.

It is essential, therefore, that if the con-tractor is to be fairly compensated for achange order, he must know his costs.And hemust be able to properly identify and present,if requested, all his costs prior to the additionfor overhead and profit.

A mechanical contractor cannot make upfor the cost items missed in computing achange order simply by adjusting the currentlyallowable percentages of overhead and profit.

COST ELEMENTS

There are three cost elements involvedin a change order:

• Direct and Indirect Job Costs

• General and Administrative Overhead

• Profit.

Direct and Indirect Job Costs

The elements of direct and indirect jobcosts vary over a wide range depending onmany factors and it is usually these variationswhich are at the heart of change order dis-agreements. Direct costs are the costs of thematerials, supplies, equipment and subcon-tracted work and labor that go into, and whichcan be clearly identified with, a particular seg-ment, phase or unit of a project. Indirect costsare those costs that cannot be attributed to asingle item or unit of a project. Indirect costsare generally divided into two categories—joboverhead and general overhead. In order toestablish acceptable standards, it is neces-sary to identify the six basic elements of di-rect and indirect job costs. These are:

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Change Orders

1. Collective Bargaining AgreementPayments, including:

a. Wagesb. Industry Fundc. Health Fundd. Apprenticeship Traininge. Journeyman Training Fundf. Vacation, Welfare Retirement Fundg. Jury Duty, Sick Pay Allowanceh. Travel Expensesi. Other agreed payments similar to

above.

2. Supervision On-Site

3. Material

4. Equipment

5. Subcontract Work

a. Keeping subcontractors advised ofall changes

b. Keeping subcontractors advised ofschedule changes and time exten-sions

c. Responding in timely manner to allsubcontractor queries

d. Providing follow-up information andmaterial to subcontractors when re-quired

e. Keeping subcontractors aware of re-quired lead time for shop drawingand material submittal involved inchange orders

f. Reviewing subcontractor’s submittalfor concurrence with contract docu-ments.

6. Other Direct and Indirect Job Costs

a. Indirect Labor, On-Siteb. Indirect Labor, Off-Site (general

superintendent, draftsmen, etc.)c. Payroll Taxesd. Payroll Fringe Benefits

e. Travel and Subsistence Expensef. Job Insuranceg. Small Tool Expenseh. Equipment Rentali. Job Supplies (ice water, photos, etc.)j. Telephone and Fax, On-Sitek. Truck and Equipment Expensesl. Taxesm. Construction and Performance

Bondsn. Permitso. Temporary Services and Facilitiesp. Clean-upq. Drayager. Warranty, Guarantee, Call Backs. Delay Penalties, Liquidated

Damagest. Association Duesu. Miscellaneous Costs (instruction

manuals, tags, move on/move off ex-penses, certification, etc.)

v. Safetyw. Cost to Develop Change Orderx. List Productivityy. Drug Testingz. Re-stocking Costsaa. Engineeringbb. Schedule Impact.

Material, Equipment and Subcontractcosts are usually identifiable. Even other di-rect and indirect job costs are either a factorof the other elements or are available fromcompany records. However, labor costs aredifficult to determine and not easily itemized.

The following should help identify someof the factors to consider when determininglabor costs.

The number of man-hours required tocomplete a change order under normal condi-tions can be estimated using accepted laborunits.Adjustments must be made for abnormal

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or less-than-optimum conditions existing at thejob site. Some factors to be considered are:

1. Overtime Requirements

Overtime has been shown to lower bothwork output and efficiency through physicalfatigue and poor mental attitude. Proving thatovertime has caused a decrease in produc-tivity could help contractors recoup losses in-curred in running a job at less than normalstandards of productivity. (Refer to BulletinOT1—How Much Does Overtime Really Cost)

2. Multi-story Buildings

Labor costs increase in a multi-storybuilding even when a man and material hoistis furnished, and available and drinking waterand toilet facilities are provided on at least al-ternate floors. The increase is substantiallylarger if only stairs or ladders are provided anddrinking water and toilets are remote.

3. Manpower Availability

High construction activity in an area cre-ates a shortage of skilled workmen which, inturn, 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, dailyerection and dismantling, having to moveon 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 roomis limited

• Poor housekeeping

• Hazardous surroundings.

Consideration of the above factorsshould enable the contractor to determine ac-curately the cost of performing the work thatis required in the change order.

5. Impact on Performance

Now, consideration must be given to the“Impact” of the change order or the effect thechange order will have upon the performanceof the other work or the work remaining to bedone that is not of itself changed. The term“Impact” refers to the indirect delay or inter-ference that a change on one phase of workmay create on another phase. The costs ofsuch delay or interference should be recog-nized as a consequential cost to be consid-ered as a part of direct cost. A change orderissued to one contractor more often than nothas impact upon other contractors.

Some factors which affect the comple-tion of the basic contract as a result of achange order are:

Fatigue: Overtime may be required tocomplete the base contract work within the al-lotted contract time because of a changeorder. Overtime breaks the established

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Change Orders

rhythm of a project and lowers work outputand efficiency through physical fatigue.

Morale and attitude: Skilled workmenhave intense pride in their work, in its progressand in the final result. Change orders, if notproperly planned, may cause interruptions inthe work schedule, require adjustments in sizeand makeup of crews, or require moving mento other parts of the project prior to completingthe one they are currently working on and withwhich they are intimately familiar. Frequently,work is required on a phase for which detailedplans have not been completed.

If overtime is required on a part of theproject because of a change order, men onanother 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 theplanned activities of a project result in a de-terioration of the construction schedule. Achange order, if not properly integrated in theaverage schedule, can transform an orderly,sequenced work plan into one in which manyoperations must be performed concurrently.The workmen of several trades could bestacked in a limited work area creating a sit-uation in which work cannot be done effi-ciently. A contractor who was the low bidderand who scheduled his performance on an op-timum time-minimum cost program may findhimself faced with a minimum time-maximumcost fiasco.

Reassignment of manpower: Re-assignment of workmen is generally requiredwhen changes to work in progress come un-expectedly, when changes are major, or whena demand is made to expedite or reschedule

completion of certain phases of the work.Productivity could decrease if sufficient timeis not allowed to plan an orderly effort to en-sure work proceeds smoothly and efficiently.

Crew size inefficiency: Productivity isadversely affected when workers are indis-criminately added to work crews to completea project. Changes could create this situationby requiring additional work within the sametime schedule. There is a definite limit on thenumber of workmen and quantity of equip-ment that can effectively be used on a work-site at any one time.

Dilution of supervision: Field activitiesnecessary to and associated with the integra-tion of change order work into the work of thebasic 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 assigningworkmen, procuring the additional material,equipment and tools, etc., productivity on thebasic contract could be adversely affected.

Learning curve: When workers areadded to perform additional work because ofchange orders, a period of familiarization willbe required until these men are oriented to thejob, plans, specifications, tool locations, workprocedures, etc. If more than one crew is re-quired to do certain installation work, thelearning curve productivity is correspondinglymultiplied.

Errors and omissions: When additionalwork is required because of a change orderbeing issued, often the impact on the basiccontract work is not properly considered.Thisgives rise to possible errors and omissionswhich can be very costly to correct.

Beneficial or joint occupancy: Achange order which delays completion of the

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project could result in work having to be per-formed after the area is occupied by theowner’s 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 becomescongested or restricted at the time the workis scheduled for that area.Time in gaining ac-cess is costly.

Logistics: Delay can occur because ofproblems in procurement and delivery of ma-terials, equipment, etc., due to a change inscope. Prolonged overhead and escalation ofmaterial and equipment prices and projectionof labor into a new and higher wage periodalso contribute to additional costs.

Ripple: A change order issued to onecontractor more often than not has a profoundeffect on the work of other contractors. Theother contractors may find themselves facedwith additional costs due to having to changethe schedule or sequence of operations.

Time modifications: Time modifica-tions associated with change orders must beprocessed on a timely basis to preserve theintegrity of the contract schedule. An acceler-ation in completion dates may result in re-duced efficiency in that the contractor may beobligated to use premium time or to add fur-ther resources which cannot be used effi-ciently. Conversely, an extension in time willgenerally result in additional overheadcharges. Therefore, time and price should beagreed upon together, and unless required byoperational exigencies, should be agreedupon before work is begun.

Delayed completion: A change ordercausing 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 changeorder Summary.

Escalation of costs: If the change orderdelays completion of the project, additionalcosts are incurred in off-site storage of mate-rial and equipment or in possible escalationof prices if delivery must be postponed. Sub-contracts may also be subject to escalation.

Financing charges: Delays caused bychange orders extend the completion and ac-ceptance of the project during which time ad-ditional costs are imposed on the contractorby his having to finance retainages for a longerperiod 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 thisbulletin are increased if completion of the pro-ject is delayed.

General and Administrative Overhead

Because the general contractor’schange order will be made up of many changeorder requests from several Subcontractors,and since the General and Administrative(G&A) Overhead level of different types ofspecialty contractors vary widely, G&A shouldbe shown as a percentage separate and apartfrom that shown for Profit.Sometimes the per-centage for G&A is stipulated in the contractdocuments.

Profit

Profit should be applied as a separatepercentage figure. It should be applied afterall costs are included with the appropriate addition for G&A Overhead. Sometimes the percentage for Profit is stipulated in the con-tract documents.

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Additional Cost Elements InAdministration of Change Orders

Time for acceptance: A time limitationfor acceptance of a change order should al-ways be stipulated by the contractor in his re-quest. If not accepted within the stipulatedtime, the quoted price would be subject to es-calation.

Additions and/or deductions:

1. Where additions only are involved, thecontractor is entitled to an addition to thecontract Sum in the amount of direct andindirect job costs, plus G&A Overheadand Profit. If requested, the contractormay be obligated to provide a detailedbreakdown to verify his quotation.

2. Where deductions only are involved, thecontractor should calculate the reductionto the contract Sum only in the amountof the reduction in direct and indirect jobcosts.

3. When both additions and deductions areinvolved, each should be calculated asseparate change orders in accordancewith 1 and 2 above, whichever is applic-able. If both omitted work as well asadded work is involved in the samechange order, then the total amount ofthe change order will be equal to the dif-ference between the additions and thedeductions in accordance with 1 and 2above.

Unaccepted change order: If anowner-initiated change order is not acceptedand authorized, the contractor should be re-imbursed for all costs incurred in the prepa-ration of the quote. The contractor shouldhave a prior understanding that such a billingwill be forthcoming and will be paid in the

event the change order is not accepted andauthorized.

AUTHORIZATION PROCEDURES

Persons authorized to act on workchanges should be designated as early aspractical after a basic contract has beenawarded. Representatives of the buildingowner having authority to make changes, andrepresentatives of the contractor(s) havingauthority to accept and to implement changeorders should be clearly specified.

The authority to proceed with work in-volved in a change order must be in writing andconform to procedures for changes as pro-vided in the basic contract.

LUMP SUM CHANGE ORDER AND COST-PLUS CHANGE ORDER PROCEDURESAND FORMS

Having outlined criteria to consider whenmaking changes to a basic construction con-tract, we will now present a comprehensiveset of forms and procedures to use in prepar-ing estimates for tracking the costs of suchchanges.

Two distinct and different types ofchange orders are discussed in detail:

• Lump Sum (Fixed Cost) change orders,and

• Cost-Plus change orders.

The instructions and forms presented forboth types apply equally to additive and de-ductive changes. The central purpose of anychange order procedure is to ensure that thecontractor is paid for change-related work. Inthe case of a lump sum (fixed cost) change,this means that the contractor’s original esti-

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mate for the change must include all itemsneeded to do the work. For a cost-pluschange, 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 1through 15) are designed to serve both situ-ations. Part 1 deals with lump sum changes;Part 2 with cost-plus changes.Included in Part2 is a Field-Authorized Change Order Form.Designed primarily for field use, it provides ameans not only for tracking costs but also forobtaining written authorization for additionalwork, when necessary.

Before adopting the procedures pre-sented here, evaluate them carefully and re-vise them as necessary to meet therequirements of local conditions and yourcompany’s operating procedures.

Part 1: Lump Sum (Fixed Cost) ChangeOrders

Of the two types of change orders dis-cussed in this bulletin, lump sum types are ofgreater advantage to the contractor for tworeasons. First, a lump sum change order per-mits the contractor to estimate all costs be-fore work begins. If he is careful aboutincluding in his estimate all items necessaryfor the work, he is almost certain to make afair profit. Second, a lump sum change orderrequires far less tracking and paperwork in thefield than does a cost-plus change. Thismeans that fewer labor and materials ex-penses go unrecorded, and field personnelspend less time filling out forms. Despite itsadvantages, however, a lump sum changeorder must be handled properly.The followingprocedures and forms will help make that handling accurate and efficient.

Recommended procedures:

1. The key document in controllingchange order activity is the ChangeOrder Status Sheet (Exhibit 1). TheProject Manager should record any po-tential change on the Change OrderStatus Sheet as soon as the possibil-ity of a change is identified. Formalchanges should be numbered se-quentially and recorded on the ChangeOrder Status Sheet.

2. Prepare a Change Order Proposal(Exhibit 2) and use it as a cover letterwhen submitting your change order costestimate to the project owner or generalcontractor. Be sure the proposal letterstates that you reserve the right to mod-ify your estimate if additional work notcovered by it is required. Also state atime limit for the owner’s or general con-tractor’s acceptance of the proposal.

3. Summarize all estimated costs (itemizedon forms discussed in steps 3 through10, below) on Change Proposal CostSummary Sheet (Exhibit 3).The sheet isself-explanatory and may or may not beattached to the Change Order Proposal,depending on your company’s proce-dures. Keep a copy readily available forreview with the approving authorityshould questions arise.

4. Itemize estimated equipment and ma-terials costs on an Equipment CostEstimate Sheet (Exhibit 4) and aMaterials Cost Estimate Sheet (Exhibit5).Because changes usually involve rel-atively small amounts of materials, andtherefore do not qualify for large volumediscounts, it is suggested that all mate-rials be estimated using standard over-the-counter discount prices.

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Restocking charges should also be con-sidered where credits might be in-volved. Be sure to estimate requiredquantities of all items and to calculatethe material subtotal cost, using figuresin the Total Cost columns. Add to sub-totals all additional costs, such as salestaxes, drayage charges, warranties,start-ups, etc.

5. Estimate all miscellaneous direct jobcosts on an Other Direct Job CostsEstimate Sheet (Exhibit 6). Once com-puted, the labor cost estimates on thisform should be transferred to the LaborSummary Sheets (Exhibit 9) and thematerials costs to the Change ProposalCost Summary Sheet (Exhibit 3).

6. Complete an Equipment and ToolRental Estimate Sheet (Exhibit 7).

7. Complete a Vehicle Operating CostEstimate Sheet (Exhibit 8), include allgasoline and oil costs anticipated foreach vehicle.

8. Itemize all labor costs on the LaborSummary Sheets (Exhibit 9), usingstandards detailed in MCAA’s LaborEstimating Manual.

Rates, fringe benefits, travel allowances,etc. for the various labor categoriesshould be shown on the matrix at the topof Sheet #1 of the Labor Summary Sheet.Use items 13–22 (Exhibit 9) and 23–40(Exhibit 10) to indicate percentages of in-crease or decrease to the labor estimatedue to factors affecting productivity.(Refer to Bulletin PD 2, Factors AffectingLabor Productivity) Once you have item-ized the various labor factors, calculateand total the estimated labor costs usingitems 41 through 52 on Exhibit 10.

9. List all subcontractors and subcontractquotes and total the estimated cost of subcontracts on a SubcontractsSummary Form (Exhibit 11).

10. On an Extended Overhead Cost Sheet(Exhibit 12) compute all overhead costsnot included on the other estimateforms.

11. Use the Special Inclusions andExclusion Form (Exhibit 13) to list anyadditional items that should be part ofthe change order, as well as specificitems that should not be. Be sure thatitems listed on this form are referencedin either the Change Order ProposalForm (Exhibit 2) or a special cover let-ter to the proper project authority.

Document, Document, Document; thekey to effective change order management isdocumentation. While contractors have beenreacting to the present litigious atmosphere inconstruction with more attention to documen-tation, it is still not a tool that most contractorsuse effectively. Good documentation of theevents leading to and supporting a con-trac-tor’s contention that a change has occurredcan mean the difference between settling aclaim order and filing a claim.

As a guide to proper documentation, acontractor should, at a minimum, include thefollowing 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 achange does exist

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5. Notification to owner (date and person)

6. Pertinent records and documents, suchas:

• 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 andschedule impacts

• Impacted schedules.

7. Notification to subcontractors/suppliers

8. Notification to bonding company (if re-quired).

Conclusion:

By using the above procedures and theExhibit forms, a mechanical contractor’s es-timate for a lump sum change order shouldcover all the necessary bases, ensuring thathe does not lose money on the proposedwork. In addition, the completed estimateforms provide ample material to present toa project owner or general contractor duringa change order review.

Part 2: Cost-Plus Change Orders

A cost-plus change order demands thatthe mechanical contractor carefully track all

expenditures made on a change while doingthe work. This requires his field personnel tokeep accurate records and increases thechances that some expenses will “slip throughthe cracks” unrecorded.

Three steps can help alleviate problemsrelated to cost-plus changes:

1. Use a Field-Authorized Change OrderForm (Exhibit 14) and Work AuthorizationForm (Exhibit 15) for all cost-plus changeorders, both to ensure that change workis duly authorized and to track costs.

2. Incorporate the Sample Instructions forField Authorized Changes (Exhibit 16)into your company’s operations, modify-ing them as necessary.

3. Educate on-site supervisory personnel inthe concept of cost-plus change ordersand the proper use of the Field-AuthorizedChange Order Form. Emphasize the im-portance of controlling and recording allexpenditures, and enforce their doing so.

Few areas of contracting offer as muchopportunity for financial loss as do mishand-led change orders, particularly cost-pluschange orders. But losses can be eliminated.It is largely a matter of established practicalpolicies 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.

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EXHIBIT 1CHANGE ORDER STATUS SHEET

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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 ContractRequested Quoted Authorized Change Order Invoice Change Order Revised

By Date By Date No. Date No. Date

EXHIBIT 2SAMPLE CHANGE ORDER PROPOSAL FORM

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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 describedabove. We reserve the right to assess the impact of this change order at a later date and to submitthese 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,

EXHIBIT 3CHANGE PROPOSAL COST SUMMARY SHEET

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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 4EQUIPMENT COST ESTIMATE SHEET

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Date: ______________

QUANTITY EQUIPMENT UNIT COST TOTAL COST

SUBTOTAL EQUIPMENT

Sales Tax _________ %

Drayage _________ %

Escalation _________ %

Warranty _________ %

Start-up, Test & Punch _________ %

Total Costs

EXHIBIT 5MATERIAL COST ESTIMATE SHEET

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Date: ______________

QUANTITY EQUIPMENT UNIT COST TOTAL COST

SUBTOTAL EQUIPMENT

Sales Tax _________ %

Drayage _________ %

Consumables _________ % (of Labor)

Escalation _________ %

Warranty _________ %

Start-up, Test & Punch _________ %

Total Costs

EXHIBIT 6OTHER 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

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EXHIBIT 7RENTAL 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 ________________

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EXHIBIT 8COST 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 ________________

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EXHIBIT 9LABOR 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 MetalJourneyman

Sheet MetalForeman

Sheet MetalGeneral 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

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EXHIBIT 10LABOR SUMMARY SHEET Page 2 of 2

Labor CorrectionsDate ________________________

23. Percentages are applied to the total affected manhours ofthe current contract, and to the labor of the proposedchange As of _____________ ________________ (A)

AFFECTED MHRS OF MANHOURS OFCURRENT 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 $

$

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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

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EXHIBIT 12

EXTENDED OVERHEAD COST SHEET

Job No. _________________ Date _________________

Project __________________________________ Type of Work ____________________________

Location __________________________________ Estimated by ____________________________

EXTENDED OVERHEAD COST TOTAL

TOTAL COST

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EXHIBIT 13

Date _______________

Special Inclusions and Exclusions Form

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EXHIBIT 14FIELD-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 ByPURCHASER'S REPRESENTATIVE

_____________________________________________ Company ________________________________________________

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EXHIBIT 15FIELD-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 PREMIUMTIME TIME

EQUIPMENT & TOOLS

DESCRIPTION TIME DESCRIPTION TIME

REMARKS: _______________________________________________________________________________________________________________

CONTRACTOR OWNER SUBCONTRACTORARCHITECT

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

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EXHIBIT 16

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