What are some best practices for handling different types of change orders to the jobs we have bid? Should they be done in HeavyBid? If so, how?
The Chief Says:
This question is quite common, and yes, HeavyBid will help you organize and create repeatable processes to handle your different change orders.
Defining Two Different Change Orders:
In my experience, most Change Orders can be categorized into two primary types. The first is what I’ll refer to as Proposed Change Orders. These are changes where the owner or entity has asked me to put together a proposal for work that will be in addition to the contract.
This could be due to a change in conditions of the project, or perhaps the owner has elected to expand the scope of the project beyond what was represented in the bid documents. Either way, the request is for a “proposal” of sorts prior to approving a change order. This is not terribly different from bidding on the project in the first place, just with a more limited scope in most cases. The Change Order could be based on either a lump sum amount or unit prices.
The second type of Change Order I often see is the Time and Material (T&M) Change Order. Frequently, even though the contract holder had already established that the extra work would be handled by tracking the cost of manpower, equipment, and materials, prior to the start of work, they required an order of magnitude. This is often coupled with a “not to exceed” clause in the change order.
A Solid Foundation, and Estimate Management
The first thing to know is that there is not just one specific module in HeavyBid for Change Orders. HeavyBid uses a variety of existing features such as Bid Items, Subtotals and Package Alternates to help you organize and estimate change order work. But before we start creating the change order in HeavyBid, let’s talk estimate management.
My recommended best practice is that as soon as a contract is awarded or agreed to, the estimate that matches that contract should be password protected. Protecting the original estimate will provide an unchanged copy that can be used to answer questions throughout the project as to how or why something was estimated the way it was. Locking the original estimate also serves as cheap insurance that can save many hours of searching if you have multiple iterations of the same job in HeavyBid.
Next, make a copy of the original estimate that will be used for confirming the estimate, and export it to both accounting and to HeavyJob. I typically use the same or similar estimate number with “PM” at the end to differentiate it from the original and keep the copies near each other. Once you have the PM-version in place, you have an estimate with the same basic information that went into the contract version.
Extension of Work
Starting with the first type, or Proposed Change Order, lets say the change we’re pricing is basically just an extension of work that is already included in our contract. It may make sense to just adjust the quantities to show the difference.
In a situation like that, we could copy the bid items (of the work we need more of) down below the bottom line of the original estimate. Then, we can put the additional work quantities into the copied bid items. If it doesn’t already exist, I recommend creating a Bid Total subtotal for the original estimate. The change order goes below that in the Bid Item Setup. If more than one Change Order is needed, just use subtotals to separate them.
Once the bid items are in place, and the quantities are correct, check each activity in them to make sure that all crews and productions are correct and that any materials, subcontractors, etc. have been factored correctly. And just like any estimate, once the costs are right, we can move on to Bid Summary.
What you do in Bid Summary will depend on your contract. If you’re bound to specific profit and overhead percentages for change orders, you might need to use the Markup column in Bid Summary/Spread Overrides. You can set the Markup on specific Bid Items here if it differs from the markups used in the original estimate.
Once the Markups are correct, it’s time to pay very careful attention to Indirects, Add-ons, and Bond costs. This is where things can get a little messy until you’ve had some practice. As you recall, the change order bid items were added to an existing estimate. If that estimate had indirect bid items, Add-on costs, or a bond calculation, HeavyBid does not know that the new items are a change order. It only knows you added cost, so the Add-ons and Bond costs will increase for the whole job. Unless you tell HeavyBid otherwise, these added costs will get spread across all bid items. Use the Bid Pricing Screen to review the Markups, Add-ons, etc. being added to each change order bid item to make sure they’re correct.
Time and Material Change Orders
The other change order I see frequently is Time and Material based change order work. Even though the work would be tracked and billed hourly, the contract owner wanted an order of magnitude or possibly even a “Not to Exceed” value for the T&M. This is pretty easy to produce in HeavyBid.
Typically, my contract would include clauses specifically related to extra work that would be billed on a Time and Material basis. Along with my schedule of values, I would be required to submit my hourly rates for labor, equipment, and unit prices for frequently used materials. The contract would then stipulate percentages for profit and overhead.
For jobs that included this, I would create another PM estimate that was labeled for use with Time and Material change orders. Then I would go into the Labor, Equipment setups, and Local Materials and replace the rates I used bidding the job with the T&M rates and Unit Prices supplied to the owner. Then, when I put together bid items for a T&M change order and populated them from my Activity Codebook, all the contracted rates for T&M would be pulled in automatically.
Whether you’re doing a Proposed Change Order estimate or an order of magnitude for T&M, you’ll want to use the combination of Subtotals and Package Alternates to keep things separated. Part 2 of this “Ask the Chief” will include an explanation of how to use Subtotals and Package Alternates. Let us know if you have any questions in the comments below, and reach out if you need help working through your change order work.
Estimating Success Manager
For the past 30 years, Ray has held positions as an Estimator, Project Manager, or Chief Estimator for civil construction companies operating in Ohio, Virginia Beach, Virginia, and Norwalk, Connecticut. He has a heart of a teacher, and takes pride in listening well to others before offering advice.
Caleb Helms says
What are your steps for translating these change orders to HeavyJob? Do you merge it into the file through DirectLink and create a change tracking item? We have had issues doing this until we started bringing the change order bid item in with a quantity of zero. If we don’t bring it in with a zero budget quantity for the pay item, it adds it to the contract amount as if it was an original pay item. Once in HeavyJob, we can add the change order to the budget and contract through Change Tracking. Is there a better way to bring a change order item from HeavyBid to HeavyJob?
Ray Zanon says
Excellent comments and questions Caleb! Stay tuned for the rest of the series. This is a complex subject. Part 2 will finish the HeavyBid work. Part 3 will include a guest blogger to help address the HeavyJob side of the equation.
Mitch Manning says
The change tracking in HJ is somewhat complex and at times very “ user unfriendly” particularly once a pay estimate has been started or a mistake is made and correcting it is a major issue which seems to be “ unjustified” at times.
Ray Zanon says
One of the purposes of this blog is to open dialogue with the users of HCSS software. I hope you will post your concerns at https://community.hcss.com/s/
As I mentioned in the previous response, I plan to address what happens after the Change Order is processed in HeavyBid in a later part of this blog series. I hope that will help.
Hector Zavala says
What I have being doing in the past, is just making a new bid and naming it with the job name and with the change order number. That way I can just provide the mark ups I need on the bid summary. It also helps when it comes back with revisions.
Is their a video on Change Orders?
Ray Zanon says
Not from the HeavyBid perspective. There is a video on tracking changes in HeavyJob. I’ll definitely be planning one soon.