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Know the change order process or risk loss

Published: 15 Dec 2013 Average Rating: 4.2 / 5 Print
 
This article appeared in Contracting Excellence magazine on 15 Dec 2013 view edition
 

Even if you know how a change order (CO) process works in your organization, the change and your own process for handling it can leave you with more questions than answers. Not knowing how the process works guarantees problems ahead. 

Anumoni Joshi, Patent Attorney, India

Internal stakeholders will ask about the sustainability and workflow; however; end-to-end approach and robust gap analysis will lead to a streamlined process and generate additional revenues through the CO.

Maybe it's time to first, review the basics of the CO process. Change means adding, modifying, or removing an agreed service, or service component, and/or its associated elements. The process of closing such changes with the customer is called change order. It contractually amends the original contract to reflect the change(s). 

Even seasoned professionals can fail to anticipate the following pitfalls. Many could exist when the original contractor CO plan is written.  These include:  

  • Project plan is defective
  • Costs were not anticipated
  • Technological developments like software changes occurred
  • Design modification or project plan changed
  • Environment or conditions changed
  • Scope of work (SOW) changed
  • Errors and omissions were made by the parties

Change in any project across industries is inevitable, even if you have a perfect project plan. Managing the change efficiently is key to the success of change order management. Any change to the original project plan is always carried out by a change order request. Therefore it is imperative to get the change order request approved in writing before acting on the Change Order.

Study the contract

Let's say a project manager or stakeholder knows that a CO requirement exists. This person must first look carefully at the terms and conditions of the contract and determine if the contract…

  • Provides a change order provision and also the process to initiate the change order;
  • Adequately provides the rights to invoke a CO to only one party;
  • Defines a CO procedure to be complied with (eg deadline to submit a CO request / a quotation, specific documentation to be used).

The CO can be formal or informal, depending on the industry practices and size of the industry, and accordingly, projects are managed differently. Regardless, the CO should…

  • Identify the change: Completely understand the nature of change and when it will occur. Understand and identify the core problem that obstructs project completion. Read the contract signed by parties involved and become familiar with how 'change' is defined. Usually, this is defined as extra work, deficient specification or estimate etc.
  • Clearly state why the change is required and substantiate it with sufficient reasoning, whether it is mandatory or optional for the project to succeed. Include details such as cost estimate, timelines and any other impacts on the project. 
  • Plan how to mitigate the change by defining the objective and specific ways to leverage the change. Eliminate disruptions as much as possible to limit cost and time lost.
  • Notify the parties of changes with valid justification and reasoning with an adequate timeline to respond.
  • Accept the plan and its terms and conditions to resolve the change. Normally this would include cost estimate, timelines etc. It's important to identify the effect of changes, while not losing sight of those elements of the project that are unaffected by the change.

Get approval first!

In a perfect world, CO management brings order to the otherwise chaotic world of managing change requests.  But in the real world, stakeholders of the project too often overlook established procedures and a project manager starts acting on the change request before it is approved. At times, stakeholders fail to take seriously the CO requests and act hastily to carry out the changes to satisfy the end customer. This can cause disagreement between the parties.

Most organizations have an established procedure to approve the CO. The process can get complicated and time consuming. Many times the CO request can be very informal – but it is unwise for the project manager to act upon it impromptu. Informal change requests should be routed to the appropriate people in the project or organization who are authorized to approve the change.

It is also not advisable to initiate change on verbal authorization, even if it is coming from a very senior person in the organization. It is far better to complete the change request formalities according to the procedure set out in the contract. If the procedure has not been codified (formalized) in writing in the contract, then the contract can be amended. 

Once the CO request is mutually approved between the parties, it is essential to consider the following aspects:

  • Define a CO Management Process with Customers prior to the execution phase to agree on all the operational aspects. This will govern the issue of requests by the customer or the seller for quotation or for change. 
  • Make sure a written CO request is in place before starting work on the CO.
  • Anticipate change, as it is bound to occur and plan for it. Almost every project goes through minimum one or two change requests but it is important to carry out the changes successfully with minimal impact on the project. Once the Change Order request is approved a second stage of planning is required to execute the change within the project to achieve the desired results as anticipated by the change. 
  • Evaluate all risks assessed due to the change. Have the risk management plan in place before initiating the change order request. Many organizations use a risk matrix such as high, medium or low priority to ensure the changes are carried in accordance with matrix priorities and its impacts.  
  • Efficiently test and implement all changes made according to the CO plan within the specific timeline.
  • Approval / Authority Matrix and financial impact of CO to be in place through pre-approved workflow. 
  • Have a process improvement program in place to continuously improve the change management process.
  • Determine all the generic factors or conditions that keep recurring in the project. These factors should not be considered for change.

Beware of pitfalls

My experience has several times awakened me to the pitfalls of inappropriately managed change requests.  In one case, a loosely-drafted contract became the culprit. The parties relied on their good relationship and faith more than the paper work. The contract was only two pages, thus failing to satisfy basic terms and conditions. Within six months a situation arose that prompted the customer to demand a change request. The parties could not negotiate the terms for the change request, and even the contract was lacking any agreed provisions for the same.

The project stagnated for another eight months, because the parties failed to agree the terms for change. Almost two years had elapsed from the start of the project but with no progress, and the customer demanded damages from the vendor.

Ultimately, the parties settled without cost to each other; however the vendor lost the high value customer and it affected the vendor's quarterly revenue. After this incident, the company streamlined the contract management process within their organization. In many similar situations, claims and legal battles are not unheard of. 

The point is we cannot afford to underestimate the importance of a well-written contract!

Scope creep can cause chaos. Another situation I sometimes encounter is the client requesting changes to the change requests themselves. These might be minor alterations or additions. It is a common practice but sometimes, due to flawed design and poor analysis by the project team, the client keeps coming back with changes and asks them to be incorporated, not realizing that such a practice can lead to bigger problems like scope creep (i.e. uncontrolled changes or continuous growth in the scope of the project).  If the scope is not defined, documented, or controlled properly, the result can undermine the process.

It's time consuming but worth it

To summarize, it's worth it to do the right thing no matter what. Many organizations are strict in abiding by the process governing the contract as well as policies, and management carries out the entire CO request in accordance with correct procedure. However, at times, doing the right thing dissatisfies customers and the project team, who become impatient that the CO request must pass through different stages of validation and confirmation. It also has to go through different hierarchical levels in the organization depending upon the value of the change order. 

To be honest, doing it correctly the first time gets time consuming. It can even delay the project timeline. And yet, improving the administrative process of the CO reduces the overall cost and risk associated with the project. It also encourages a more trustful relationship among the project participants.

And in the long run, trust is better for keeping customer relationships going. 

Impact and the way ahead

Industries globally benefit from an agreed change order process. It is now almost a critical aspect of any contract process and it has become more apparent to many that the CO not only can generate additional revenues for projects but can also produce greater opportunities and generate better relationships.

A CO can monetize all support services rendered to customers – Reporting, Training, Program Management, Small projects, Technology support, and Transition services. Contracting parties are increasingly eager to develop and agree on a robust CO mechanism. In fact, companies are outsourcing various CO tools to raise the process visibility and make it friendlier to both employees and customers.

REFERENCES

1.     Adding Value to Change Order Management Process using simulation approach: A case study. Jing Due and Mohmmad El-Gret PhD. Amine Ghanem PhD 2012.

2.     Construction change order process guide WSDOT- Oct 2012

3.     Change Management - best practices; white paper -Cisco 2008

4.     Change Order Management, by Matthew Stevens

TO CONTACT THE AUTHOR, please mail your question to Info IACCM  or connect using the IACCM Member Search (login required).

TO CONTACT THE AUTHOR, please mail your question to Info IACCM  or connect using the IACCM Member Search (login required).

ABOUT THE AUTHOR

Anumoni Joshi spent 10 years as an in-house counsel. Her career path spans many industries including IT, manufacturing and law firms. Her credentials: Management and law graduate from Symbiosis Institute of Management and Pune University; MDP-IPR & Strategy from Indian Institute of Management Ahmadabad; and Diploma in Special Corporate Laws and Consumer Protection Laws. A Patent attorney (India) and recipient of Patent Expert Scholarship by Govt. of Japan, she is currently self-employed, pursuing higher interests in life, and is an aspiring writer/columnist.

 
 
 

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