September 27, 2018
Author: Curtis W. Martin
Organization: Ford Nassen & Baldwin P.C.
Planning is key to a successful construction project. As President Dwight D. Eisenhower once said, “In preparing for battle I have found that plans are useless, but planning is indispensable.” That observation rings particularly true in the construction industry because plans must be malleable to allow for changed or unforeseen circumstances, but a lack of advance planning will leave project participants without the tools necessary to accommodate project realities.
Planning in the construction industry can be the difference between success and failure. Once a project is underway, changes to the work or the schedule will almost certainly occur at some point, and having a plan in place from the outset is the best way to defuse potential disaster. This requires a high level of planning and the creation of a schedule capable of accommodating any changes that might arise—even those that cannot reasonably be foreseen. In the context of a multi-million dollar construction project, scheduling details and change order procedures might seem minute, but they can create huge problems if not properly addressed from the start. This presentation explores the importance of planning as it relates to the project schedule and the anticipation of changes on the project.
CHANGES IN CONSTRUCTION
Almost every construction project encounters some sort of change. Changes are inevitable and, as such, carry with them a silver lining: no change should come as a complete surprise. Armed with the knowledge that changes can and will occur, project participants may successfully weather the storm by anticipating and accounting for the inevitability of change.
Construction schedules are dynamic by nature, and schedule changes can greatly affect the rights and obligations established by the construction contract. Therefore, it is wise to have a process for handling changes as they arise. Failure to do so results in an inability to effectively address changes and their impact on the project, which in turn is likely to reduce profit margins. Fortunately, the same scheduling programs used to plan and monitor the project can be used to assess the effect of changes on the project and can greatly enhance one’s ability to communicate with the project decision-makers about these changes.
In most situations, every change to the project will be governed by the “Changes Clause” in the construction contract. The Changes Clause, and other associated clauses, dictates what can and cannot be done in response to changes on the project. For example, the contract language may include limitations or bars to certain types of changes, and it will likely detail precise requirements necessary to effectuate changes. Most importantly, it will designate the individual or individuals authorized to approve a change. Each project participant has the responsibility to understand what the contract requires regarding changes—the contract language represents the agreement between the parties, and it is the methodology that will be enforced.
Quick Tip: Abide by the change procedure in the contract. This takes discipline. It is very common for contractors to operate outside the bounds and requirements of the contract when it comes to changes. Casting aside the procedure may be easier in the moment, but it is ill-advised and can really hurt later when change requests are denied due to violation of the express requirements of the contract. “We must all suffer from one of two pains; the pain of discipline or the pain of regret. The difference is discipline weighs ounces while regret weighs tons.” – Jim Rohn
Authority to Make a Change
When a change is made, it must be approved. Contractors cannot simply decide that a change is in the best interest of all parties involved. Consequently, the Changes Clause will undoubtedly require an authorized person to approve each change. The identity of the person or persons authorized to approve changes is crucial—both when seeking approval for a change and when performing work pursuant to an alleged change. Authority expressly conferred to a person or persons to act in a certain manner is referred to, legally, as “actual” authority. A person with actual authority to make changes will likely be listed in the construction contract. Another form of authority that might exist is “apparent” authority. Apparent authority exists when a person appears to have the authority to act in a certain way, perhaps because of his or her position or due to surrounding circumstances. Apparent authority can be sufficient to order or approve a change to a construction contract, but it is most advisable to defer to the source of actual authority dictated by the contract documents. In either case, the best practice is to consult the contract and confirm with the prime contractor or owner.
Changes in Writing
Most construction contracts will require that change orders be in writing. In addition, the change order must also comply with any limitations or requirements in the contract. These may include signatures of authorization, inspection or satisfaction by an owner’s representative, or a limitation on profits or additional fees. There will also be some type of notice requirement, which will be discussed below. All pertinent information must be included in the change order, and it must comply with the contract language.
In the construction industry, it is not uncommon to receive pressure to proceed with changed work without a written change order. However, without a written order, serious questions arise. Was the change ever agreed to? What is the scope of the change? What is the cost of the change? What effect will the change have on unchanged work? In such a situation, it is important to communicate with the authorized project personnel and other appropriate parties to identify the understood answers to those questions before proceeding with the work. Communication can be a conversation, but the best form of communication in this scenario is to send an e-mail or a letter to the person authorized to make the change, as well as the owner and/or the prime contractor. The written communication should clearly describe the nature of change, the scope of the change, the estimated effect on other work, and the estimated cost. The written communication then serves as a record of the agreement between the parties with respect to the change. This record is invaluable in the event of a future dispute.
As previously stated, notice of the change to the owner or prime contractor is almost always a requirement. In some cases, the failure to provide this required notice can bar a claim entirely, resulting in denial of an increase in contract time or price. Frequently, change claims are also barred by other documents related to the construction contract, such as form payment applications or releases. Payment applications will usually include a release of claims as a condition for payment, and many owners/contractors will also require the submission of separate waivers before payment is released. For this reason, close scrutiny should be afforded to the language contained in payment application forms and other related documents. Otherwise, the right to assert a claim for payment based upon changed work may be unintentionally waived or released.
Though proper notice is typically a prerequisite for the assertion of a change claim, in some situations, written notice to the appropriate parties may not be required. Directly informing the required parties of a change provides them with actual notice even if the requirement for written notice found in the contract is not strictly satisfied. A claim may still be possible in this instance, but it is a position to be avoided. First, in the event of a dispute involving the change claim, the lack of a written change order will result in valuable time wasted arguing whether notice was actually received, and time is money. Second, contract drafters frequently anticipate the “actual notice” argument and include a clause stating that actual notice does not satisfy the notice requirements of the contract. In that case, actual notice will be insufficient and the change claim will be barred. In addition to preventing barred claims, following the notice requirements and procedures outlined in the contract provides the perfect opportunity for informing all project participants up-front about the nature of a change. Notice should be given promptly, and delay in sending notice to all interested parties should be avoided. The notice should include an estimation of the significance of the change. This is not always strictly necessary, but it is a good practice because it informs the parties responsible for approving changes of the extent of a particular change and the impact it may have on the project. If the change will have an impact on the project schedule, it is also a good idea to offer possible mitigation strategies that can reduce any adverse effects. Though contractual notice requirements may seem burdensome, once understood, compliance should be an inexpensive and routine step in the process of seeking approval for changes.
A constructive change is a common occurrence in construction, and one that can cause contractors a lot of heartburn. A constructive change is an act or omission that causes a change, or alleged change, in the time or cost of completion but where the prime contractor or owner refuses to issue a change order. For example, the owner may instruct its prime contractor to change something about the work on the project, and the prime contractor may respond that the change is significant enough to require issuance of a change order. However, the owner may disagree and refuse to issue the change order but still require the change to be made. Defective plans, or plans or specifications that have been misinterpreted, are a common source of such disagreements. Regardless, it is obvious that this can cause issues between the parties.
So, when faced with a constructive change, what is the solution? Failing to comply with the owner’s demand for changed work puts the contractor at risk of breaching its contract obligations. Consequently, the best course of action is to notify the owner (or whoever is requiring the change to be made), in writing, of the reasons and basis for believing a written change order should be required, taking care to follow all the notice requirements of the contract and include all pertinent information with respect to the change and its significance. Documentation of such efforts will benefit any potential claims for recognition of the change at a later date.
Documentation is paramount to proving change claims. The owner is not going to write a check or accept an extended completion date without some proof as to why it is required. In the event of a dispute over a change claim, documentation of communication between the parties with respect to the changes is crucial. In fact, having the appropriate documentation is the single most important factor in proving changes. Sometimes, the documentation required will be extensive, but it can also be something as simple as an email receipt proving that notice of a claim was promptly delivered.
The first step in properly documenting changes is to keep a record of events with respect to the change. Document what happened on the project and how those events led to the change. For instance, changes are often the result of some sort of delay on the project that has caused the original completion date to be unattainable. Most construction contracts will characterize such delays as either “excusable” or “non-excusable.” Nonexcusable delays are those for which no compensation will be afforded by the owner, whereas excusable delays may be subject to an equitable adjustment in either the contract price or the contract time (or both). To determine whether an excusable delay will result in compensation, the contract should be consulted to determine what types of excusable delays qualify as compensable. As an example, weather delays are frequently defined by construction contracts to be excusable, compensable delays. Documenting and explaining the events that led up to a change will help prove whether the change is compensable. Where applicable, the documentation should record the identity of the person who directed the change, when the direction was given, and why the direction was followed.
Construction contracts are time-sensitive and timing is almost always an issue impacting the characterization and proof of changes.
Having documented the events that led to a change, the second step in proper documentation of changes is to document the nature of the change itself. Proof of the change will require documents explaining why it is a change as defined by the contract. What efforts were taken to avoid the necessity of the change, and what has been done to mitigate the change’s impact on the project? Additionally, what effects will the change have on the project? If the change affects the schedule, what are those effects? Effects on the cost of the project should also be explained, as well as how the cost differentiation is calculated. The main point is to leave nothing to uncertainty. Detailed documentation of the answers to these questions can be the key to successfully asserting a claim for the change.
Keeping Up with Changes
Keeping up with changes in the project is as significant an exercise as documenting the changes. A change cannot be claimed if there is not an awareness of that change.
Depending on the size of the project, changes may seem to accumulate at an unmanageable pace. However, having appropriate methods in place to handle a large volume of changes can curb the overwhelming feeling that there is just too much to handle. Ideally, such methods should be established and initiated at the outset of the project.
The contractual procedures for managing changes are the best starting point for development of methods to cope with changes. They provide a strict outline of the procedures that must be followed with respect to changes, including notice procedures as discussed above. By internalizing these procedures at the start of the project and developing systems and methods to engage these procedures in real-time as changes occur, project participants may limit the impact that frequent and/or extensive changes can have on prosecution of the work. In addition to providing a defined framework for keeping up with changes, such procedures have the added benefit of short-circuiting personnel or personality conflicts that may otherwise stymie efficient resolution of claims.
Over the course of a project, unpredictable changes may occur with respect to the responsible parties involved. Those authorized to make changes may have shifts in attitude or opinion over time, and the designation of the authorized parties themselves may also change. By following the change procedures set forth in the contract, one can greatly reduce this unpredictable human factor in construction. Rather than operate on the assumption that the parties involved will do what is fair or maintain a favorable disposition, strict adherence to contract guidelines as changes occur allows one to prepare for the worst and hope for the best. That way, there may be disappointment, but never surprise.
One obvious component of keeping up with changes is to get everything in writing. Because the contract likely requires this anyway, it will likely occur naturally by virtue of the adoption of contract requirements as change-management tools. However, it bears repeating that all aspects of changes should be documented in writing as the changes arise, occur and evolve. Such writings should include all aspects of the change-- time, cost, effect on unchanged work, and any other factors that may be pertinent. If a change order is given, but complete agreement over the change has not been reached, reflect that in the writing. If no writing or change order has been given, as is the case with a constructive change, insist on written instruction before the change is made. If insistence goes unrewarded, create a writing documenting all the important information with respect to the change and send it to the parties authorized to make the change.
Keeping up with changes is not always as simple as cataloging all of the changes that have been made on the project to date. If it was, life would be much simpler. But life is not simple, and sometimes the threat of a potential change can really cause disruption for the project. When presented with a potential future change that could lead to such disruption, it is necessary to advise the parties authorized to make changes of that potential and insist on immediate instruction with respect to the potential change. However, such immediate direction from the decision-makers is sometimes wishful thinking, and there will be occasions when the potential change must be dealt with via independent and proactive means. The alternatives are to wait and see if the change actually occurs (leading to costly delay for the project), or to proceed with work despite the potential for change and face the possibility that completed work will need to be torn down later (leading to costly delay for the project). The proactive reaction to potential changes is a two-step process. First, the owner or prime contractor should be informed of the potential impact of the change. The change will probably require some deviation from the baseline schedule because of changes in materials, activity durations, final completion of the project, final project cost, or any combination of those factors. Notifying the owner or prime contractor of these potential impacts has two benefits: 1) it will communicate the importance of a prompt decision; and 2) it will help prove claims for the change made at a later date. If a prompt decision is not forthcoming, the second step is to document all the information previously communicated to the owner or prime contractor and send it to either or both. Documentation of the potential change well in advance of its actual occurrence will do nothing but strengthen the proof for a later change claim.
Keeping up with changes is extremely important. Proper methods and systems of operation will simplify this process. Another way to keep up with changes to the project is through the project schedule, which is discussed below.
THE CONSTRUCTION PROJECT SCHEDULE
Scheduling is an integral part of the construction process. Developing the schedule for a construction project provides valuable insight into every aspect of the project. The schedule answers the how, when, why, where, what, and who questions that are involved in every construction project. Answering those questions in an organized fashion creates a construction schedule, which is essentially nothing more than a plan. Creating that plan requires some critical thinking, and it is the most important factor to success in every construction project. Not only because it creates order out of what would otherwise be chaos, but because it tends to result in higher efficiency and effectiveness. This, in turn, will pay dividends along the way to, and at, completion of the project.
The Way It Was
In the old days not so long ago, the bar chart was used to represent the schedule on a time scale. The bar chart method had many flaws, most significant of which was its inability to express how different activities were related to each other in the schedule. However, that did not seem to matter. In those days, the schedule was usually developed for one reason: the project contract required a schedule. Once the schedule was created, it was dismissed almost as quickly. Like the famous chicken and its egg, it is not entirely clear why the project schedule was traditionally treated with such apathy. Was the schedule never updated because no one ever consulted it, or was the schedule never consulted because it was never updated? Whatever the case, as the actual importance and value of the schedule became more evident over time, different methods for creating the schedule emerged.
The Evolution of the Schedule
The concept of project scheduling was likely developed not long after men first decided to build things. But, as hinted at above, it took some time before significant changes were seen in the way that schedules were created. In the late 1950s, computers (probably as large as tractor-trailers) began to be used to develop schedules. With the extra computing power available, project participants were better able to fashion schedules that could account for the realities of construction and the delays or resequencing that might arise on the job. The new, electronic schedules were able to adjust time periods and work items based on the impact of such delays, and this provided everyone with greater control over workflow on the project. Thus, the Critical Path Method (“CPM”) was born. The CPM identifies those tasks that are the most critical and time-sensitive for a given project (i.e., the “critical path”) and automatically adjusts the schedule and associated work items based upon impacts to the critical path. This new level of project oversight revolutionized the way schedules were created and treated and, since that time, technology has made exponential leaps, allowing for even greater control and flexibility Today, personal computers and programming software are relatively cheap.
Schedules are created on a computer screen and can be sent anywhere in the world in a matter of seconds. Changes to the schedule in the program can even be made to provide a simulation of what would happen if activities were approached in a different way.
Regardless of the ease of use or low cost, however, the construction industry is still dragging its feet when it comes to scheduling. The inability or unwillingness to embrace scheduling as a way to plan for and monitor the project is costing contractors valuable time. And in construction, time is money.
Ways to Use a Schedule
Planning for the Project
As stated above, a schedule is just a plan in hard copy. A plan in physical form allows multiple people to see the plan and understand it. Most people are familiar with the child’s game, “Telephone.” In that game, one person whispers a statement of some sort to the person next to him, and then the statement gets repeated in a circle, whispered from one person to another until it returns to the original “sender.” The joy of the game lies in the fact that the statement gets changed a little bit with each transmission, meaning that it is often nearly unrecognizable by the time it finishes the circuit.
Apply the same exercise to a construction project, and it is plain to see how major problems might arise if a schedule is not written down and made permanent. Imagine a senior project manager who sketches a plan out in his head and explains it to a project manager, who then explains it to a superintendent, who then explains it to a subcontractor’s foreman, and so on. The potential this would cause for costly error is unacceptable. But if that same senior project manager wrote the schedule down, there would be no possibility of confusion, theoretically. That is the key benefit of a schedule. It creates a plan all people involved can understand and adhere to.
Additionally, when a schedule is created, there is a large amount of critical thinking involved. To create a fully functional schedule, everything must be considered: the definition of the work for each activity, the relationships between the activities, the duration of the activities, the logical sequence in which those activities must occur, and the resources required to complete the activities. Having an articulated plan based on thoughtful insight into what will be required for the completion of the project can greatly reduce the impact of changes when changes to the schedule become necessary.
Monitoring the Progress of the Project
Once the original schedule has been created, it becomes the concrete timeline for the project and is usually referred to as the “baseline” schedule. The baseline schedule depicts the plan for completion of the project based on all the known factors as they existed in the contract documents, the plans, the drawings, and the specifications. Once the project work begins, it will inevitably change as the work progresses. Changes made due to delays can ultimately effect the completion date of the project. This is where the schedule’s ability to monitor the progress of the project is invaluable.
Monitoring the progress of the project as it proceeds confers two advantages. First, it enables the progress of the work to be documented. Documentation of project activities is usually done by inspectors or project managers who observe and record the completed work and the time it took to complete the work. By continuously monitoring the work’s progression, that information can be used to estimate all the work completed at any certain date, which can then be used to create a schedule reflecting when the individual components of the work were actually completed. This schedule of how the work was actually performed is referred to as the “as-built” schedule.
The as-built schedule can show how far along the project is in comparison to the baseline schedule. For instance, if the baseline schedule calls for the foundation work to be completed on the 100th day after work commences, determining the date on which the foundation work was actually completed can show whether the project is ahead of, or behind, the baseline schedule. For this process to be accurate, the methods utilized must be efficient and effective, or the as-built schedule will not represent the true position of the project in comparison to the baseline schedule.
The second advantage is that the information compiled by monitoring progress of the work highlights all sorts of details associated with the documented work. When the inspector or project manager is collecting the pertinent information, he may wisely make notes or comments along with his observations. These details relating to the work can be helpful in making decisions and petitioning for a change in the baseline schedule (such as proving the existence of a compensable delay). But the as-built schedule can also be useful in other ways. It can show whether a delay has affected the critical path, or if the delay burned some float in the schedule. That information can in turn help with decisions about work acceleration or other measures necessary to address the problem.
Monitoring the project by maintaining an as-built schedule is beneficial to every contractor. It keeps the contractor informed of the progress of the work and the work’s position in relation to the baseline schedule. It is also a tool for documenting the details associated with the work. That documentation is crucial later when requesting changes in the schedule or when delay disputes occur between the contract parties. Finalizing methods of monitoring the project before the project gets underway may be more work initially, but it will save money, time, and hassle down the road.
Monitoring the project can show where changes may need to be made. Once a possible change has been identified, the ability to evaluate and manage that change is enhanced by the documentation that goes along with project monitoring. This ability to evaluate a change before it becomes absolutely critical reduces change-related impacts and greatly increases the likelihood of handling changes effectively and efficiently. The additional documentation and oversight provided by effective project monitoring is also useful when requesting a change. Because changes are limited by contract law, the construction contract completely controls when and if changes may be made. Issues such as change authority, change requirements, notice requirements, and change limitations can be difficult barriers to overcome, but advance planning and good record-keeping make it easier to navigate a successful course. Above all, it is vital that every project participant know the contract and abide by its strictures.
Proving a change is effectively done in one way: documenting the change and all its aspects. The as-built schedule can operate as a form of documentation. But documented communications with the parties authorized to make changes are also highly valuable sources of proof for a change claim. Document everything. Explain: 1) what caused the change; 2) who authorized the change; 3) what documents reflect that information; 4) why it is a change as defined in the contract; 5) what has been done to prevent or mitigate the change; and 6) how the change affects the project cost and/or schedule. Without that information, the risk of a denied claim is heightened, as is the risk of wasted time and money in a legal battle.
The construction project schedule is a highly valuable tool that can be utilized by contractors to improve their efficiency and effectiveness on a project. The relatively cheap price of scheduling software and its ability to easily put activities in a logical order make it a valuable tool for contractors and other project participants. Ultimately, a good schedule is key to managing the project and changes to the project.
Scheduling a project creates a concrete plan of what the project should look like as it progresses forward, and centralizes that plan so that everyone involved can have a full understanding of it. Knowing what should happen softens the blow when things do not happen as they should. The schedule is a benchmark for the entire project, and proper planning and organization are the top factors for a successful project.
After the project commences, the schedule is also an effective tool for monitoring the progress of the project. Proper monitoring of the project produces two important results. When the right methods are used, monitoring the progress of the project and recording that progress keeps the as-built schedule up-to-date so that it is useful throughout the entire project. A current as-built schedule allows for a comparison to the baseline schedule, showing where the project is on a time scale. This allows the contractor to assess the status of the project at almost any point in the past, and estimate the probable status of the project in the future. With this information, the contractor is able to see where problems (e.g., delays or inefficiency) have or will occur and where appropriate measures (e.g., acceleration or changes) may be necessary.