End Change Order Request Confusion
It should be simple: Contractors need to get paid for extra work on a project, and owners want to know how much it is going to cost them.
But the invisible problem in the construction industry is that it’s hard for that to happen in a timely manner because of the inefficient processes in place for communicating change order requests (COR).
For example, a project manager with a general contractor was drowning in sloppy and confusing CORs and time and material tag documentation. After dealing with subcontractor CORs for more than a decade, the project manager realized the biggest challenge was a lack of consistency and no easy way to communicate project change orders other than email, excel and paper. Each subcontractor had their own time and material tag forms, their own CORs and their own unique way of tracking a COR log.
It was so inefficient to try to wade through all of these disparate processes; but, the more-than $1-trillion industry still relied on old-fashioned paper forms, spreadsheets or emails to communicate CORs among project owners, subcontractors and contractors.
If there isn’t a single method of tracking change orders mandated by the general contractor, every involved party will come up with their own method—and all too often this will lead to things getting missed and cost overruns occurring.
Here are three approaches to improving COR communication and getting a better handle on the process.
1. Clean Up CORs
Back in school, when the teacher graded homework, it had to be written neatly and formatted correctly or it could end up with a big, fat zero. The same thing goes in the construction industry when it comes to a COR. Unreadable handwriting or insufficient documentation and photos can delay the review process or get the COR rejected. Most owners are savvy enough to request a breakdown clearly showing the rates and mark up. Move away from sloppy, handwritten forms and go digital.
2. Speed Up the Process
COR processing delays can choke cash flow to subcontractors and burn up the good will of project owners, who have no real-time visibility into project costs.
Relying on manual processes is simply too slow. According to a study conducted on a $50 million construction project in San Jose, Calif., it took more than three weeks on average to simply process a COR from a signed time and materials tag. During that time, subcontractors were incurring costs while performing uncompensated work, the general contractor couldn’t present costs to the client, and the project owner had no way to make informed decisions. The time saved by digitizing the COR communication process means faster payments and minimizes frustration on the part of the client.
3. Be Transparent
Construction companies need financial clarity for themselves and their clients. Every construction company has a system to track their project financials, but communication about change orders happens 100% outside of that system. The issue is, how do you know that you’ve captured 100% of all the change orders and related documentation, or is something lost in email?
Instead of requesting a COR log from each subcontractor, technology can bring clarity to change order communication by keeping subcontractors, general contractors and owners on the same page without any manual effort. This saves valuable time and reduces risk dramatically for all parties. It rescues teams from information overload, providing the visibility needed to keep projects on budget.
The point is to eliminate missing, confusing or unreadable documentation so there are no cost surprises. Being able to see CORs accumulate in real-time means more accurate financial forecasting and improves the ability of contractors to keep tabs on project costs.
Everyone One Benefits from Better Communication
Improving the COR communication process pays off in a literal sense. When contractors can effortlessly collect subcontractor CORs in one place, it eliminates extra administrative work and ensures financial forecasts are accurate. Everyone involved—the contractor, subcontractors and client—will enjoy see financial benefits.