The Damaging Change Order Mentality: Adversaries vs. Cooperative Partners

The crowd of CEOs erupted into spontaneous laughter at the construction firm owner who had just admitted what most of them already knew and had experienced. "I love change orders," he stated with a slight chuckle in response to a question from the conference speaker.

Being a construction business owner myself, this experience caused me to reflect on our industry and its typical behavior. This comes at a time when today's common practice is for companies to bid work at negative margins (to be awarded the contract) with the full intent of making up profit in subsequent change orders. I am left scratching my head and wondering why this is even accepted.

We work in an industry where various construction delivery methods exist — that span the range of hard bid to design-build integrated project delivery. While Brubacher Excavating is successful in many varieties, our clients receive the best value with the least unanticipated cost changes when collaboration starts early on. In fact, it is our philosophy that the best time to develop methods of reducing construction costs, schedules, life-cycle costs and critical path delays all occur while design is being finalized and build sequences are being established.

Unfortunately, many other construction firms do not share our belief.

Recently, we completed a large project in excess of $8 million with change orders at just 3 percent of original contract value, and that includes owner-initiated changes. Because the client understood the importance of excavated sub-surface probing prior to contract, the site conditions were factored into the planning, construction methods and risk management. As a result, our competent field team was able to construct the pad and turn it over to the client a week ahead of schedule. Additionally, our punch-list (resulting from three different inspections) was only one small item.

A big factor in achieving cost and schedule savings on tough site projects (like this one) is the early adoption of a cooperative mentality — rather than an adversarial one. Here's what I mean.

Adversaries are just that — opponents. This mentality encourages each party involved in the construction project to withhold information — details that could benefit the overall project goals. In this scenario, contractors withhold information because they think that the value of their expertise and ideas will be shared with competitors. Clients shy away from openly sharing details because they don't want to be perceived as "buddying up" to a contractor too early — and mislead others into thinking that contractor has the job. The truth is that all this does is drive up the cost of the project.

Conversely, a cooperative approach encourages the free flow of ideas, information and risk management strategies that benefit the outcome of the project as a whole. Also, discussions with the client to review the proposed scope and underlying assumptions at the bid stage is critical in reducing risk, stress and potential conflict later on. Investing time at this stage minimizes the opportunity for costly surprises that could threaten the financial viability for the owner of the project.

We recognize that in today's marketplace, competition is fierce — and as a result, there is often a lack of trust among parties. However when you open dialogue and share information early on as trusted partners, it reduces risk, makes the project more affordable and improves quality and schedule. A change-order mentality does not do this.

In 2012, the three largest contracts (totaling nearly $20 million) held by Brubacher Excavating had combined change orders (including owner-initiated) of just over 3 percent of original contract value. These changes resulted from design or specification changes rather than information that was withheld or could have been known in advance. In a situation where the open flow of information between owner, general contractor, engineer and contractor was not permitted, owners often experience change-order values approaching the original contract value.

We recognize that not every firm shares our philosophy or sees the same value in a cooperative approach. If they did, there wouldn't be jokes about contractors and change orders.

Brubacher Excavating will always pursue a cooperative approach to projects. We recognize that our clients receive the best value through open discussion and free-flowing information. This is how Brubacher Excavating approaches all of our projects, and we happen to be pretty good at it, too. We reduce stress and manage risk for developers, contractors, energy firms and utility owners throughout Pennsylvania, Delaware and northern Maryland.