Change Management Overview

There's an old quote by the Greek philosopher Heraclitus that says "change is the only constant" which is extremely relevant when talking about construction projects. During any big project, inevitably there will be many changes. It is the management of those changes that helps the most successful construction companies get that way. 

In ProjectTeam.com, we give you the tools to manage change in many ways. The purpose of this article is give a general overview of the options you have. 

Full Change Management Process

In the Full Change Management Process, you can work with up to five different document types (excluding the Contracts that we will assume have already been created). Those form types include:

• Directive

• Potential Change Order (PCO)

• Request for Proposal (RFP)

• Cost Proposal

• Change Order (both Contract and Subcontract Change Orders)

The Full Change Management Process works best when all parties involved are using ProjectTeam.com to manage their parts of the project. 

Below is a walk-through of the process:

Typically, the Owner will create and share a new Directive with the General Contractor (GC). The Directive is used to direct the contractor to perform additional work that is not already agreed upon per an existing Contract. The owner uses the Directive document because it does not assume a cost or schedule change. It is simple a way to tell the GC that something else needs to be done.

The GC will review the Directive and decide if a PCO needs to be created to track all cost and time related to the new work. If a PCO is created, the GC will reference the Directive written by the Owner and make a list of all subcontractors or trades involved in the potential change. 

Now that the PCO has been created, it's time for the GC to notify the Subcontractors (Subs). The GC can create a new RFP from the PCO and then send it to the appropriate Subs. The RFP will also reference the original Directive from the Owner for the Subs to review. 

The Subs will receive the RFP and take time to understand all requirements. Once they are ready, the Sub will create a new Cost Proposal from the RFP. The Cost Proposal is where the Sub can propose cost and request extra days to perform the additional work. Each Sub involved in the change will be able to create their own separate Cost Proposal from the same RFP. Once the Sub is ready, they can submit the Cost Proposal which will automatically notify the appropriate RFP reviewers.

Once Cost Proposals have been submitted by the Subs, the GC will review the information and update the line items of the PCO. Information that comes from the Subs is considered cost to the GC. The GC has the opportunity to add their markups (typically specified in their Contract) to the line items which would then be considered revenue.

The PCO is the document that shows the most information about the change process. It is the one place that shows estimated, proposed and approved cost and revenue numbers. When ready, the GC will create a new Change Order from the top level (revenue) of the PCO and share to the Owner. The owner should eventually approve the Change Order and then the change will be pulled into the appropriate Payment Application. 

It's best practice to wait until the Owner Change Order is approved and paid before going back to the PCO and creating Subcontract Change Orders from the line items of the PCO. This is so the GC does not give out money they don't have yet in case something happens between them and the Owner. For each line item that is related to a Subcontract, the GC will create and share new Subcontract Change Orders (SCO). 

Simplified Change Management Process

This simplified process is good for when you want to skip the formal RFP process entirely. This process deals with only 3 document types:

• Directive

• Potential Change Order (PCO)

• Change Order (both Contract and Subcontract Change Orders)

As shown in the diagram above, the RFP and Cost Proposal document types can be ignored in this process.

The process starts out the same as the Full Change Management Process detailed in the previous section but instead of the GC involving Subcontractors, they manage the PCO themselves and eventually create Change Orders directly from the PCO.