CONSTRUCTION

INDUSTRY
INSTITUTE
 The purpose of this publication is to make available to industry the results of research
conducted by the Construction Industry Institute (CII). The publication does not necessarily
represent the views of CII member companies, but is offered as a contribution to the industry.

CII was founded in 1983 to improve the cost effectiveness of the nation’s largest industry.
The members, who represent a broad cross-section of owners and contractors, believe that
many of the problems that limit cost effectiveness are common ones, and that real
improvements can be best accomplished in a cooperative environment with the benefits
being shared by the construction industry at large.

The Construction Industry Institute

The University of Texas at Austin
3208 Red River
Suite 300
Austin, Texas 78705-2650
(512) 471-4319
FAX (512) 499-8101
 The Impact of Changes
on
Construction Cost and Schedule

Prepared by
The Construction Industry Institute
Cost/Schedule Controls Task Force

Publication 6-10
April 1990
 TABLE OF CONTENTS
Chapter Page

1. Introduction ............................................................................................ 1
2. The Anatomy of Changes ........................................................................ 3
Contract Changes Clause .................................................................... 3
Types of Changes ............................................................................... 3
Sources of Changes ............................................................................ 4
Timing of Changes ............................................................................. 5
Traditional Methods for Costing Changes ............................................ 5
Direct and Consequential Effects of Changes ...................................... 5
Disclaimers by Clients and Engineers .................................................. 6
3. The Direct Impacts of Changes on Cost ................................................... 7
Productivity Degradation Due to Interruptions .................................... 7
Productivity Degradation Due to Sustained Overtime ....................... 10
Delays .............................................................................................. 10
Equipment and Labor Spent in Removing Existing Work ................... 11
Materials Wasted by Removal of Existing Work ................................. 11
Nonproductive Periods during Redirection of Work .......................... 11
Recovery Scheduling ........................................................................ 11
4. The Direct Impacts of Changes on Schedule .......................................... 12
Direct Effect Evaluation ..................................................................... 13
5. The Consequential Impacts of Changes ................................................. 15
Consequential Effects ........................................................................ 15
Evaluation Tools ............................................................................... 16
Evaluating Schedule Changes ........................................................... 17
Evaluating Consequential Costs ........................................................ 17
6. Summary .............................................................................................. 19
Recommendations and Ideas to Consider .......................................... 19
References ............................................................................................ 22
 1

INTRODUCTION

Two things can be said about almost any engineering and construction
project: (1) there will be changes made during the course of construction, and
(2) the owner and the constructor will seldom initially agree on the total effect
those changes have on the cost and schedule of the project.

Large-scale construction is complex enough without changes. It requires

detailed planning to integrate multiple crafts, subcontractors, and vendors
working with a wide variety of materials and operating under a full range of
weather conditions. Changes, in most cases, are disturbances that interfere with
the planned, orderly progression of work. The question becomes: What are the
true consequences of these disturbances?

Numerous studies of craft worker productivity have been conducted in recent

years. The term demotivator has come out of these studies. It is a term applied
to any condition that contributes to lower craft worker morale and, as a
consequence, to lower productivity. Changes are always listed as a major
demotivator. When a crew that has developed momentum in accomplishing a
given task is then told to stop and change what they are doing, they will be
demoralized and slow in recovering momentum. Then, if some work must be
removed as part of the change, materials are wasted plus worker and
equipment hours are expended in the demolition operation. The potential
effects encompass lower productivity, additional worker-hours, increased
costs, and increased time.

Is the impact of a change, however, confined to the crew involved in the

changed work? A critical path schedule for the typical large project shows that
many tasks occur in parallel and have complicated dependency relationships.
Only a small percentage of tasks can he accomplished in isolation of the others.
Thus, logic dictates that any change to one activity can easily have a ripple
effect on others.

A change also involves the overhead staff. Significant added administrative

and engineering effort is required to evaluate, process, and manage each
change. Any changes that extend total project time also will extend the length
of time that overhead personnel must be on the job and supporting facilities
functioning.

This publication examines the subject of changes, identifies potential impacts

on project costs and schedule, and provides guidance for evaluating those
impacts. It is based in part on CII-supported research performed by the
University of California-Berkeley. That research has resulted in the publishing
of the ClI source document, Changes and Change Orders: Their Magnitude
and Impact, which details results of a literature search and field studies of three
 2

THE ANATOMY OF CHANGES

For the purposes of this publication, a change is any modification to the

contractural guidance provided to the constructor by the owner, owner’s agent,
or design engineer. Thus, it encompasses changes in specifications, drawings,
and other written or oral guidance.

Initial guidance comes to the contractor in the form of a contract package.

This package is the basis for the contractor’s bid or proposal. The contractor
wilI have developed project schedules, budgets, and a variety of detailed
implementation plans using this guidance. Obviously, any change to the
original guidance can be expected to alter the contractor’s plans.

Changes will affect contractor planning on both cost-reimbursable and

fixed-price projects, but the consequences of these changes, from the
contractor’s viewpoint, are quite different. On the reimbursable project, there
is a direct pass-through of costs and schedule consequences to the owner. On
a fixed-price contract, the contractor usually is in the position of identifying
and justifying all cost and schedule effects as a basis for contract price and
schedule adjustments.

Contract Changes Clause

The construction contract for a fixed-price project should contain a Changes

Clause. This clause establishes the owner’s right to make changes, and should
provide a mechanism for their administration and resolution. In a CII study of
problem construction contract clauses, however, the Changes Clause is iden-
tified as among the most troublesome:

“Problems most often encountered with construction change clauses

involved definition and negotiation of costs, dispute resolution, and
time required for approvals. A lack of well-defined procedures often
compounded the problem.” (Reference 2)

Types of Changes

Changes can involve addition of work (additive changes), deletion of work

(deductive changes), demolition and rework, specification change, or some
combination of these. There also are changes which do not involve quantities
of work, but which effectively alter contract costs and/or schedules-a delay in
delivery of owner-furnished materials is an example. A force majeure event
can have the effect of a change in that both costs and time can be affected;
however, a force majeure event differs from a change in that it may entitle a
contractor to only time adjustments, not cost, on a fixed-price contract.
 Changes also may be classified as formal, constructive, and cardinal. A formal
change is one introduced by the owner or owner’s agent under the mechanism
of the contract’s Changes Clause. A constructive change results from an action
by an owner or owner’s agent that has the effect of directing a change but is
not initially documented as such. A cardinal change is a change outside the
scope of the current contract and should be executed only after complete
renegotiation of the contract.

Sources of Changes

Changes may originate with the owner, owner’s agent, design engineer, or
contractor. Owner changes may be occasioned by a change in scope of the
project (research has shown this to be the major source), a change in some
functional or maintenance requirement within the current project scope which
requires a design change, a change in need dates, problems with owner-fur-
nished materials, or a user desire. Design personnel are the agents for
implementing most owner-originated changes, and are the originators of
changes caused by inadequate knowledge of existing conditions at project
sites, design errors, unforeseen conditions, new regulatory requirements, or
revised design parameters as might occur on a project where construction is
initiated before design is complete. If the owner employs a separate project
manager to provide overall project management, that agent can introduce
changes, particularly schedule changes, in fulfilling management duties to
coordinate all project activity. That individual also may be responsible for
constructive changes that arise from unwarranted interpretation of specifica-
tions or personal desires. The contractor also may be a source of changes if
design errors are found or if, as a consequence of a value engineering clause
in the contract, the contractor suggests a more cost-effective design that is
subsequently adopted. Also there may be any number of minor field-originated
changes such as valve relocation to avoid interference, and other comparable
problems that are best solved without recourse to formal charge procedures.

With advances being made in computerized design, the changing of designs

has become a quick and simple process, requiring only a few clicks of the
computer mouse or the tapping of a wand. Contrast this with the days of
hand-produced drawings when a change required many design and drafting
hours. This ease of change reduces the reluctance to make changes and carries
with it the potential for more frequent change, some of those changes being
optional. While computerized design should reduce human errors associated
with calculations and interferences, it will not eliminate those frequent
design-engineer errors associated with inadequate knowledge of existing site
conditions, methods of construction, materials of construction, and procure-
ment lead times. Nor will it eliminate those changes associated with scope
change. Thus, at this point, conclusive statements cannot be made concerning
the potential for modern design methods to reduce the change problem.
Timing of Changes

The timing of changes is an important element in their cause-effect study. A

change issued before construction has started on the affected items may have
its effects limited to a schedule change plus administrative processing costs. At
the other extreme, one issued while work is underway may require demolition
of in-place work and redirection of crews with significant effects on schedules,
crew costs, and overhead costs.

A single change which can be implemented before the next change is

received is much simpler to deal with than a package of changes issued at one
time or a group of overlapping changes, each being issued before the previous
one has been fully implemented. The frequency with which changes are issued
also has considerable effect. As the rate of issue becomes more rapid, more
confusion is generated.

Traditional Methods for Costing Changes

On a cost-reimbursable project, the contractor may be asked to evaluate a

change before it is implemented or may be directed to implement the change
without prior evaluation. In either case the cost and schedule consequences
are fully absorbed by the owner.

On fixed-price projects, several techniques are employed for costing changes:

• Price and schedule adjustments may be negotiated before work on a
change is started.
• If the project is totally or partially unit-price, the unit prices themselves
provide the pricing of those items. The contract may include quantity
windows for which the prices are valid, whereas quantities outside those
windows are subject to negotiation or a separate price quote.
• On a contract that is essentially of the unit-price category, the bidding
documents may include a listing of work tasks for which quantity
variation may be expected and the contractor asked to provide a unit
price for those variations.
• The contractor may be directed to proceed on a change with after-the-fact
adjustments negotiated based on time and materials expended.

Direct and Consequential Effects of Changes

A change may have both direct and consequential effects and these effects
can involve cost and/or time. The direct effects are those experienced within
the work package for which the change is directed. The consequential effects
are those experienced elsewhere on the project because of that change.
Chapter 3 will discuss direct cost impacts; Chapter 4, the direct schedule
effects; and Chapter 5, the consequential cost and schedule effects.
 3

THE DIRECT IMPACTS OF CHANGES ON COST

The direct effects of a change will range from insignificant to costly, the most
costly being if the change is issued while work is already underway or
completed. In this chapter, the direct effects will be discussed using that
situation as the setting.

A change made while work is in progress may cause cost increases at-
tributable to some combination of the following:
• Productivity degradation
l Delays

l Equipment and labor spent in tearing out completed work

l Materials wasted in rework

l Nonproductive periods during redirection of work

l Recovery scheduling

l Equipment standby costs

Productivity Degradation Due to Interruptions

The interruption and demotivating aspects of changes will lower average

productivity on work involved in the change as well as remaining work. To
measure this degradation, two studies documented in Reference 1 examined
work by crewmen of a single craft and the effects of changes and other factors
on their productivity. The setting for the first study was a major chemical facility
and the craftsmen involved were union insulators. The insulation crew
generally contained six craftsmen. For purposes of that study, the task of
insulating a section of pipe was divided into 10 discrete tasks, such as
installation of block insulation, wrapping and coating, and so forth. In doing
the work, a single craftsman usually performed only one or two tasks, while
the remaining tasks were performed by other crewmen.

Productivity was measured as lineal inches per hour by task. Using actual
productivity and average productivity for each task as numerator and
denominator, respectively, a Productivity Index (PI) was calculated for each
observation of each task. Thus, a PI of 1.0 or greater is good; less than 1.0 is
poor with respect to average.

In that setting, productivity variations resulting from a variety of causes were

tracked. Two of these are reported here:
Effects of Interruptions on Work. For this purpose, an interruption is any
forced stoppage of a crewman during the course of completing a task.
Making a change is a form of interruption, so the data gained here is
considered representative of productivity variations due to changes. A total
of 354 observations were made. During these observations, there was no
 interruption of work on 295, one interruption on 43, two interruptions on
12, and three or more interruptions on four. In this study, task times used for
purposes of calculating productivity do not include the interruption time.
Results. PI values were observed as follows:

Interruptions Observations Normalized PI*

0 295 1.000

1 43 0.090

2 12 0.615

3 or more 4 0.313
* Normalized PI was determined by calculating the Mean PI for all
observations and then dividing by a constant, which made the Normalized
PI for no interruptions equal to 1.000.
Effects of Disturbances on Work. For this purpose, disturbances include
interruptions and forced changes in work flow due to discontinuities in the
piping system being insulated. These discontinuities cause the craftsman to
perform non-routine cutting and fitting. Data was recorded for 354 observa-
tions and cataloged as follows:

Type I Disturbed Work. At least two interruptions or four or more other

disturbances per foot of pipe. There were 106 in this category.

Type II Disturbed Work. At least two interruptions or six or more other

disturbances per foot of pipe. There were 64 disturbances in this category.

Type I Undisturbed work. Items not qualifying as Type I disturbed work.

There were 248 of these.

Type II Undisturbed Work. Items not qualifying as Type II disturbed

work. There were 290 of these.
Results. PI values were observed as follows:

Category Observations Normalized PI

Type I Undisturbed 106 1.000

Type I Disturbed 64 0.632

Type II Undisturbed 248 1.000

Type II Disturbed 290 0.457

Study 2 was undertaken on a revamp project at a refinery where changes
were being generated at a rate that often exceeded 20 per week. Productivity
on this project was being tracked by accounts such as structural steel, concrete,
and above-ground pipe. The rate of change generation increased as work
increased and a ripple effect became apparent as a change in one account
disturbed work in others. That effect is discussed in Chapter 5. Only the
relationships between number of changes and productivity in directly affected
accounts is presented here.
Results. Worker-hours were tracked over a five-month period for each
account. Also tracked was the number of changes being generated. For each
week of the observation period, the number of changes generated was
reported as either less than 10, 10-19, or 20 or more. A rate of less than 10
changes per week was considered normal; average productivity under those
conditions was given a PI of 1.0. Combining all accounts over the
observation period, the results are as follows:

Rate of Change Issue PI

Less than 10 changes per week 1.000

10 to 20 changes per week 0.937

Over 20 changes per week 0.573

From the above studies, the following can be concluded:
• Productivity drops rapidly with increased frequency of interruptions.
Specifically, in Study 1:
-One interruption per foot of work reduced productivity about 9 per-
cent.
-Two interruptions per foot of work reduced productivity about 39
percent.
-Three or more interruptions per foot of work reduced productivity
about 69 percent.
• Any discontinuity in the normal flow of work also affects productivity.
The extent of degradation becomes compounded with the rate of
disturbances.
• While there is no direct correlation between numbers of interruptions
and other disturbances as used in Study 1 and numbers of changes as
used in Study 2, both studies clearly show that an extreme number of
disturbances can easily reduce craft worker productivity in excess of 40
percent.
The calculation of productivity loss caused by one or more interruptions or
changes is an inexact process. However, it must be acknowledged that there
is an effect and it can be significant. Logic dictates that the effect will be a
function of numerous factors such as:
Worker concentration and planning required to perform the work. A
pipefitter trying to align two pipe spools will be much more affected by an
interruption than a concrete finisher.
 Whether work is labor- or machine-intensive. Earthmoving and similar
equipment return to normal productivity quickly.
The total number of interruptions. Frequency and demotivation are closely
related.
The elapsed time since the last interruption. The longer the period of time
since the last interruption, the greater the potential for productivity to return
to normal.
The time lapse between the interruption and the time when work can be
restarted. The longer the delay, the more reorganization required to get
started again.
Whether interruption was expected or not. Workers tend to plan their work
so that personal breaks, lunch breaks, and comparable interruptions occur
when they can best be accommodated.
The source of the interruption. If an adversary causes the interruption, the
effect wiII probably be more adverse than if the interruption is from a
friendly source.
Whether worker agrees with the change or need for the interruption. If
the worker does not endorse the need, the effects can be expected to be
more negative than if the worker supports it.

Productivity Degradation Due to Sustained Overtime

Some changes may require use of overtime work in order to maintain the
schedule. When such overtime is forced (as compared to voluntary) or
becomes sustained, it becomes a demotivator and results in lowered produc-
tivity. The Construction Industry Cost Effectiveness (CICE) Project Report C-3,
Scheduled Overtime Effect on Construction Projects, provides specific
guidance on this subject. (Reference 9)

Delays

Delays may add yet another cost of changes. The materials, tools, and
construction equipment required for the changed work may not be the same
as that required for the original work and may not be currently available at the
project site. If different, the procurement times involved will delay start of
changed work. In the case of tools and construction equipment, these items
are carefully scheduled because they are available in only limited quantities,
and there may be delays occasioned by their rescheduling.

Another potential delay is that between the time a hold is placed on work to
be changed and new instructions received so it can be restarted. Still other
delays may occur after work is restarted if the revised schedule creates
interference problems with other crews or contractors who are scheduled to
work in the same area at the same time.
 When delays occur, crews may actually be idled, at least for short periods of
time. If an extensive delay is envisioned, crews may have to be laid off and
subsequently remobilized when work is to start. At the least, crews would be
diverted to other work. All of these options are inefficient and costly in
comparison to proceeding with work as originally planned.

Costing of delays can be estimated in advance, but is most reasonably

calculated after they occur. Detailed logs should be kept of every action
included to facilitate this costing.

Equipment and Labor Spent in Removing Existing Work

If the change involves removal of work in place, labor and equipment will
be required for its removal. This can be estimated in advance, but is best
determined after the fact using actual quantity data.

Material Wasted by Removal of Existing Work

If a change involves removal of work in place and materials involved are

contractor-furnished, the cost of these materials becomes a cost item in the
change. The cost of installed materials is readily calculated through field
measurement of work in place. However, there may have been other materials
and supplies expended in installing those materials and these should not be
overlooked in the cost calculations.

Nonproductive Periods during Redirection of Work

When workers are stopped in the process of performing work, possibly

redirected to removal of work in place, and then later given new instructions
and restarted on new work, there will be delays involved during which workers
are totally unproductive. The costs of these delays are properly charged to the
change. These delays are not included in the revised productivity calculations
attributable to the interruption effect of changes.

The change also may have the ripple effect of changing priorities for
performance of remaining work. Shifting crews, materials, and equipment to
meet new priorities will generate nonproductive time that is properly charge-
able to the change.

Recovery Scheduling

Since a change may threaten the achievement of schedule milestones, it may

be necessary to use some form of schedule compression, such as overtime or
multiple shifts, to maintain the schedule. The premium costs of these efforts
are properly chargeable to the change.
 4

THE DIRECT IMPACTS OF CHANGES ON

SCHEDULE

Discussion thus far has concentrated on the cost aspects of changes. Time
factors were included in those discussions, but not in terms of effect on
schedule. This chapter addresses this subject.

Changes to schedules caused by changes are rather easy to document after

the fact because all time details are known. Estimating the schedule impact
before a change is ordered is much more difficult because of the uncertainties
relating to productivity, materials deliveries, and interferences with other work.
However, the general technique in either case is the same.

It is assumed that the project has the benefit of a well-planned control

schedule that forms the baseline for evaluation of schedule impacts. Most
projects of any size are planned using a critical path method (CPM) technique
of some type. Such a schedule, when presented in logic diagram form, shows
the many included activities and their dependencies. Fortunately, using CPM
schedules for control purposes provides a logical framework against which
schedule consequences of changes can be evaluated.

Associated with each activity on a CPM network will be its planned duration,
early and late starts and finishes, and one or both of these floats:
Total Float. This float is calculated using the assumption that all preceding
activities will have been started on early start and that all succeeding
activities will start on late start. Thus, total float shows the potential for
an activity. A p o i n t o f t e n o v e r l o o k e d , h o w e v e r , is that this float
is usually shared by a number of activities so that use of total float by one
activity will deny its use by another, later activity.
Free Float. This float is calculated using the assumption that all preceding
and all following activities will be started on early start dates. Thus, free float
shows what slippage time is available to an activity, assuming all previous
activities are started and finished on early dates, without affecting project
completion.
Floats play important roles in schedule impact studies because they represent
scheduling flexibility available to handle unforeseen situations, including
changes. Unfortunately, ownership of float is a subject of some controversy on
a fixed-price project-seldom do the contract documents address the subject.
Most contracts only require the contractor to submit a schedule for owner
approval. Then when the subject of use of float comes up, a contractor will
claim float ownership, saying that float is a management tool and a contractor
must be allowed to manage his/her work. The contractor also will defend the
right to plan work on the early start schedule and claim that use of total float
because of owner changes should be the basis for schedule adjustments to
restore the float.

The owner usually claims ownership of float as well, claiming that on any
project there is always the potential for delivery problems with owner-fur-
nished materials or other owner delays, and changes can be expected. Because
of this, float should be considered available to help absorb owner-caused
schedule disruptions.

When float is to be shared, the contract documents should so state. Of course,

Direct Effect Evaluation

recalculated throughout the network.

14
 5

THE CONSEQUENTIAL IMPACTS OF CHANGES

Never assume that the effects of a change will be confined to the work
package(s) directly impacted by the change. Consequential effects can occur
on later individual work packages and on the total project. Thus, it is important
that this possibility be acknowledged and a mechanism established for
evaluating consequential effects.

Consequential Effects

The consequential effects of a change include these:

Productivity Degradation in Succeeding Sequential Activities. Research
conducted as part of Study 2 (see Chapter 3) involved the sequential
accounts of concrete, structural steel, and above-ground piping. In analyzing
the data from these observations, it was noted that a loss of productivity in
an account due to a change was followed almost immediately by a loss of
productivity in a succeeding account. Unfortunately, it was not possible to
develop enough data to express this tendency numerically.
Productivity Degradation of Adjacent Concurrent Activity. Lowered
productivity seems to be contagious. Just as an accident stops all work in an
area, any type of interruption in one activity can affect surrounding activities.
Crews affected by changes will not keep their dissatisfaction to themselves
and may interrupt adjacent crews. Interferences with adjoining crews also
may be created by the change.
Increased Overhead Costs. These cost increases are attributable to two
factors. First, changes require considerable staff effort to evaluate and
administer. While a contractor can be expected to have an adequate staff
for administration of a reasonable number of changes, additions to the staff
may be required if the number of changes becomes unreasonable. Second,
total overhead costs are related to project length. Changes which increase
project length will increase staff-month requirements and associated salary
and support costs in both field and home offices.
Extended Project Time. If a work package was on the critical path and its
duration is extended by a change, the total project duration will be extended
unless some action is taken to compress subsequent activities on the
schedule. A non-critical activity may become critical as a result of a change.
If the extended time is not recognized by the owner, the change constitutes
constructive acceleration, the costs of which should be recoverable by the
contractor.
Crash Scheduling Costs. If the owner’s need date must be maintained
despite changes, the contractor must implement schedule compression
actions, many of which are costly and inefficient, such as overtime or
 multiple shifts (Reference 5). The extra costs of these are attributable to the

Changes to Subcontracts. Subcontracts will normally include rather specific

scheduling guidance. Further, an implicit condition in each contract is that
the general contractor will maintain conditions that permit the subcontractor
to start the work when planned and to proceed without interference unless
specific statements to the contrary are made in the contract documents. It is

Change of Work to a Different Working Period. Often a change will force

Miscellaneous. The following items are potential additional cost items

attributable to a change:

Additional bonding and insurance

Small tools and consumables
Revisions to as-built drawings and other records
Extra costs of cleanup operations
Materials handling and disposal
Material expediting costs
Additional safety systems and equipment

One of the control tools used on a large project is the Work Breakdown
Structure (WBS). This breaks out the project in hierarchical fashion, the
objective being to include within the WBS all elements of work in ever-increas-
ing detail. Resources will be allocated within each element of the WBS to
establish a detailed baseline for resource budgeting and control. The WBS will
be backed by a Work Package Catalog (in either computer dataset or long-hand
form), which provides a complete summary of each WBS element at the control
level. Elements on the WBS also are used for various levels of construction
schedules. (See References 4, 5, and 6)

The WBS is a vital tool in change management. If a change involves work not
previously included on the WBS, it can be logically added to the WBS and its
relationship to other WBS elements seen. If the change only increases or
decreases requirements associated with existing WBS elements, this is readily
tracked.

Another tool of change management is the Current Control Schedule (Refer-

ence 5) which details the agreed-upon time for the project. When in a CPM
format, it is easy to add actual data resulting from a change to show the total
time impact on various remaining activities and the project as a whole. Or, in
the case of evaluating proposed changes, it can be used in a “what if” mode
to visualize the time effects of the proposed change.

Evaluating Schedule Changes

Once the schedule impact of each directly-affected activity is examined as

described in Chapter 4, their actual (or estimated) start and finish dates are
entered into the Current Control Schedule to determine the consequential
schedule effects for all remaining activities and the total schedule.

Schedule extensions of individual activities or the total project may prompt

management to implement some form of schedule compression to offset
whatever implications those extensions have.

Evaluating Consequential Costs

Lowered Productivity of Succeeding and Concurrent Activities. Although

the study referenced earlier showed a trend for this, there is insufficient data
upon which to conclude that degradation of productivity of succeeding
activities automatically occurs. On the other hand, if it can be shown that
an interruption of succeeding activities would or did occur as a consequence
of a change, that interruption should be considered equivalent to a change.
Overhead Expenses. These may be handled as follows:
-Whether a change is additive or deductive, there are administration
and management costs. If change activity becomes so extreme that
the staff must be augmented, the additional costs of this augmenta-
tion should be reimbursed. For example, on an additive change, it
may be necessary to expedite materials deliveries or perform spe-
cial field engineering. On a deductive change, there may be expen-
ses or losses associated with disposal of excess materials.
-If total project time is increased, the costs of those personnel, ser-
vices, and other items which would exist if the changed item were
the only work package being managed are attributable to the
 6

SUMMARY

Changes on an engineering and construction project can be expected, but the

potential for cost and schedule consequences of those changes must be
understood by those directing the change. Those consequences involve not
only the work package for which the change is directed, but other work
packages and overhead functions as well.

The fixed-price or guaranteed-maximum-price contract are the contract forms

where the change impact problem is most severe because each change
modifies the basis upon which the timing and pricing were established. Any
modification to this basis must have full and fair compensation. Past practices
for price and schedule adjustments have not always provided this protection.

Recommendations and Ideas to Consider

The following recommendations and ideas are presented to improve the

change process and/or minimize the adverse effects of changes:
• Owners may consider utilizing a lump-sum contract for detailed en-
gineering to discourage introduction of changes by engineering person-
nel. However, this should be attempted only if a quality definition of
scope is available. A two-stage contracting approach is suggested. The
first stage is a reimbursable contract for development of project scope;
the second is the fixed-price contract for detailed engineering. On the
fixed-price contract, however, a milestone point in design development
should be agreed to beyond which owner changes will be subject to
cost/schedule adjustments.
• Owners should freeze the scope as early as possible in the design process.
• Use of CADD, particularly 3-D, will enable design personnel to avoid
design errors, such as interferences, which lead to changes. Physical
models will be valuable in the same way.
• A strong constructability program continued after the baseline scope and
estimate have been developed will reduce the potential for changes.
• Proposed engineering changes should be reviewed and authorized
through a structured scope and change control program. (See Reference

• On award fee or other incentive contracts requiring periodic evaluation

of contractor performance, owners should consider including effective-
ness of change management as one of the grading criteria.
• Owners/engineers on a fixed-price contract should, during bidding,
provide the bidding contractors with an honest assessment of the status
of design and potential for change.

19
• Risks properly the responsibility of the owner or engineer should not be
transferred to the contractor.
• On a fixed-price contract, the contract should specify that float is jointly
owned, but responsibly shared, by owner and contractor and that
available float may be used to accommodate changes.
• At the outset of a project, owner and contractor representatives should
establish the mechanisms and procedures for administering changes.
• To provide a realistic baseline for adjustments due to changes on a
fixed-price project, the owner should require the contractor to submit
prior to or shortly after mobilization:
-A WBS for the project which is resource loaded to include planned
worker-hours per control level element.
-A Control Schedule in critical path format that is consistent with the
WBS.
• A contractor must maintain thorough estimating, planning, and control-
ling records as baseline documents for any changes. When a change
occurs, additional records must be prepared to show all implications of
that change.
• Owners and contractors may consider an up-front agreement to place
original project planning documents and data of both parties in escrow
for later reference relating to changes. This will force both sides to be

• The owner should identify to the contractor the individual(s) with

• Changes should be resolved in a timely manner as they occur. Do not

• Contractors should not leave pricing of changes to estimators alone. It
should be a project team effort to insure inclusion of all cost elements.
• A contractor should develop checklists of potential cost and schedule
impact items for use in preparing estimates involving changes.
• All project stakeholders should take steps to make their personnel more
knowledgeable about the consequences of changes. By understanding
these consequences, they may give change management more serious
attention.
• When a change is introduced, the owner and contractor should consider
completing the work as originally specified and then going back and
reworking it with another crew. This approach, although apparently
costly, may actually be more cost-effective since it eliminates the produc-
tivity and morale degradation effects on the first crew.
 REFERENCES

1. Changes and Change Orders: Their Magnitude and Impact, Construc-

tion Industry Institute Source Document, scheduled for publication in
May 1990.

2. Impact of Various Construction Contract Types and Clauses on Project

Performance, Publication 5-1, The Construction Industry Institute, July
1986.

3. Scope Definition and Control, Publication 6-2, The Construction In-

dustry Institute, July 1986.

4. Contractor Planning for Fixed-Price Construction, Publication 6-4, The

Construction Industry Institute, May 1987.

5. Project Control for Construction, Publication 6-5, The Construction In-

dustry Institute, September 1987.

6. Work Packaging for Project Control, Publication 6-6, The Construction

Industry Institute, November 1988.

7. Concepts and Methods of Schedule Compression, Publication 6-7, The

Construction Industry Institute, October 1989.

8. Management of Project Risks and Uncertainties, Publication 6-8, The

Construction Industry Institute, October 1989.

9. Scheduled Overtime Effect on Construction Projects, Construction In-

dustry Cost Effectiveness (CICE) Project, Report C-3, The Business
Roundtable, November 1980.
NOTES
 Cost/Schedule Controls Task Force Membership

Jack Browder, Brown & Root

Jodie Caldwell, Gilbert/Commonwealth
Jim Diekmann, University of Colorado
Gary Gehrig, Colorado State
Dan Halpin, Purdue
Richard Mayes, Rust
Bob McMakin, Union Carbide
*Jim Neil, Morrison Knudsen, Chairman
Stan Nethery, Dow
Pete Schappa, Northern States Power
Dick Troell, FMC
Rich Venglik, BE&K
Tom Wilson, ALCOA

Board of Advisors Liaison

Keith Price, Morrison Knudsen

Past Members

Pat Dargan, ALCOA

Jerry Davis, Shell
Bruce Dinsmore, ARCO
Ron Duffield, Gulf Interstate
Jerry Fischer, Mobil
Bob Gardner, Union Carbide
Carl McKenry, Ford, Bacon & Davis
Tom Mendel, Rust
George Paleos, Consolidated Edison
Bill Schlicklin, Owens-Corning

*Principal Author
Editor: Rusty Haggard
 The Construction Industry Institute
Member Companies

AT&T Guy F. Atkinson Company of California

York, Inc.
Dow Chemical U.S.A.
E. I. duPont de Nemours & Co., Inc.
Eastman Chemicals
Exxon Research & Engineering
FMC Corporation
General Electric Company
General Motors Corporation
Hoffman-LaRoche, Inc.
Houston Lighting & Power Company
ICI Americas Inc.
International Business Machines Corp.
International Paper Company
James River Corporation
Mobil Research & Development Corp.
Monsanto Company
Northern States Power Company
Occidental Chemical Corporation
J. C. Penney Company Inc.
Pfizer, Inc.
Phillips Petroleum Company
Potomac Electric Power Company
The Procter & GambIe Company
Shell Oil Company
Southwestern BelI Telephone Company
Tennessee Valley Authority
TeXacO Inc.
BE&K Construction Company
The Badger Company, Inc.
Barnard & Burk Group, Inc.
Bechtel, Inc.
Belcan Engineering Services, Inc.
Black & Veatch Engineers-Architects
Brown & Root, Inc.
John Brown E&C Inc.
Cherne Contracting Corporation
Cianbro Corporation
Davy McKee Corporation
Day & Zimmermann, Inc.
Ebasco Constructors Inc.
Eichleay Holdings Inc.
Fluor Daniel
Ford, Bacon & Davis, Incorporated
Foster Wheeler Constructors, Inc.
Fru-Con Corporation
GSGSB Architects, Engineers & Planners
Gilbane Building Company
Gilbert/Commonwealth, Inc.
Graycor, Inc.
Gulf States, Inc.
Jacobs Engineering Group, Inc.
Jones Group, Inc.
The M. W. Kellogg Company
Lummus Crest Inc.
MarshalI Contractors Inc.
Morrison Knudsen Corporation
North Brothers
Peter Kiewit Sons’, Inc.
The Parsons Corporation
Rust International Corporation
Sargent Electric Company
Sordoni Construction Company
Stone & Webster Engineering
Corporation
Turner Construction Company
United Engineers & Constructors
International
Woodward-Clyde Consultants
H. B. Zachry Company

Participating Academic Institutions

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California-Berkeley Iowa State Penn State
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Drexel New Mexico Washington
Georgia Tech North Carolina State Worcester Polytech