Potential Change Orders relate to any change to the contract documents that may have an effect on the
contract amount or contract time for the Prime Contractor or any of its subcontractors. In simple terms, a
Potential Change Order is just that, an issues that could potentially be a change order to the contract
A PCO can be initiated by a:
- Request For Information,
- Request For Proposal,
- Construction Change Directive,
- Sketch,
- Clarification,
- Instruction Bulletin,
- Supplemental Instruction,
- A letter
- Verbal direction from the owner
- Verbal direction from the architect.
- Damaged work
- Work with no budget
- Transfer of work
A Potential Change Order number should be assigned to an issue even if there is only a slight possibility
of an impact. Keep in mind that by assigning a PCO number to an issue it does not constitute
authorization to proceed. The PCO is only a vehicle for tracking costs or time changes through the final
change order. If it is determined that the issue does not have a cost or time impact the PCO number can
be voided
The Superintendent and Project Administrator / Project Manager must work closely together to assure
that all of the following items are implemented. The following are steps to creating and tracking Potential
Change Orders (PCO)
Create a Tracking log. The log is used to track the status of the change & cost information. It will be
used to coordinate outstanding items with the architect, what items should be included in a change
order, and to confirm the prime contract change order amount is correct. The log will also show the
entire history of an issue from its first realization through the subcontract change order. Be sure to enter
a full description of the issue being logged
Determine if an issue has impact. There are many items that can start a change during a project. The
key is to realize the potential for cost and time impact early. Most of the time the Owner / Architect will
send a response to an issue in a form that appears to just clarify what is already in the contract
documents. It is your responsibility to recognize these items as potentially having a cost, and give the
subcontractors the option to do the same.
Review the change document with the superintendent. First, determine which scope of work the issue
affects. It may have an affect on a trade not yet onsite. Next, review the schedule to see how the issue
may affect lead times for materials or durations of activities. After the scopes of work affected have been
determined, write the names of the affected subcontractors on the document itself.
Assign a tracking number to the revised item. The issue will be logged as one of three types of
categories.
- Change to the Prime Contract (owner change)
- Change between subcontractors or the Prime Contractor and subcontractor (backcharge)
- Work to be performed for which there is no budget (unbudgeted).
The categories will allow you to sort out all changes that be long to each category. For example, if you are
going to the owner meeting you don’t want that owner to see the internal PCO’s such as backcharges or
unbudgeted items. Sort the log by the “owner change” category and print the log
Transmit the change document to the appropriate subcontractors. This is the most important part of
the change process for two reasons.
- Whether there is a cost or time impact associated with the issue or not, the issue must be
transmitted to the subcontractors immediately. - If there is a cost associated with the issue, the costs will have to be recognized, transmitted to the
owner, and approved prior to proceeding with the work.
Everything possible must be done to expedite this change process. The change must also be given to
all of the key site personnel for the Prime Contractor and the subcontractors. The request should note
the description of the issue and ask for a quote by a specific date. It should also state that if there is no
cost associated with this issue that a response to that affect is required.
Create a temporary file for all of the change information. This temporary file should be kept out where
only the field staff has access. By keeping them separate from the completed PCO’s it is a visual
reminder of what costs are outstanding and reduces the chance of forgetting about an outstanding cost.
The file will hold all of the change information until costs have been received. The file should contain the
paper work that starts the change, and any quotes or direction to proceed. Label the file with the PCO #
and the description.
Follow up with telephone calls to remind the subcontractors of the quote date. When the change is
evident up front, you must call the subcontractors to remind them of the due date for the quote.
Notify the architect immediately if the change will affect costs or the schedule. Once you have
confirmed that there will be additional costs involved with the issue, the architect must be notified in
writing. The procedure for this is usually specified in the specifications. In most cases the specification
s will specify a limited amount of time to notify the architect of a cost impact due to a change. The
notification does not need to include the exact costs. Only the statement that you have determined that
there will be costs associated with the change and that the costs will be issued when they have been
finalized.
Submitting the costs to the owner is discussed in Change Order Requests. However, sometimes it is
necessary to proceed with the work prior to the costs being submitted and approved.
Work can proceed in several ways:
- Time and Material. When an issue is critical to the schedule and it is agreed that additional costs
are warranted work can proceed on a time and material basis. The contractor should receive a
letter or work authorization prior to proceeding with the work. The Authorization should specify the
conditions of the how the work will be performed and the scope of the work. This notification must
be sent to the subcontractors so they also understand the conditions and scope of the work. All
time, material, and equipment used for the change must be monitored. The T&M sheets must be
filled out on a daily basis and signed on a daily basis by the architect or owner representative.
This will eliminate any discussion as to the validity of the costs once the final costs have been
submitted.
- Forced account. Forced account means that the costs for an issue have been reviewed and
rejected by the owner and the owner has directed the work to proceed to avoid delays to the
schedule. Prior to proceeding with this work contact the you main office. This work should be
performed and documented as time and material work as noted above.. This records and
validates the work if the issue goes to a claim. Do everything possible to come to some
resolution for how the costs will be reviewed and approved once the work is completed. By
performing work under forced account, the work will be done and then the prime contractor will
have to try to be paid for the work. In negotiating this puts the owner in the best position and the
contractor in the worst position. Normally forced account work will end up in claim and litigation.
- Quote Lump Sum before proceeding. Prior to proceeding with work associated with extra costs,
the costs must be submitted for approval to the architect and owner. Approval must come from an
authorized representative of the owner. If the cost approval process begins to affect the schedule,
the option of Time and Material must be considered.
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