Why Change Order Processing Time Kills Construction Budgets

Worldwide, construction projects run over budget every day. Incomplete documents, schedule changes, missed scope, design changes, are just a few of the usual suspects that get blamed.

But the real reason is much more simple. Cost overruns aren’t tracked or recognized in real time. If costs could be tracked in real-time, teams could see overruns happening and address them proactively before a project became “Over Budget”. Delays in pricing, approving and tallying Change Order Requests prevent teams from tracking project costs in real time. 

This lack of transparency can kill construction budgets. But Why does it happen?

It’s a problem rooted in the industry's tedious, manual system of processing Change Order Requests. 

With current project delivery methods and BIM model capabilities, design changes are happening more rapidly than ever before. Each time a new set of design documents are issued the General Contractor must  distribute the changes to all Subcontractors for pricing. On top of juggling all of their other critical responsibilities, Subcontractors now are tasked with scrubbing a new set of design documents, often thousands of pages, where changes may or not be clouded, and price any change impacts. It's no surprise it is a struggle to obtain pricing from all Subcontractors. Usually, by the time Subcontractors complete the pricing exercise there is a new set of design documents to start the process all over again. This cyclical process leaves the Subcontractors, General Contractor, and Owners frustrated and with an inaccurate/delayed picture of where the project stands financially.

Here is a quick snapshot of the process for just one Subcontractor and one design change. Multiply this by dozens of design changes and 30 or more Subcontractors and the process can become a nightmare. In theory, there is a contractual requirement to have pricing back in two weeks or another established timeline but that almost never happens due to the convoluted nature of the process. 

This isn’t the only way Change Orders are initiated on a commercial construction project. Delays are further compounded when Change Order work is being tracked on a T&M basis. 

Why are some Change Orders tracked on a Time & Material basis? 

1. There is not enough time to put together a formal quote for the extra work. 
2. The scope of work is hard to define, such as ongoing paint touch up.
3. The owner wants to pay for the exact work done and not risk overpaying due to an inaccurate estimate. 

A T&M Tag puts the administrative paperwork on the back end of the process, which saves time upfront. The Subcontractor performs the work, tracks the labor, material and equipment quantities, and has the GC’s Superintendent sign a paper document verifying the hours are accurate. This document is then driven back to the office where the paper T&M Tag is scanned and the hours are transcribed to an official Change Order Request form. The COR form is PDFed, emailed to the GC and a COR log is formally updated. 

Here is a visual breakdown.

This process can take weeks or months and it is the reason construction projects fall behind so often on tracking costs. 

As an example, we analyzed the change order data from a non-Clearstory construction project in San Jose, California. 

Project Cost: $45 million

Total Subcontractors: 30

Total Subcontractor Change Order Requests from T&M Work: 124

Total T&M COR Dollar Value: $578,000

The most glaring piece of data was the lengthy processing time between a paper T&M Tag signed in the field and a finished Change Order Request sent to the General Contractor. 

Total Average Time between a signed Tag and a COR Sent:  24 days 

This means the Subcontractor, General Contractor, and Owner were waiting - on average - more than three weeks to discover the real cost impact from a single T&M Tag.

Meanwhile...

• The subcontractor has spent real money on uncompensated work
• The General Contractor is delayed presenting costs to the client
• The client is unable to make informed financial decisions.

These delays hurt everyone.

By comparison, using Clearstory's digital Change Order Tools, this entire three-week process can be simplified and scaled down to a matter of minutes.

We compared this across ALL Subcontractors who use Clearstory's digital tools. 

Total average Time between signed Tag and COR Sent using Clearstory:  3.5 days

This means project teams using Clearstory can quickly see and understand cost impacts in real time. 

• Change Notifications: Use our Change Notification feature to distribute design changes and other pricing exercises to Subcontractors. GCs can see who has responded, who has viewed the documents and track costs as they accumulate in real time.

• COR Cover sheets: Eliminate delays in COR review by using our standard COR cover sheets. Eliminate back and forth getting the proper breakdown, make review clear and consistent and save time and money when a project gets audited.

• Digital T&M Tags: Forever eliminate the delays and financial blind spots present when tracking T&M work on paper Tags. Clearly and professionally document the work, have it instantly logged between parties and automatically generate an approved COR cover sheet in seconds using the pre-loaded approved rates. 

These three things will dramatically reduce risk on your next construction project.

Subcontractors who use Clearstory are seeing faster processing time, a reduction in risk and happier customers due to more professional process and documentation. 

General Contractors who require their Subcontractors to use Clearstory's digital COR log, COR templates and T&M Tag mobile app are seeing a dramatic improvement in their ability to keep clients up-to-date while lowering their risk exposure.

Owners who require Clearstory can eliminate the risk of projects running over budget and proactively address cost escalations with informed cost driven decisions.