Module 14 & 15: Changes & Claims and Progress Payment

Code: CMGCOY3
Lecturer: Ms Z Matsane
17 August 2020
 The change order
process
Changes in the
Changes and Claims • Time extension
construction project • Documentation changes
• Implementation of change
orders

In this Progress payments The schedule of values Unit price contracts

presentation….

Project cash flow Progress payment

Payment processing
projections procedures
 Discuss the types of changes

Explain the terms used in the discussion of

At the end changes

of this Explain the change order process

lecture ( Discuss the process of moving from an unresolved

Changes & change request to a claim

Claim): Discuss typical forms that might be used in the

change order process

Discuss the idea and importance of time extension

as well as costs of change orders
 Discuss the variety of payment processes available
Discuss and the owner’s goals in progress payments

At the end
Discuss the schedule of values, its contents, and its
of this Discuss preparation

lecture
(Progress Discuss Discuss the uses of cash flow projections

Payments):
Discuss progress payment procedure and
Discuss compilation of the progress payment
1. Changes and
Claims
Changes in the
Construction Project
• Occur in every construction project
• Small (e.g., clarifications) or large
• Normal part of the process
• Owner, architect, and contractor
• Must be aware and equipped
• Field personnel
• Must understand
• Must be able to assess each situation
Changes in the Construction
Project (cont’d.)
• Can be made at no cost
• With no change in duration
• Example: clarifications
• Can result in greater or lesser costs
• Require addition or reduction in time
• Example: change orders
Changes in the Construction
Project (cont’d.)
• Reasons for changes:
• Owner-directed change of scope
• Constructive or consequential change
• Differing site conditions
• Jobsite discovery of hazardous materials
• Code revisions
• Vendor coordination or product substitution
• Change orders
FIGURE 16–1 Hazardous Material Clause, General Conditions of the
Contract
 Change Orders

Change of scope or addition of work

• Generally a tangible change

• Extra work requires a change in documents or design
• Authorized by a written notice

Contract clauses

• Allow adjustment for quantity variance in unit-price

contracts
FIGURE 16–2 Changes in the Work Clause, General Conditions of the
Contract
 Change Orders (cont’d.)

Adjustment to contract Liquidated damage clause

amount and/or duration
Approved, accepted, and signed by owner, Stipulates owner reimbursement for
architect, and contractor completion beyond contract date
• Sequence of events:
• Contractor notices difference in
actual conditions and notifies
architect
• Architect responds
• Contract Clarification
• Contractor determines if
clarification is additional work
• Change order prepared if
architect and owner agree
on price
 • Time is of the essence
The Change • Paperwork must be executed
promptly and accurately
Order • Can be initiated by any party
involved
Process • Must be made in writing
(cont’d.) • Certain time period
• Specified format
 • If owner and architect disagree:
• Contractor options:
The Change • Revise the proposal
• Withdraw the proposal
Order • Pursue proposal as
submitted
Process • Change proposal becomes a
(cont’d.) claim:
• Unresolved change request
• Must be made within 21 days
 • Construction Change Directive
(CCD)
• Written notice directing work
change
The Change • Used to keep work going and
initiate a change order
Order • Clearly describes additional
work
Process • Specifies method of determining
(cont’d.) payment
• Stipulated price, unit price, or
cost-plus-a-fee
• Includes necessary subcontract
work
• Depends on a variety of factors
• Extra work requires extra time
• Schedule analysis is necessary
• Includes time delay for determining changes
• Fairly subjective
• True impact is rarely clearly determined
 Documentation of Changes

• Files should be established for each possible change

• Defined by change order proposal
• Includes all relevant documentation
• Several change orders may be processing at the same time
• Important to track proposals and orders
• Change order log is used for recording
 Documentation of Changes (cont’d.)

• Change order log may include:

• COP number
• Change order number
• Description
• Original date of COP
• Who initiated the change
• Price associated with COP
 Documentation of Changes (cont’d.)

• Change order log may include:

• Calendar days for extension requested
• Subcontractors affected and dates associated with pricing
• Date change order was issued for signatures
• Status and date status was determined
• Reprocessing dates
• Actual amount of change order
• Date change order is approved
Implementation of Change Orders

• Issuance of change orders to subcontracts must be accomplished

• Subcontractor change order must be finalized and negotiated
• Difficult if contractor negotiated different terms than proposed
by subcontractor
• Changes to the contract
• Require careful processing
• Specific procedures are contained in
contracts
• Variety of forms and
correspondence necessary Summary
• Contractor must manage
subcontractors’ proposals and changes
• Can be managed without producing
claims
2. Progress Payments
 Progress payments

• Most common payment method

• Partial payments made during
period portions
• Usually monthly
Introduction
Turnkey arrangements

• Payment at project completion

• Interim financing costs are
included
Introduction (cont’d.)

• Progress payment method

• Estimate of work complete is made
• Payment made for that amount
• Most deduct retainage
• Amount held by owner until final completion
• Normally released in final payment
• Includes materials delivered
• Various inspection methods
 • Lists value of construction activities
• Basis of progress payments
• Often prescribed in Project
The Manual
• Selected to accurately monitor
Schedule of progress
Values • Should be detailed
• Activities are identifiable as a
system or installation
FIGURE 17–1
Comparison of Detail in
a Schedule of Values
The Schedule of Values
(cont’d.)
• Optional items:
• Mobilization
• Temporary facilities, transportation, setup, etc.
• General conditions
• Normally relate to direct (jobsite) overhead
• Punch list
• List of items that must be completed or repaired prior to completion
The Schedule of Values (cont’d.)

• Estimate translation into schedule of values

• Refer to Figures 17-2 through 17-7
• Preparation may include:
• Combination of items
• Separation of lump-sum items
• Distribution of overhead
• Front-loading
Unit-Price • Unit-price breakdown is used as the
schedule of values

Contracts
 Project Cash Flow Projections

• Relate schedule of values to construction schedule

• Progress payments through project duration
• Used by owner to make financial arrangements
• Used by contractor for anticipating revenue
• Projections are estimates only
• Several factors affect actual amount
FIGURE 17–
9 Cash Flow
Projection,
Method
Comparison
FIGURE
17–12
Example
Project
Cash Flow
Projection,
Line Graph
FIGURE 17–13
Cash Flow
Projection,
Comparison
of Evenly
Distributed
Markup and
Front-Loaded
Distribution of
Markup
Progress • Each owner will have
specific progress payment
Payment requirements
• Many use forms and
procedures
Procedures recommended by AIA
documents
• AIA forms for
payment are G702
and G703
• Refer to Figures 17-
15 through 17-20
 Steps:
• Contractor completes payment
application
• Architect and engineer review
Payment the application and certify
payment
Processing
Processing payment:
• Most contracts specify
processing time
• Usually 30 days, but can vary
FIGURE 17–21 The
Progress Payment
Process
Summary • Progress payments
• Important part of contract
administration
• Proper preparation is
necessary
• Schedule of values
• Lists work activity amounts
• Basis for progress payments
• Cash flow projection
• Estimate of progress payments
THANK YOU !!!!