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Business Advisor

My 3rd Commandment: Change Orders Are Nothing But Trouble

Fast-forward another 10, 20, 50 years to the state of green building, and the average builder will be using as many green building design techniques, construction methodologies, products, and materials as the most cutting edge green builders are using today. In short, a massive shift is under way whereby today’s standard construction techniques are fast becoming obsolete. And I mean fast!

So, when we sit down at a future monthly breakfast meeting of rookie and veteran builders (no, they will not all call themselves green builders), what advice could those a little longer in tooth give those just starting out? I hope it’s the same advice I myself learned 10 years ago, on the eve of our industry’s green building tipping point: WATCH OUT FOR THOSE CHANGE ORDERS!

No excuses

Although I know many builders who believe change orders are their friend, I must take the contrary position. While change orders have enabled me to make back money I lost as a result of a previous estimating or sales error, I believe an absence of change orders in our projects has greater value as a positive indicator of healthy operating systems and procedures. And this value far outweighs any potential benefit change orders may pose to make additional profits. In fact, many change orders are simply an opportunity for a builder to lose money, because the processes followed do not account for the fluid integration of changes once a project is under way.

Why is the client requesting a change to begin with? Instead of looking at change orders as a way to make “more” money or to “make up” money, perhaps they should be viewed as an opportunity to look more closely at your systems and procedures to see what is not working and what needs refinement. Shouldn’t the issue at hand have been uncovered during the interview process, in the materials specification and product selection stages, or while your design team was working with the client on “needs, wants and wishes”?

A paper trail

The proper execution of a change order requires writing up the scope of it and pricing it out for client approval in advance of any work being done. While rookie builders may fail to write them up and collect a signature first, most veteran builders have learned from previous errors, and they have this procedure down pat. At this stage of writing a change order, proper operating systems would dictate your work has only just begun. Now this written change order—this legal document affecting your contract—must be linked back to some combination of documents, including blueprints, accounting books, purchase orders, trade partners, the schedule, and the selections tracking process.

Anybody who has been in this business more than five years has likely written a change order, priced it out, and received client approval in advance—only to see that change order poison the project because it was never linked to the preceding documents listed above. In essence, it just sat there all alone on an island, never got passed on to the workers, delayed the project without getting documented in the schedule, was not accounted for when materials or products were ordered, etc. …

Better client selection, estimating, product and material specifications, and design systems will help you reduce the number of potential change orders. But when you are building green, new ideas will come to market in the middle of the project that cannot always be anticipated. Your processes for handling them have the potential to make or break the job. Remember:

  1. 1. Put them in writing. The more detail the better!
  2. 2. Include payment terms in writing in the change order!
  3. 3. Put the schedule delay, if it exists, in writing in the change order!
  4. 4. Get a client signature on a hard copy of the change order!


  1. Brian O' Hanlon | | #1

    Thanks for the article
    I'm going to sit down and have a proper read later on, but I do like the choice of topic.

  2. Michael Strong, LEED Associate, CGP | | #2

    Looking forward to your comments Brian
    Remember "to change order or not to change order" that is the question. Can you make money with them? Sure. Have we? Of course. But I would rather walk around a mine field than brag about having walked through it unscathed. I will take a project with ZERO change orders over the alternative any day. Enjoy!

  3. Brian O' Hanlon | | #3

    Separating out some issues
    The way I look at it Michael, when really need to describe what sort of scale of projects we are dealing with here. For instance, in a video presentation I watched recently about the US dept. of energy's Energy Saving Performance Contract, they were describing the need for huge research laboratories working for decades on projects, to have an affordable/safe source of power supply. In the video presentation it used the example of White Oak laboratories which had an existing 1.0 million square feet of laboratory space, very intensive in power usage. But as part of the ESPC contract, the ESCO, which was Honeywell had to allow for expansion of power generation up to 3.0 million square feet. Now, to get an idea of how large a campus that is, the largest shopping centre in Dublin, completed not so long ago, after its phase two was around 1.0 million square feet alone. It has captured most of the market share in high end retailing for Dublin, a city of approx. one million inhabitants. At the White Oak campus, they were able to generate I think around 30 megawatts of power on site. Anyhow, that is one end of the scale and it is important I believe to think about the simple, change order, in that larger context. Because as energy costs become more and more prohibitive, if we want to have good quality public campuses to support education, healthcare, employment and innovation, then we need to start getting intelligent in our procurement side of things. Check out the FEMP site, under financing mechanisms, ESPC case studies to view the videos. I'll see if the spam filter enables me to post the actual link in a mo.

  4. Brian O' Hanlon | | #4

    Lean Blog
    On a general point, a great resource in easy to listen podcast format, produced by a facilities management consultant working in the health care area, a Mr. Mark Graban, is his website called Lean Blog dot org. See in his audio section for an extensive set of interviews with the great leaders in the lean production movement. What we are talking about I guess, when we refer to minimisation of the change order, is the goal of 'lean construction'. Make sure and have a listen to what Norman Bodek has to say on the subject. Norman was the person who published a lot of the literature, which had been written in Japanese by engineers who devised the Toyota method of car production.

  5. Brian O' Hanlon | | #5

    Energy Saving Performance Contract Video

  6. Michael Strong | | #6

    Out of the box comments
    Wow Brian! Two great comments from of the box I did not expect to receive. I will check out the video as soon as I get home and have a decent internet connection. Thanks for the info. In regards to yoru first comment about scale, yes context is everything. Familiarty on the scale you refer to is only something I can dream out. My concerns are much more pedestrian but to the client, they are of course just as germane. In the example you give the change order was Pre-Planned and that is the critical disnction to maintain. By pre-planning for that change order, or any change order for that matter the buidler has the time to integrate it into their systems and procedures to see that if and when it is implemented that A. it makes the project better and doesn't mess it up (not a techincial description but you know what I mean) and B. they can get their desired profit margin.

    Good comment and thanks for the link!

  7. Brian O' Hanlon | | #7

    Other useful references
    MS says: "My concerns are much more pedestrian but to the client, they are of course just as germane. "

    I used to have a copy of Bryan Lawson's book, Design in Mind, Architectural Press, 1 Aug 1994. (One should never loan these books away I guess)
    # ISBN-10: 0750612118
    # ISBN-13: 978-0750612111

    It was a really neat little reference, because it look at how various designers interact with clients of different nature and scale. For instance, in one of the chapters they talked about Stirling Wilson's architectural practice who were building a new university campus in Singapore I think. The 'client' was the board of management of the university, and the board kept on changing as the design progresses. That presented it's own unique set of challenges.

    Another book, I came across not so long ago, and presents some very deep analysis into this subject - taking clients of different types.

    Understanding the Construction Client
    Published Online: 21 Jan 2008
    Author(s): David Boyd, Ezekiel Chinyio
    Print ISBN: 9781405129787
    Online ISBN: 9780470759561

    The basic observation in the book, is that by nature of building the project, the organisation who commissions the work, must change. Because its processes have now to adapt around the fact, it has a brand new facility. Therefore, by definition, the client you began dealing with at the start of the project, is never the same client you deal with by the end of the project. Because, in anticipation of occupying the new facility, they have had to institute all kinds of workstream and management changes to take benefit of the facility and investment.

    Boyd and Chinyio establish the point in their book, quite early on, that understanding such as the above, has been integrated into business management knowledge for some time now. It is fairly commonly taught to students in business schools. But no one has ever bothered to adapt it, for use in the building industry.

    Chapter 1:
    Clients in Perspective
    Chapter 2:
    A Model of Clients
    Chapter 3:
    The Client at Rest
    Chapter 4:
    The Client in Change
    Chapter 5:
    Property Developers as Clients
    Chapter 6:
    Supermarkets as Clients
    Chapter 7:
    NHS Acute Trusts as Clients
    Chapter 8:
    Governments as Clients
    Chapter 9:
    Airports as Clients
    Chapter 10:
    Housing Associations as Clients
    Chapter 11:
    A Toolkit for Engagement
    Chapter 12:

  8. Brian O' Hanlon | | #8

    On the back of a cigarette box
    You can read a short piece I wrote for the Sunday Tribune newspaper here in Ireland last year. (Spam filter is blocking the link at the moment) We used to offer a type of on-demand, lean construction service to corporate clients in Dublin city. Back then, I didn't understand a huge amount about green building. It was more to do with time and execution - with strong consideration for durability - so that the liabilities we were taking on as a company, didn't come back to haunt us later, with building repairs needed etc. I would have enjoyed taking that model beyond and into areas such as ESCO partnerships, new contract types and financing models. Oh well, the up's and down's of the economy.

  9. Brian O' Hanlon | | #9

    A Design Manual - Office Buildings
    I guess I am most interested in extending the concepts of green architecture upwards to larger developments and larger type of clients. I see no reason why that shouldn't happen, with the right people, training and skills on board. In the interests of putting forward that board discussion, I will leave you with one more reference, which has greatly changed the way I like to think about places of work and what that means in the 21st century. People who are philosophically responsible to many of the points raised in this book, are guys such as Richard Sennett, Nicholas G. Carr, Frank Duffy of DEGW, and Douglas McGregor, author of 'The Human Side of Entreprise'.

    What is interesting about Frank Duffy's outfit in Britain, DEGW, is they claim to offer a two pronged services to their clients. On the one hand they will supervise and building projects to provide a workplace which suits the needs of their client. While at the same time, they will work with their client to try and develop workstream and management approaches, which could offer it competitive advantage. Some of DEGW's clients include the government departments in the UK. Their website is a really good resource on their philosophy and thinking.

    So when we talk about change orders from the point of view of the contractor - maybe we should bear in mind, there are other kinds of builders - whose aim it is, to 'change the client'!

    Office Buildings: A Design Manual [Hardcover]
    Rainer Hascher (Author),
    Simone Jeska (Editor),
    Birgit M. Klauck (Editor)
    Publisher: Birkhäuser Architecture; 1 edition (September 25, 1998)
    ISBN-10: 3764366508
    ISBN-13: 978-3764366506

  10. Brian O' Hanlon | | #10

    CMAA Magazine
    Inside The Change Order Profit Strategy
    Garrison & D'Agostino With Barry LePatner

    Barry B. LePatner, Esq. is author of "Broken Buildings, Busted Budgets." For three decades, he has been prominent as an advisor on business and legal issues affecting the real estate, design, and construction industries.

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