IMPACT OF CHANGE ORDER ON CONSTRUCTION PROJECTS IN SOUTH EAST OF NIGERIA

ABSTRACT

There are often some modifications to be made on construction project designs either at the design stage or construction stage, which usually bring about change order in construction projects. This however, presents problems to all parties involved in the construction process and execution. This study investigates the main causes of change order  and its effects on  construction  projects  using questionnaire  surveys  which  were distributed  to Engineers, Architects  and Technologists  working in Construction  Firms, Consultancy firms and Government ministries in charge of works and infrastructure in Southeast  of Nigeria.  The data  obtained  were  analysed  using  Microsoft  Excel,  SPSS (Statistical Package for Social Science) and Relative Importance Index. The study found that the most three major causes of change order on construction projects are Errors and omissions in design, Change of plan by owner and Change of design by consultants. And, the three major effects found through the study are Increase in cost, Time overrun and Delay  in  completion  of  projects.  The  study  concluded  that  changes  that  occur  in construction  projects do not only result from the project owner but from the outlined change order causal factors surveyed.

CHAPTER ONE

INTRODUCTION

1.1 Background of Study

As technology is advancing in construction industry, project construction is becoming more complex than ever before. New theories, tools and techniques are being introduced to enhance its processes. However, the continuous quest to improve  or  optimize  designs  and  operation of  construction project  usually brings about changes that result in Change Order. Change and Change Order have been seen by  many researchers to  be  inevitable in  most construction projects. This is because there is always some modification to be made on the project design either at the design stage or during construction of the project. Often times, this leads to cost and time overruns.

Change can be easily controlled and managed at the initiation and/or design stage of project than at the construction stage. This means that, the stage at which the changes occur on a construction project has a say on how it will impact on the  project. Therefore, adequate time should be allocated at  the initiation and design stage of every project for proper planning and checks. When change that results in project construction is effectively managed; the risk of disputes and claims that often result in costly litigation are significantly

reduced. Conversely, if change is not resolved through a formalized change management process, it can become a major source of contract disputes which is a severe risk contributing to project failure (Hao et al., 2012).

However, change is basically said to occur in a project construction when the scope of work performed differs from the scope of work outlined in the contract documents (Egan et al., 2012). It can be in form of addition or deletion of scope, revision of material types and specifications, differing site condition, equipment procurement and manufacturing issues as well as contractual noncompliance by  the  project  owner.    Deletion in  most  cases  reduces the overall cost of the project while addition always increase cost (Thomas et al.,

2002). Thus, one could say that change occurs as a result of work that is added or deleted from the original scope of work in a contract. In short, Changes in construction projects occur when there is a modification on the contract agreement. Based on this, Hallock (2006) argued that one needs to get rid of the mindset that changes are fundamentally bad to construction project as most project owners do perceive changes in construction project as losses. This is not supposed to be so because changes when properly understood can provide opportunities to address systematic problems, adopt new techniques or bring betterment or improvement to the way project are delivered.

According to Construction Industry Institute (CII) Publication (1990), change is any modification to the contractual guidance provided to the contractor by the owner or owner’s representative.

Change can be referred to as any activity that leads to a modification of the original scope, execution time or cost of completion of the project (Hanna et al.,

2002). The change could be as a result of the  uniqueness of each project, limited resources of time and money available for planning, unforeseen geotechnical conditions, unforeseen environmental concerns and so on. Hunt (2005) as a way to describe changes in construction project, categorized change into three divisions and they are described as follows:

   Directed change: This is referred to as changes that are issued by the project owner or its representative that are often written as a formal change order.

   Constructive change: It is ones which requires the contractor to perform work differently from what is required by the contract documents. This type of change is quite different from the direct change even though it is initiated by the owner or its representative.

   Cardinal change: This is one which requires the contractor to perform work that was not contemplated by the parties when they entered into the contract and  is  fundamentally different  from the  scope  of  work  outlined  in  the contract document.

In a simple definition, change is any modification to an agreed construction contract after it has been awarded. So once there is an adjustment or modification on the contract document, change is said to have occurred. However, for a change to be officially executed and documented, a change order should be prepared to back it up.

O’Brien (1998) described Change Order as a formal document that is used to modify  the  original contractual agreement  and  become  part  of  the  project document. Also, Hallock (2006) defined Change Order as a written order to the contractor signed by the owner and issued after the execution of the contract, authorizing a change in the work or adjustment in the contract sum or time. Thus,  Change  Order  represents  a  mutual  consensus  between  the  parties involved on a project in which change has occurred.  It can also be referred to as  a  document that  contractually alters  an  original agreement between the signed parties. However, Change Order is what legalizes a change in construction project and it is considered as one of the contractual documents.

In a construction industry, whenever there is an alteration in the contractual document or original agreement in a given project, Change Order is a document that  holds that  change with the  approval of  the  project  owner or  owner’s representative. Therefore, change order is considered as an official contract document  that  authorizes a  change  in  the  original contract document  (Al-

Dubaisi, 2000).  It defines the scope of the change and its impact on the project. According to Uttam et al. (2015), Change Order is any agreement based order provided to the contractor by owner, owner’s agent or design engineer which results in modification of the original scope, execution time and cost of the project.

In practice, a percentage of the project sum is added as contingency in the contract budget in order to contain and minimize the impact of change in terms of cost. This practice is being adopted in most countries of the world especially for public contracts involving institutions, government agencies and bid organizations. Also, change clause is added in the contract document to define how the parties involved should handle changes and change order. According to Al-Dubaisi (2000), the change clause forms the basis of any legal claims in case disputes or conflict arises. Furthermore, Dickman and Kim (1992) described change clauses in their study as an attempt by the contractor to recover additional expenses that  has  been incurred or  will be  incurred in  order to comply with change in the contractual agreement.

According to CII Publication (1986), the major legal aspect issues in change order management are selecting the best contract format; drafting and interpreting change clauses as it has been stipulated in the contract document and finally documenting the change order in case of litigation.

But, change order cannot only be directed by the owner or its representatives; it could be requested by the contractor whenever the need arises. In either case, they have to process it in a fair, equitable and timely manner so as to minimize or reduce the probability of extended disputes and claims between the owner and  the  contractor. In  fact,  Construction Industry Institute CII,  Publication (1990) specifies that change order can be initiated by any of the underlisted project stakeholders as thus:

      The owner may request or order a change as a result of his choice and it has to be within the scope.

      The Engineer or the Project Management firm may originate or request a change because of differing site conditions, new government regulation or value engineering

      The contractor may initiate a change as a result of design errors, non- availability of materials or field requirements.

1.2 Statement of Problem

Changes in construction project presents problems to all parties involved in the construction process. This change could be as a result of changes in project design, extreme weather condition, change of specification by owner or consultant, unavailability of specified items in the market and so on. And when

this occur in any project, it usually leads to change in contract cost and schedule and if not well managed, results to contractual disputes and claims. So, no matter how well a project is managed and planned, change will surely come, it is unrealistic to expect that all change order can be eliminated on a construction project; rather it can only be controlled and minimized (Cox, 1997).

This research work intends to address some problems that change and change order impose on construction projects. Firstly, the conflicts that arise among project stakeholders (owner, consultants and contractors) during project execution.     This could be as a result of the owner’s and the contractor’s diverging interest on the project, each struggling to protect their interest. Often times, when changes occur on a construction project, construction activities are suspended in order to resolve it. Consequently, valuable time and resources are wasted by contractors in finding the appropriate source for pricing and measuring the changes that come up in a construction project. Most times, equipment and materials  may not be the  same after the changes had been adopted resulting in procurement or renting of new and required equipment and materials.

Furthermore, the difficulties in quantifying the financial impact of change order at construction stage has made most people involved in construction project to end up measuring the cost impact of change order at the completion stage of

projects. Many contractors find it difficult to discuss changes with clients or its representative(s) who probably may lack the technical ability required (Saudi Armco Project Management Manual, 1995). In most cases, these had led to disagreement and dispute between the project owner and the contractor in terms of payment for extra work done. This had also led to delay in project delivery. In the Nigeria construction industry, this is considered as one of the major causes of project construction failure and abandonment and thus, a problem that needed attention.

1.3 Objectives of Study

This research study is aimed at studying the impact of change order on construction project with respect to time and cost overruns in the south east region of Nigeria.

The specific objectives of the study are:

i.     To  study  the  main  causes  of  change  order  and  their  effects  on construction projects.

ii.     To investigate change order management process in construction industry

iii.     To identify remedial measures that can be used to control change order in a construction project.

1.4 Significance of Study

The  significance  of  this  research  study  is  to  help  Project  stakeholders understand prominent causal factors of change order and their impact on construction project performance. It will also assist them to plan effectively before starting a project so as to minimize and control changes and change order effects that could arise in project delivery. Furthermore, the outcome of this study may help contractors and consultants to improve productivity in construction project by enhancing effective change management process.

1.5 Scope of Study

The study is limited to Project construction of buildings and highways in the south east region of Nigeria that were executed by registered and authorized Companies. Impact of change order on construction project is numerous but the study will be limited to how it affects project cost and schedule.

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