Fundamentals of Project Management: Part 1c

1
Fundamentals of Project Management Part 1c

• APEGGA Annual Conference
• April 24 25, 2003
• Dr. George F. Jergeas PEng.
• University of Calgary

2
Schedule

• Day 1a
• Introduction
• 5-Step PM
• Planning and definition
• Day 1b
• Estimating cost and time
• Video
• Organize project team
• Selecting PM and team
• Effective teams

• Day 2 c
• Project procurement
• Bidding process
• Building sustaining project team
• Contract administration
• Day 2 d
• Schedule control
• Cost control
• Project Close-out
• Claims and disputes

3
5-Step Project Management PLANNING
IMPLEMENTATION
CONTROL

ORGANIZE
DEFINE
PLAN
CLOSE
Identify project activities
State the Problem
Determine Personnel Needs
Define Management Style
Obtain Client Acceptance Install Deliverables
and Commissioning Document the Project Issue
Final Report Conduct Post- Implementation Audit
Identify Project Goal
Estimate time and cost
Recruit Project Manger
Establish Control Tools
List the Objectives
Prepare Status Reports Review
Project Schedule, cost, team report Issue
Change Orders
Recruit Project Team
Quality and Communication management
Determine Preliminary Resources
Organize Project Team Bidding
Identify Risks and stakeholders Success
criteria
Assign Work Packages
Write Project Proposal
Decision
Project charter WBS
Recruit Criteria
Variance Reports Final Report
Project network
Define Work packages Status Reports
Audit Reports
Project proposal Assign Work
Packages
4
Implementation Phase

• Start once the project has been approved
• Project team for the implementation is
  formed/procured
• In-house and external
• Procurement procedures
• Work package assignments can commence
• Deliverables are agreed upon and clearly
  understood
• Control systems are established
• Time, Quality, Cost, Safety .

5
Procurement Management

• Plan procurement needs (goods and services
  external to the firm that you need to deliver the
  product)
• Make or buy decisions
• Contract type options (risk sharing)
• Solicitation
• Procurement management plan
• Vendor selection process and criteria
• Proposals, contracts, legal issues

6
Procurement Management

• Select and manage sources (vendors, partners)
• Negotiations
• Manage contracts
• Close contracts
• Formal acceptance and closure
• Legal and ethical issues

7
Procurement Tips

• Develop charters with vendors and partners
• Rules of the game, conflict management
  guidelines, escalation process
• Take lead times into account
• Do risk management on procurement

8
Bidding Process

• Advertise and Award
• Issue bidding documents
• Pre-qualification of bidders
• Opening, acceptance and documentation of bids.

9
Bidding Process

• Issue Bidding Documents
• Before the issuance of bidding documents,
  carefully go through all documents
• Errors and omissions can later cause great
  problems, disputes and claims
• Keep good records of all contract documents,
  bidders, dates sent out, etc.
• Carefully and fairly manage addenda.

10
Bidding Process

• Pre-qualification of Bidders
• Prescreening
• invited
• short-list
• Improves the quality of bidders and the bidding
  process.

11
Bidding Process

• Opening, Acceptance and Documentation of Bids
• Treat all bidders equally
• Ensure the process is fair and well documented
• Bid cannot be withdrawn
• Award contract to compliant lowest bidder
• Subcontractor bids irrevocable

12
Problem Bid Shopping/Peddling

• A prime contractor, after being notified of
  selection, shops for cheaper subcontractors
  rather than using the original subcontractor
  estimates.
• Bad practice, unethical and maybe illegal

13
Responsive Bids

• One that meets all of the requirements specified
  in the bidding documents
• Submitted on time any required forms are
  completed and properly filled out required
  signatures are included and dated no changes or
  conditions may be attached to the bid.

14
Bid Acceptance and Recording

• Bid opening is sometimes done in front of
  bidders a formal process is required
• Checklists help to determine if a bid is
  responsive
• Carefully document the process
• Use predetermined evaluation criteria.

15
Contracting

• Adversarial
• Win-lose approach
• Risk allocation
• Fixed price and fast-tracking
• Increase in claims

16
Contract

• Contract A promise, or a set of promises, which
  one person gives in exchange for the promise, or
  set of promises, of another person

17
Elements of a binding contract

• Offer and Acceptance
• Offer terminates
• A counter-offer
• Offer withdrawn
• Time lapses
• Consideration
• Maybe money (1 for a 2001 Mercedes)
• Maybe promise to pay
• Capacity to contract (no minors, lunatics or
  drunkards)
• Lawful purpose
• No illicit purpose or contrary to statute law

18
Case study

• ARA established its own construction company and
  decided to bid on a major infrastructure project
  for a Government agency. In its bid price of
  2,750,000, ARA made a mistake by failing to
  include an amount of 750,000. This mistake
  resulted in its bid being substantially lower
  than the second lowest bidder of 3,400,000.
  Within an hour, subsequent to opening of bids,
  ARA requested to withdraw its bid, which had not
  yet been accepted, and asked for its bid deposit
  of 150,000 to be returned.
• When the owner rejected ARA request to withdraw
  its bid, ARA refused to proceed with the work.
  The owner sued the contractor for the bid deposit
  amount and the difference between the
  contractors bid price and the second lowest
  bidders price.

19
Case Study

• In groups, please answer the following questions
  using your common sense and experience
• Is ARA allowed to withdraw its bid after
  submission and before award?
• Is ARA allowed to withdraw its bid after award?
• Is ARA entitled to a return of its bid deposit?
• Must the lowest bid be accepted?
• What if all bids come in over budget?
• What if contractor qualifies his/her bid?

20
Invitation to Tender v. Ron Engineering
Invitation Offer Acceptance
Call for tenders by owner
by owner
by contractor
Offer
Acceptance
Call for Tender
Submission of tenders
Award of contract
Completion of contract
Contract A
Contract B
Bid Bond
Performance Bond
21
Practical Implications

• Treat all bidders equally
• Bid should be submitted on time
• Contractor cannot withdraw bid
• Award to lowest compliant bidder
• Describe selection procedures
• Subcontractor tenders irrevocable

22
Project Partnering and Collaborative Relationships
23
Agenda

• Definitions of Partnering
• Key success factors
• Benefits
• Framework
• Examples

24
Partnering

• Partnering reverse backward trend by
• Changing mind sets
• Focus on real issues
• Start partnering early!
• Does not replace contracts

25
Partnering is a long-term commitment between two
or more organisations for the purpose of
achieving specific business objectives by
maximising the effectiveness of each
participants resources. This requires changing
traditional relationships to a shared culture
without regard to organisational boundaries. The
relationship is based on trust, dedication to
common goals, and understanding of each others
individual expectations and values
26
Project partnering is a method of transforming
contractual relationships into a cohesive,
co-operative project team with a single set of
goals and established procedures for resolving
disputes in a timely manner
27

• to establish working relationships among the
  parties through a mutually developed formal
  strategy of commitment and communication. It
  attempts to create an environment where trust and
  teamwork prevent disputes, foster a co-operative
  bond to everyones benefit, and facilitate the
  completion of a successful project.
• The Associated General Contractors of America
  (AGC)

28
Key Elements to Success

• Commitment of all parties including senior
  management to the common goals
• Trust
• Honest and open communication at all levels
• No hidden agenda
• Development of mutual goals/objectives
• Continuous evaluation
• Timely responsiveness
• A process for issue resolution
• A fair contracting strategies based on the
  ability to control/manage risk.

29
Benefits of Partnering

• Reduced administrative costs
• Better utilization of resources
• Improved communication
• Increased innovation
• More effective performance
• Non adversarial approach

30
Partnering Framework
Pre-project
Implementation
Persistent Leadership
Teambuilding
Problem Resolution
Selection
Completion
and
Project Managers
Stake-holders
Continuous Improvement
Joint Evaluation
Top Management Support
31
Step 1 Partner Selection

• Ideally based on track record
• In Public Sector - Competitive
• Private Sector - RFP and/or negotiation
• Interest in partnering
• Commitment to partnering principles by
• Top management of all involved
• Project team members

32
Step 2 Teambuilding

• Teambuilding for Project Managers and
  Stakeholders
• Build collaborative relationship
• At best common team culture
• At worst shared understanding with cultural
  differences

33
Step 2 Team Building

• 1. Meet key players to review mutual objectives
• 2. Two-day workshop

34
Step 2 Team Building

• Examine problems and barriers that have prevented
  collaboration in the past
• Representatives of each group are asked the
  following questions
• What actions do the other groups engage in that
  create problems for us?
• What actions do we engage in that we think create
  problems for them?
• What recommendations would we make to improve the
  situation?

35
Step 2 Team Building

• The group share responses and ask questions
• Identify problem areas
• Each group assigned the tasks of identifying its
  specific interests and goals for the project
• Goals are shared across groups
• Establish goals they have in common

36
Step 2 Team Building

• Mixed groups assigned specific problems and asked
  to work out a recommended solution
• Consolidate the efforts into a series of
  agreements and procedures to guide the partnering
  process

37
Step 2 Team Building

• Create Project Charter
• States common goal and objectives
• States procedure to achieve objectives
• Define indicators for success and identify early
  warning signs that the project will be tested
  against
• Commits to realistic success
• Signed by all
• Create a passionate, creative team that will
  deliver an outstanding project

38
Project overview Project Name -
Deerfoot Trail AI/Carmacks

Problem/Opportunity Transfer maintenace of
Deefoot Trail from the City of Calgary to Alberta
Infrastructure
Goal The project team will maintain open road in
a safe manner meeting the budget and schedule
requirements for all stakeholders
Objectives (KRA) - To develop maintenace
strategy/plan for winter, summer and emergency
- Hire personnel (and properly train) -
Provide adequate equipment - Implement strategy
- Reduce number of accidents (ultimately
towards zero) - Cost reduction and increased
efficiency (beating budget and schedule) -
Minimize traffic disruptions - Maintain to
at least the level of city - Avoid negative
publicity - Seamless transition - Happy
motorists - Learn as much as possible about
urban maintenance
Success Criteria - Reduced cost without reduced
service (cost effectiveness) - Safety reduced
accidents compared to average of past 5 years
- Ratio of favorable unfavourable stories 110
- Positive media and population response
- Quicker response times than specified -
Reduce accidents on bridges
Risks and Assumptions - Weather worse than
average - Every small problem magnified by
opposition - Stakeholders resistance and
lack of support - No meaningful cost
information or incomplete information -
Starting conditions of road
Partnering Workbook
Prepared by Date Approved by
Date
39
Our Common Goals and Objectives
We, the partners of the Deerfoot Trail
maintenance team, recognizing the unique nature
of this project, commit to creating an
environment of trust and communication to deliver
a high quality project which meets or exceeds the
requirements of all stakeholders. We commit to
maintaining a positive and optimistic work
environment in which all goals can be achieved.
After discussion it was agreed that the
partnering objectives for the
maintenance contract are

1.
To obtain maximum value for money for Alberta
Infrastructure, and for Carmacks to obtain a
reasonable profit.
2.
To provide high quality work that minimizes the
inconvenience to the travelling public and is
completed on time and in a safe manner.


3.
To provide an environment in which both Alberta
Infrastructure and Carmacks personnel work
co-operatively to optimize this contract to both
partners.

4.
To provide an environment where the avoidance of
disputes and conflicts is fundamental to the
relationship between the parties.

5.
To provide a non-confrontational forum for the
resolution of any disputes which may arise.

6.
To improve budget management by improved
communication of potential cost overruns and
changes.

7.
To properly control costs.

8.
To encourage innovation.

To develop a closer relationship to avoid
misunderstandings - develop and maintain trust.
9.

To understand and respect each partners role
within the project team.
10.
11.
To manage the project efficiently.

12.
To get it right the first time.

13.
To achieve the above by performing in a manner
which will ensure project success.

14.
To have fun.

40
Framework Implementation
41
Step 3 Persistent Leadership

• Lead by example
• Unwavering, consistent, and fanatical support of
  senior management
• Consistently display a collaborative as opposed
  to confrontational response to problem solving
• To champion the principles of openness, trust and
  teamwork

42
Step 3 Persistent Leadership

• Mutual trust will be tested by how partners
  respond to the first disagreements or setbacks
  that emerge
• Reward to those who adhere to the principles of
  alliance
• Admonish those who resort to more adversarial
  practices

43
Step 4 Problem Resolution

• Systematic approach
• Seek solutions
• Increased and higher quality discussion
• Win-win solutions
• Equality of rights among parties
• Agree on no adversarial relations

44
Step 4 Problem Resolution

• Lowest level with time limit
• Escalated to the next level of management
• No action is not an option

45
Step 4 Problem Resolution
Stage One
Stage Two
Stage Three
Within 2 day(s) Names 1.Gary B 2. Gary M
Within 3 day(s) Names 1. Todd 2. Leane
Within_5 day(s) Names 1. Bruce 2. Dave
Resources Available 1. Ron 2. Darrell
Problem Identified
Problem discussed at
A resolution
Problem becomes
apparent
progress meeting.
committee
If any project
comprising a
party is not
Solution to problem
Solution to problem
representative from
content with
offered by those who
offered by project
each of the project
the way
are directly involved
team.
parties is formed.
forward
with it.
agreed by the
If solution to problem
Problem resolution
resolution
If problem not
cannot be agreed at
meeting called for
committee
resolved, go to stage
progress meting, go
committee.
then they may
two.
to stage three.
take normal
Mutual way forward
recourse
If solution agreed, do
If solution agreed, do
for project agreed by
through the
not go to stage two. If
not go to stage three.
resolution committee.
contract
changes affect other
Solution to problem
project parties, record
recorded in meeting
Statement of way
them onto a form
minutes.
forward recorded and
for circulation.
issued.
Partnering Workbook
Finish
Finish
Finish
46
Step 5 Continuous Improvement

• Eliminate waste and rework
• Pursue cost saving opportunities
• Apply Value Engineering
• Share risks and benefits

47
Step 6 Joint Evaluation

• Specific criteria to evaluate team effectiveness
• Teamwork
• Timely problem resolution
• Comparisons of survey responses identify areas of
  improvement and potential problems

48
Partnering Workbook
49
Step 7 Project Completion - Celebrating Success

• Formal joint management review
• Review accomplishments
• Review disappointments and lessons learned
• Festive celebration (picnic or banquet)
• Recognize special contributions

50
Contract Administration Issues
51
Agenda

• Opening a project
• Job philosophy
• Authority and responsibility
• Temporary facilities
• Time inspections and tests
• Contractor submittals
• Administrative activities
• Suspension or termination of the work
• Summary

52
Opening a Project

• After award of contract, the contractor
• Make arrangement for the required policies of
  insurance
• Obtain permits
• Order long-lead purchase items
• Check the site to determine availability of
  storage and work staging areas
• Make arrangemnets for off-site disposals of
  surplus or waste materials

53
Opening a Project

• Owner schedule a preconstruction meeting
• Meet contractor and other key personnel
• Identify areas of responsibility
• Establish job philosophy (set the ground rules)
• Set up requirements for on-or off-site meetings
  and set the frequency of such meetings, who
  should attend
• Discuss problems anticipated in construction
• Discuss special sequence of operations or
  shceduling limitations
• Issue written Notice to Proceed
• Set precise start date - good practice

54
Opening a Project

• Outline project requirements on paper
• Contractor submittals
• Material testing
• Operational testing
• Reviews and updates required in schedules
• Delivery dates of equipments
• Procedures for handling of all communications

55
Job Philosophy Instructions to Field Personnel

• Basic Policy
• Contractors to be present at meetings with
  subcontractors
• Job openning philosophy with contractor Be firm
  but fair
• Responsibility and Authority
• Be a team member avoid adversary relationship
  with contractor

56
Job Philosophy Instructions to Field Personnel

• Inspections and tests to be made promptly
• Inspect the work as it progresses
• Avoid overly-literal specification interpretation
• No field change without PM approval
• Followup all required corrective work until
  completed
• Do NOT supervise any construction nor the
  contractors personnel
• No authority to stop the work notify PM if
  necessity arises

57
Job Philosophy Instructions to Field Personnel

• No authority to require quality exceeding that
  covered by the contract Instruction to the
  contractor thru Superintendent or PM
• Document all action taken
• Documentation
• All field personnel must keep approved type diary
• Contractor submittals to be documented both
  coming in and going out
• Business telephone calls should be documented

58
Job Philosophy Instructions to Field Personnel

• Keep photographic records of progress
• All orders to the contractor must be in writing
• Communications
• Contractor submittals handled only thru Resident
  Project Rep.
• Surveys and special inspections requested thru
  Resident Project Rep.
• Orders to contractor from ANY source must be
  submitted thru RPR

59
Job Philosophy Instructions to Field Personnel

• Changes
• Field orders and change orders must be handled
  thru RPR
• No changes on oral instructions without written
  confirmation
• No significant deviations from plans and spec
  except by change order- even if no cost or time
  extension is involved

60
Job Philosophy Instructions to Field Personnel

• Other
• All inspection should be at irregularintervals
• Inspector should be one of the first ones at the
  job and one of the last to leave
• not a police officer
• contractors prior experience
• lack of understanding of the A/E requiremnets

61
Authority the Owner

• Award contracts in connection with the same work
• Retain a specific portion of the contractors
  monthly payments
• Carry out portions of the work with owners own
  forces in case of contractors default or neglect
• Withhold payments from the contractor for
  adequate cause

62
Authority the Owner

• Terminate the contract for cause
• Inspect the work as it progresses
• Direct the contractor to expedite the work
• Use completed portions of the work before
  contract completeion
• Make payment deductions for incomplete or faulty
  work

63
Responsibility of the Owner

• Furnish property surveys- locate project on site
• Make periodic payments to contractor
• Make extra payment in case of unforseen events
• Allow extensions of time to complete the work for
  unanticipated events
• Cannot intrude into the direction and control of
  the work
• Cannot issue instructions as to method or
  procedures unless specifically provided for in
  the contract
• Not to interfer unreasonably with construction
  operations

64
Responsibilities of A/E

• No contractual relationship with the contractor
• Represents the owner in the administration of the
  contract
• Surveillance of the construction operations
• Overseeing the progress of the work
• See that quality of work and materials are in
  conformance with the requirement of the drawings
  and specifications
• Job inspection and approval of materials

65
Responsibilities of A/E

• Inspect and approve the contractors program of
  field procedure and even the equipment that is
  planned for use, as well as the schedule and
  sequence of operation
• Does not mean they assume responsibility
• Instruct contractor to speed up the work to
  recover delay
• Interpret the requirement of the contract
• Decision is binding and final - questions of fact
  only
• what materials, quantities, or quality
• Question of law- no jurisdiction - time
  completion, claims, and liquidated damages

66
The General Contractor

• Fewer rights and more obligations
• Construct the project in accordance with drawings
  an specifications
• Expected to deliver a completed project in the
  alloted time
• Only severe contingencies can relieve the
  contractor from contractual obligations
• Responsible for the management and control of
  construction operations to maintain established
  work schedules, promote safe working condition
• Must be on site at all time during working hours

67
The General Contractor

• Conform to all laws concerning job safety,
  licensing, employment, sanitation, insurance,
  zoning, building codes
• Comply with tough rules relating to air polltion,
  noise, dust, trash disposal, sanitary wastes,
  pile driving, blasting, riveting, demolition,
  fencing, open excavations, traffic control, and
  house keeping
• Must guarantee all work and materials on the
  project
• Insurance coverage - protection of persons and
  property in, on, and adjacent to construction
  site

68
Resident Project Representative (Inspector)

• Agent of the owner, consultant, CM firm
• Inspect the workmanship, materials, and manner of
  construction to determine whether requirements
  described by the plans, specifications, contract
  documents, codes are met by the obseved work
• Inspection is to detect, recognize, and report
  deficiencies in material or workmanship, or non
  compliance with applicable plans, specifications,
  procedures, standards, codes or regulations

69
Contractor Quality Control Rep.

• Inspect its own work
• Assure that all inspections and tests are made
• Checking of all material and equipment delivered
• Achieve quality construction by preventing
  defective work rather than discovering
  deficiencies that may result in costly removal
  and replacement
• Take action to correct the deficiency even though
  it means stopping the work

70
Time of Inspection and Tests

• Contractor must give Engineer timely notice
• Tests and inspections required by public agencies
  must usually be paid for by the contractor
• Tests and inspections required by the contract
  documents will be paid for by the owner
• Work covered prior to required inspections must
  be uncoveredfor inspection at contractors
  expense
• Failure of an inspector to observe a deficiency
  does not relieve the contractor of obligation for
  performance

71
Time of Inspection and Tests

• Extra inspections required as the result of a
  deficiency must be paid for by the contractor
• The contractor must provide all materials for
  testing at its own cost and expense
• Contractor Submittals should be handled in a
  systematic, consistent, and orderly manner.
• Changes in the systems during a job lead to
  confusion, errors, and abuses
• All submittals transmitted directly to Resident
  Project Rep.

72
Administrative Activities of Engineer

• Coordinate and provide general direction of work
  and progress
• Review contractors schedules regularly
• Assist in resolution of construction problems
• Evaluate contractor claims for the design firm
• Maintain log of change orders

73
Administrative Activities of Engineer

• Maintain log of contractor submittals
• Develop and administer a quality control program
• Proofs of compliance
• Qualifications of testing services
• Define required tests
• Maintain QC reporting systems
• Maintain QC records of all tests and test results
• Establish frequency of testing

74
Administrative Activities of Engineer

• Physically inspect all construction every day
• Observe all contractor tests
• Maintain daily diary and construction records
• Maintain record drawing data
• Review contractor progress payment requests
• Review contractors change order requests for
  design firm
• Assure that construction area is safe
• Participate in field management meetings

75
Administrative Activities of Engineer

• Provide negotiation assistance on contractor
  claims
• Reveiew and recommend contractor value
  engineering proposals
• Supervise inspection forces and field office
  staff
• Report field conditions that prevent original
  construction
• On unit-price projects, obtain accurate field
  meauremnents
• On all jobs, verify contractors monthly work
  quantities
• Assist scheduling and ordering required field
  services

76
Suspension

• Suspention is to cease all or part of the work
  without actual contract termination
• The owner may order the contractor in writing to
  suspend, delay, or interrupt all or part of the
  work for
• budgetary limitation
• updating equipment
• failure of contractor to carry out orders or
  perform any provision of the contract
• unsuitable weather conditions

77
Termination

• Owner to discontinue all or any part of the work
  being done by a contractor
• Contractor default and bankrupcy
• Contractor abandoning the work
• Unnecessary delay
• Issue a change order

78
Summary

• Do not get the idea that you should become a
  police officer, and everyone in the contractors
  camp is out to defraud
• The majority of contractors and their employees
  want to do a good job
• Keep good records and communication
• Read and understand all contract documentation
• Document anything that may change the terms of
  the contract
• Keep as complete records as possible invariably
  the effort pays for itself in the long run they
  protect you, your employer and your client.

79
Changes and Extra Work
80
Changes and Extra Work
81
This Session

• Definition
• Impact costs
• Basic principles in handling change orders
• Types of changes
• Elements of a change order
• Recommendations for good practice
• Evaluation of delays in the Work

82
Change Order

• Is a written agreement to modify, add to, or
  otherwise alter the work from that set forth in
  the contract documents at the time of opening
  bids, provided that such alteration can be
  considered to be within the scope of the original
  project otherwise, a contract modification may
  be required.
• It is the only legal means available to change
  the contract provisions after the award of
  contract

83
Addenda Vs. Change Order
ADVERTISING DATE
BID OPENING
AWARD DATE
SIGN AGREEMENT
1
2
3
4
Changes by
No Changes
Changes by
Change Order
Addenda
84
Change Order

• Could be addition to or deletion from the work
• changes in the method of execution or manner of
  work performance
• change in owner-furnished materials or facilities
• change in the contract time or order of the work
• correct errors in the plans or specifications
• direct results of contractor suggestions that are
  approved by the owner and its agents
• Changes may involve
• a price change in the contractors favor
• cash credit to the owner
• no price change at all

85
Impact Costs

• Often, an owner fails to realize that the cost of
  changes in the work may well exceed the cost of
  the immediate change itself.
• Many change order forms contain an exculpatory
  (disclaimer) clause that precludes a contractor
  from recovery of impact costs.
• Parties sometimes agree on the price of a change
  in both time and money, but the contractor wants
  to reserve the right to file for impact costs.
• Contractor would be ill-advised to sign off on a
  change order without a clear reservation, if it
  expects to claim any future impact costs.
• if owner refuses to accept reservation,
  contractor should perform the changed work under
  protest without signing the change order or
  agreeing to a price

86
Basic Principles in Handling Change Orders

• No work should be included beyond the scope of
  the base contract.
• The identity of the individuals authorized to
  request and approve change orders should be
  established early.
• During the pre-execution conference, a meeting
  should be held to establish the change order
  handling procedures.
• All changes in the work must be authorized in
  writing prior to the execution of any change.
• The scope of a change order must be clear, and a
  request for a change order proposal should
  contain enough information to enable the
  contractor to make a realistic estimate.

87
Basic Principles in Handling Change Orders

• The contractor should submit its proposal to
  execute a change order as soon as possible after
  receiving the request and the owners approval or
  rejection should follow as soon as possible.
• The proposal should be fair. It should recognize
  the contractors right to include
• overhead and profit percentages
• compensation for legitimate time-delay claims
• compensation for legitimate impact costs if any

88
Types of Changes

• Directed changes
• owner directs the contractor to perform work that
  differs from that specified in the contract
• easy to identify, mutually recognized
• disagreements tend to center on questions of
  financial compensation and the effect of change
  on the schedule
• Constructive Changes
• is an informal act authorizing or directing a
  modification to the contract caused by an act or
  failure to act
• defective plans and specifications
• engineers interpretation
• higher standard of performance than specified
• improper inspection and rejection
• change in method of performance
• change in the construction sequence
• owner nondisclosure
• impossibility/impracticability of performance
• must be claimed in writing within time specified
  in the contract
• major source of disputes

89
Sample of a change order

• PROJECT TITLE
• PROJECT NO. CONTRACT NO. CONTRACT DATE
• CONTRACTOR
• The following changes are hereby made to the
  Contract Documents
• Construction of access bridge abutment No. 1
  drainage system and
• Reset two penstock bearing plates. All in
  accordance with revised DWG S-17209
• Revision 3, dated 28 August 1991.
• Justification
• Unforeseen soil conditions
• CHANGE TO CONTRACT PRICE
• Original Contract Price
• Current contract price, as adjusted by previous
  change orders
• The Contract Price due to this Change Order will
  be (increased) (decreased) by
• The new Contract Price due to this Change Order
  will be
• CHANGE TO CONTRACT TIME

90
Recommendation for good practice (AGC)

• Percentages for overhead and profit to be applied
  to change orders
• Length of time that a change order proposal price
  is to be considered as firm
• Determination of the individual representative of
  the owner who is authorized to approve change
  orders
• Procedures to be followed in the submittal of
  change order proposals
• Change order forms to be used
• Time extensions required, if any
• The detail required of contractors when
  submitting change order proposals - will a
  complete breakdown of all costs be required?
  Brief description - Descriptive drawings
• Overtime necessary due to change orders -
  consideration of decreased productivity
• When materials or equipment is to be removed due
  to a change, which party owns the removed items,
  and who removes them from the site of the Job ?
• Responsibility for record drawings brought about
  due to the change orders