Counter increasing prices of material by Renegotiating Contracts to Accommodate Price Increases and/or Industry Shortages

There are certain realities the owner must acknowledge regarding material price increases, and it may be necessary and beneficial for the contractor to be proactive with the owner. It may be possible for a contractor to renegotiate a contract to accommodate price increases or industry shortages. In some situations, it may be in the best interest of the owner to renegotiate. For example, if the duration of the project as well as the price of the project increases significantly, the contractor may be put at financial risk. In this situation, the owner could make certain allowances for increases rather than risk the entire project.

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Document all changes including verbal instructions

In many construction sites, the Engineer’s staff issue verbal instructions at site to Contractor’s staff for work to be done and some of such instructions may include changes to the scope of work as agreed in contract documents. Contractors are obliged to follow such instructions and soon their staff start implementing the instructions issued but often without any written form of confirmation. This practice leads to disputes quite often and by the time the discussions take place on the disputes, it could be difficult to establish the origins of changes as there hadn’t been any written instructions.

It is therefore important to ensure that all communications are documented and all verbal agreements or instructions are confirmed in writing as soon as practicable. This includes situations that may not necessarily change the scope of work but may impact the means and methods of performing the work in the construction sites.

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Counter increasing prices of material by Employing Alternatives to Help Reduce Costs

A contractor can have parts of a project redesigned with less costly materials in order to keep a project within budget. Value engineering involves reducing the scope of the project, delaying certain aspects of the project, or eliminating wish list items like skylights or elaborate landscaping.

In some situations, it may be advantageous to consider renovating an existing building as opposed to building a new structure. A cost comparison may reveal that a renovation is significantly less expensive than a new building. Alternatively, depending on the condition of the existing building, the renovation may be significantly more expensive (e.g., renovating a much older building requires bringing it up to code).

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Counter increasing prices of material by Bulk Discounts

If a contractor is purchasing material for multiple projects, it may be beneficial to purchase materials at the same time to receive bulk discounts. From an owner’s perspective, it can choose to utilize some of the same furnishings and finishes on similar projects in order to obtain better bulk discounts.

It is sometimes possible for builders and contractors to work together with other builders and contractors to obtain groups discounts on materials. This can be achieved by buying larger quantities at a bulk rate.

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Counter increasing prices of material by Delaying Construction

Because of the volatility of material prices, it can occasionally benefit an owner to delay a project, when practicable, until prices come down. There is a certain amount of risk associated with this tactic, since prices could steadily increase.

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Counter increasing prices of material by Buying Materials as Early as Possible

On projects where it may not be standard practice, if site conditions allow, a contractor can purchase as much steel, or other materials, as early in the project as possible and then store the materials on site. Buying early is advantageous since the contractor can lock in on prices and ensure there is an adequate supply of materials for the project, even if a market shortage occurs later in the project.

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Counter increasing prices of material by Locking in Material Prices

In the same way that owners secure the value of a contract with a contractor, a contractor should attempt to lock in construction material prices with its suppliers whenever possible. This is difficult to do for concrete, since suppliers have been reducing the time during which their price quotes are valid.

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Change order procedures in Construction Projects

Among contract documents, the Conditions of Contract stipulates the change order procedures to follow for change orders (variations) of a construction project. Conditions of Contract is one of the volumes of contract documents as well as in tender documents, and consists of terms and conditions which govern the contracting parties’ rights and responsibilities, hence is important for parties to understand the contractual requirements for submitting legitimate change orders including, but not limited to, notice provisions, timing, structure of the change orders, information required to support the change orders, acceptance and approval procedures.

It is important for the parties to consistently follow the change order procedures in the contract. Failure to do so may set a precedent for handling change-related situations outside of the contract, or gives rise to disputes, or may be perceived as a waiver of contract requirements.

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Effective Change Order Management

Almost all construction projects face changes due to various reasons. Such changes can be small, such as changing the position of window in a house construction, or medium such as changing the position of the staircase in a multi storey building, or can be a major alteration, such as re-construction of a flood damaged highway construction project consisting bridges, revetments … etc.

Change order management is a crucial and inevitable aspect of construction management and has a substantial impact on successful project completion. Such unresolved change orders not only affect the project but give rise to unpleasant situations between owners and contractors thereby souring relations.

In effective construction management, it is vital to deal with change orders in time and in a professional manner to avoid costly disputes arising out of unresolved change orders. It should be the prime motive of construction management professionals to try mitigating change and managing claims at all times.

Failure to effectively manage change or to mitigate disputes originating from change orders, construction management professionals should handle the issues with coordination of all involved parties to the change orders, such as, the project managers, quantity surveyors, construction personnel and owners.

Below are several key factors in effective change order management that help to mitigate the impacts of changes and increase the probability that change orders will be resolved:

Understand and follow the change order procedures as stipulated in Conditions of Contract,

Designate an experienced construction management professional as the key figure in change order management team,

Maintain effective logs about all the Change orders,

Timely handle and settle change orders,

Keep track of contract document changes.

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Decide on preferred elements upfront in construction projects

As a construction project progresses often the owners come up with their preferences of project elements. This happens when they see or hear about latest products in the market, or coming across an attractive thing somewhere. Such preferential engineering should be considered and implemented during the conceptual design stage prior to detailed engineering and construction. Minimizing “preferential” changes will reduce the overall impact to the construction activities.

It is quite usual for a project to experience some change during construction, that is unexpected. Managing these changes is difficult without having to deal with avoidable, preferential changes. Spending additional time up front during the planning stage to consider all potential options and make a decision regarding any preferential items will prove beneficial later in the project. If such preferential changes are unavoidable, as the technology changes rapidly, then it would be quite useful to consider to allocate an additional sum for preferential engineering.

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Construction Management Plan (CMP) & its content

The ingredients of a CMP would normally depend on the party for which it is prepared. Normally a CMP will serve as a document for the local authorities or the municipalities to be aware of the construction project and its impact on the neighbourhoods and its content is more or less the same in most cases. However, additional details may be requested by certain authorities or municipalities and the CMP shall include those additional details whenever required.

A CMP should normally consist of following details;

  1. Project overview
  2. Project details,
  3. Address of the project,
  4. The parties involved in the project.
  5. Construction Communication
  6. Contact person/s: Name/s, Mobile phone, contact telephone, email, fax.
  7. List of notifications on construction activities: Affected neighbourhoods, residents, schools, hospitals, businesses, government organizations.
  8. Methods of communication.
  9. Timing of the notifications: Timing for notifications, tracking methods and timing.
  10. Noise
  11. Timing of construction activities which is likely to generate noise,
  12. Off-time construction activities and its timings.
  13. High noise generation activities, their timings.
  14. Lists of those in the neighbourhood who is likely to be affected from construction noise, such as; hospitals, schools,
  15. Noise management
  16. Methods to be implemented to mitigate impacts from the noise,
  17. Methods to reduce the noise levels during sleeping times and non-working hours.
  18. Noise control measures during demolitions.
  19. Milestones: Identify construction milestones with details such as;
  20. Date of commencement,
  21. Duration,
  22. Activities for the milestone,
  23. Start and end dates of activities,
  24. Traffic diversions, blockages intended,
  25. Parking during the milestone.
  26. Off-site construction worker parking: Locations of parking and details such as;
  27. Maximum number of parking anticipated,
  28. Average number of parking anticipated,
  29. Identify the locations of parking and the number of parking in each location,
  30. Number of parking provided within the site.
  31. Right of way: Identify types of vehicles/equipment, timings, access routes for;
  32. Material incoming,
  33. Concrete trucks,
  34. Other heavy transport,
  35. Cranes movement and locations,
  36. Locations accessible for incoming vehicles.
  37. Traffic Management
  38. Diversions and blockages,
  39. Longer periods of diversion,
  40. Shorter periods of diversion,
  41. Locations of diversion including maps,
  42. Timings.
  43. Road closures
  44. Lane closures,
  45. Lane diversions,
  46. Hard shoulder closures.
  47. Pedestrian management
  48. Pavement closures, blockages,
  49. Side Walk diversions,
  50. Periods of closure or blockage,
  51. Timings of closure or blockage.

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Impact of Variations on Projects – At the beginning stages & late stages

It is a fact that the impact of changes is more easily absorbed into the overall project earlier than later in construction projects. Most project schedules contain floats in the activities to absorb any potential schedule delays or impacts, and the project contingency is more likely available to cover additional costs associated with the changes. Later in the project, however, the schedule is more compressed, contingency has already been used, and there is less potential to mitigate the impact of changes by resequencing or accelerating work, reducing costs in other areas, etc. The figure illustrates the general relationship between the timing of changes and the ability to mitigate the impact of the changes on the project’s cost and schedule.

Increasing Impact of Late Changes

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Construction Management Plan (CMP) from the Contractor’s perspective

From the perspective of a contractor, a CMP may include items somewhat different from an owner’s CMP. A contractor will need a CMP to use as a guide for its construction operations involving; methodologies, construction activities involved, material supplies, equipment requirements, manpower requirements & management, logistics, cashflow, costs, profits and avoidance or mitigation of risks.

The contractor being the author of the project schedule, it might be easy for incorporation of the schedule into the CMP for maintaining homogeneity of the two documents.

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Late changes in Construction Projects

It is quite usual that change orders (or variations) occur in construction projects. However the changes that occur upfront at the beginning of a project are less likely to make a substantial impact on the cost and duration of the project than those that occur later as construction progresses. The most important factor to manage change orders and mitigating the potential impacts is to recognize the increasing impact of changes as the project progresses. Early in the project, a change may only require a small modification or clarification to an engineering drawing. However, if this same change is made later in the project, after construction has begun, it might require the demolition of existing work and rework in addition to the engineering change.

Due to this fact, it is much beneficial for owners to engage their project personnel to make thorough study and review project documents to make all possible efforts to mitigate, minimize or manage change orders during later stages of construction.

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Construction Management Plan (CMP) from the business perspective

An owner’s (Employer) main requirement of a CMP is to understand & plan his business interests, avoidance of risks and get the project constructed smoothly and in time. Although a CMP might not be essential for smaller projects, the need of it becomes more as the projects getting bigger.

From the business perspective, a CMP will include following items along with other details;

  • Intended final goal,
  • Financial and business feasibility,
  • Business benefits,
  • Financial and business risks,
  • Structure life span and the business gains over the years,
  • Overheads involved including staff salaries,
  • Cash flow,
  • Tender and contract process
  • Project duration,
  • Defects liability period and taking over,
  • Facility management after taking over.

In addition to above details, a CMP for an owner may include following items though not hold direct relevance to business;

  • Construction plan,
  • Permission from authorities and municipality,
  • Description of the structure,
  • Owner’s construction manager and the staff to be allocated,
  • Project design,
  • Engineer’s details and his appointment,
  • Contractor’s details,
  • Construction process

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Know the discrepancies in Contract Documents beforehand

During contract document review times, it is important to make a log of all discrepancies and enter the importance of each as being ‘critical’, ‘important’, ‘high risk’, ‘medium risk’, ‘low risk, ‘trivial’ or similar quotes, against each discrepancy. This method will give the owner’s representatives to give priority to high risk or critical ones and address them at first. If there are known areas in which information is incomplete, planning in advance for handling this situation would definitely remove much costly change orders later. This may include when the information will be available; how the information will be incorporated into the documents; and what work-arounds will be required, if any. Also, consider options in the event the missing information is not available when planned. The foresight to plan and have contingency for known issues and discrepancies will mitigate the impact of not having the necessary information at the planned time, as well as prevent such issues from becoming more significant later in the project. If the contractor is aware of the missing information up front, as well as the plan for how the missing information will be handled, it reduces the potential for a contractor’s change order later in the project.

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Ingredients in a typical CMP to Authorities

A typical CMP provided to the authorities would consist of following sections;

  • General work activities
  • Working hours and schedule,
  • Equipment/material staging and parking,
  • Haul route/estimated vehicular traffic,
  • Contaminated soil management.
  • Health and safety,
  • Dust control and reduction measures,
  • Noise mitigation,
  • Storm water pollution prevention and erosion control plans.

The inclusions, in fact, would depend on the authority and its requirements. The author of the CMP should consider requirements of the authorities to whom the CMP is submitted prior to writing. Submission and getting approval prior to project commencement is a mandatory requirement in some jurisdictions. It is generally a task for the owner but occasionally might be a requirement to be fulfilled by the contractor.

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Construction Management Plan (CMP) from the authorities’ perspective

Local authorities and/or municipality may require a CMP to provide them with details on;

  • Demolition activities,
  • Sand & dust control,
  • Noise reduction and control,
  • Vibration control,
  • Public safety,
  • Project security,
  • Operating hours,
  • Environment protection from air pollution, dust, ground water,
  • Waste storage, control and removal,
  • Vehicle access, deliveries,
  • Pedestrian & Traffic management,
  • Vehicle parking,
  • Health & safety of workers,
  • Worker welfare,
  • Working late hours and on public holidays,
  • Use of harmful material such as asbestos,
  • Use of public property such as roads, canals, facilities,
  • Communication with neighbours including informing them of anticipated impacts and responses,
  • Affecting others property.

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