The Montgomery County Council today received a report from the County’s Office of Legislative Oversight (OLO) regarding “Change Orders in County Government Construction Projects.” The report examines the change order process for County Government capital facility construction contracts and describes how change orders affected the cost and schedule of recently completed projects.
The report, which will be the focus of a worksession to be held by the Council’s Government Operations and Fiscal Policy Committee on April 3, also identifies methods used by state and local governments to assess and mitigate the risk associated with capital project construction contract change orders.
The Council asked OLO to study change orders in construction projects to help determine if the County is being as cost-effective as possible in building facilities.
OLO studied change orders for 17 County Government capital projects completed during the past five years and found that for the overall program, change orders had a moderate effect on contract costs. For all projects in aggregate, change orders resulted in an increase in contract costs of eight percent. In contrast, change orders had a significant effect on the construction schedules, increasing the overall construction time by 30 percent.
The effect of change orders on specific projects varied widely. For two projects, change orders actually reduced contract costs. In another project, change orders resulted in a cost increase of 25 percent. Effects on construction time also varied—change orders produced no delay in project completion for two projects, while for two other projects, change orders resulted in delays that more than doubled the time needed to complete facility construction.
In several projects, the cost increases and delays approved through change orders were the result of unforeseeable conditions and uncontrollable events. In one recent project, for example, a large and experienced construction contractor declared that it would cease business operations while working on an ongoing project. Uncontrollable events of this sort necessitate the execution of change orders to allow project construction work to proceed.
The report showed that certain types of capital projects are particularly susceptible to plan modifications during the construction phase and as a result bear a higher risk of cost increases and delays. Projects with complex or specialized architectural and engineering design requirements often involve additional risk of unanticipated change. The risk of design plan errors and omissions increases when designing and constructing facilities which are dissimilar to other facilities that are more routinely built by the County.
Conditions at the construction site constitute another potential risk factor. In general, projects located at redeveloped sites or on previously disturbed land run a higher risk of encountering challenging subsurface conditions such as pre-existing utility lines or contaminated soils.
The report also describes methods to mitigate the risk associated with change orders. These methods commonly involve higher expenditures at the outset of a project in order to contain costs during the construction phase. The County Government currently employs several practices to control change order costs. Other jurisdictions use alternative procurement approaches, such as “design-build” and “construction management at risk” contracting to lessen the risk of construction cost increases and delays.
Based on the findings of the report, OLO is recommending that, for future projects, the County Government:
Identify projects with especially high risk of cost increases and delays based on the presence of known risk factors.
Selectively employ alternative procurement and contracting methods as necessary to mitigate the cost and schedule uncertainty of high risk projects.
Monitor project-specific change order data to track trends and identify factors that raise the risk of cost increases and schedule delays.
The report will be available at the OLO web site at:
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