Change Order Guidelines for Electrical and Low Voltage Contractors
Electrical and low voltage contractors are routinely asked to prepare change order proposals on construction projects. The single most common area of dispute in the change order process is its cost. Among cost-related disputes, items related to recoverable direct cost, overhead-profit percentages, and impact factors resulting in consequential costs constitute the vast majority of the disagreements. All types of change orders can have these disagreements but change orders that do not address an agreed upon price are particularly prone to disagreements.
The two obvious cost categories of a change order include direct costs and overhead-profit costs. Direct costs are easily identifiable and quantifiable. Overhead-profit costs are generally quantified as a percentage of the direct cost or of the total change order amount. In addition, there is a third category of costs, known as consequential costs due to impact factors. These are difficult to identify and quantify and, therefore, are a source of conflict and controversy when included in a change order.
Electrical and low voltage contractors must often address situations where they are not allowed to include in the change order all of their direct cost items and/or an appropriate percentage of overhead-profit. Most electrical and low voltage contractors believe that change orders are generally not profitable for them. As a result, they end up doing the change order work with a smaller markup than the initiall bid project. In addition to lack of adequate cost recovery, change orders often have a negative impact on the project’s overall progress and budget due to their impact on rest of the project.
The main purpose of this project is to develop guidelines that provide a systematic, standardized, fair process for the pricing of change orders for electrical and low voltage contractors. This study identifies various costs categories and items, investigates overhead-profit practices, and identifies various impact factors and methods used to calculate associated consequential costs. Although the main focus is on electrical contractors, interactions with and/or input from many related industry groups, are also taken into consideration.
Also check out ELECTRI’s Change Order Guidelines – Quick Reference by clicking here.
On Thursday, January 29, 2015 ELECTRI held a webinar about the findings of the report with the lead investigator, Prof. Matt Syal of Michigan State University.
The recording of the webinar is available for viewing here