Article #529 How to Capture All Changes and Their Impact When Managing the Contractor’s Contract Price on Capital Construction Projects?

In our last article “How to Enforce the Culture of “100% Committed to Achieve” in Managing the Contractor’s Contract Price on Capital Construction Projects?”, we have explained how EPC Contractor, General Contractor, Subcontractor and other type of vendors who have been awarded lump sum turn key (LSTK) contracts can transform the awarded contract into commitments to ensure 100% outsourcing of the complete project’s scope to internal and external entities that can best manage the outsourced scope of work and manage the risks associated with this outsourced scope of work. This was crucial for building the culture of “100% Committed to Achieve”. Nevertheless, the baseline contracts, commitments and budget on capital construction will always be subject to changes for which they need to be managed to ensure what is being monitored, evaluated and reported is valid.

In general, there are two main categories for changes on capital construction projects. The first category is for changes that had been authorized by the project owner due design revisions, wrong design, interferences, unforeseen site conditions and others causes that the contract agreement entitle the contractor for change that could affect either the project cost, completion date or both. Those changes will affect the contract agreement between the project owner and contractor, some of the commitments contracts that the contractor has with internal and external entities and the project budget.

The second category are changes that are due to the contractor or his subcontractors or suppliers’ actions or due to risks that had actually occurred. Those changes will only affect some of the commitments contracts that the contractor has with internal and external entities and the project budget but not the contract agreement between the project owner and contractor.

528 1

Using the same PMWeb Project Management Information System (PMIS) solution, changes to the contract, commitments and budget will be managed using ready to use business processes. Those business processes will use the cost breakdown structure (CBS) levels to ensure that all cost transactions are interrelated and cane be reported on.

To start with, the PMWeb Contract Change Order module will be used to manage all change orders that have an impact on the contract agreement between the project owner and contractor. Some of those changes could be approved while others could be pending approval or disputed. The change order form will also capture any adjustment to contract’s planned duration.

Changes to the commitment contracts will be managed using PMWeb Commitment Change Order module. Each line item in the commitment contract change order needs to be associated with the cost breakdown structure (CBS) that it relates to. The commitment change order form will also capture any adjustment to the planned subcontract or purchase order duration. Those commitment change orders could have their status as approved, pending negotiation, rejected or disputed.

Since one of the reasons attributed to commitment change orders are risks that have actually occurred, PMWeb potential change order module is used to capture the details of risks that have occurred. The potential change order form allows linking the form with the risk register record that the change is associated with. If a potential change order was reviewed and approved, then a commitment change order can be generated from the approved potential change order.

All changes that could have resulted in increasing or decreasing the approved baseline budget or resulted in transferring funds from the project contingency, management reserve or any other budget item to another budget item must be captured. PMWeb Budget Request module will be used to capture those details. It should be noted that a budget request could have a positive, negative or zero value if it was for a budget transfer.

To ensure that all budget requests are aligned with the changes made to the commitment contracts, PMWeb change event module will be used to align those two business processes. The change event will capture the details of the budget request cost line items as well as the commitment change orders cost line items that are associated with this change.

For each business process template detailed above, there could be the requirement to attach supporting documents to better explain and support the transaction. Those documents could include pictures, videos, MS Excel files, documents among many others. The attachment tab for those templates will be used to attach all those supportive documents. It is also highly recommended to add comments to each attached document to provide better understanding of what was the document for. The attachment tab also allows the user to link other records for business processes implemented in PMWeb as well as associate URL hyperlinks with websites or documents that are not stored in PMWeb document management repository.

To enforce accountability for the review and approve process for each transaction for the business processes detailed above, PMWeb workflow module will be used to create a workflow to formalize the review and approval tasks of those transactions of business process. The workflow will map the sequence of the review and approval tasks along with the role or user assigned to the task, duration allotted for the tasks and available for each task.

In addition, the workflow could be designed to include conditions to enforce the approval authority levels as defined in the Delegation of Authority (DoA) matrix. This will be required as all of the needed business processes have financial implications for which the decision to approve will depend on the roles and responsibilities for the individuals involved in those business processes.

When a transaction for each business is made and submitted, the workflow tab available on the template will capture the planned review and approve workflow tasks for each transaction as well as the actual history of those review and approval tasks. PMWeb will capture the actual action data and time, done by who, action taken, comments made and whether team input was requested.

Many contractors might require having an output document for each transaction of business process to be printed and wet-signed by the individuals who have reviewed and approved the transaction. Although PMWeb comes ready with more than 150 ready to use forms, reports and dashboards, each contractor their own forms, reports and dashboards to display the needed information in the required format while respecting each contractor branding requirements.

About the Authorfounder

Bassam Samman, PMP, PSP, EVP, GPM is a Senior Project Management Consultant with 40-year service record providing project management, project controls services and project management information system to over than 200 projects with a total value in excess of US $100 Billion. Those projects included Commercial, Residential, Education and Healthcare Buildings and Infrastructure, Entertainment, Hospitality and shopping malls, Oil and Gas Plants and Refineries, Telecommunication and Information Technology projects. He is thoroughly experienced in complete project management including project management control systems, computerized project control software, claims analysis/prevention, risk analysis/management (contingency planning), design, supervision, training and business development.

Bassam is a frequent speaker in topics relating to Project Management, Strategic Project Management and Project Management Personal Skills. Over the past 40 years he has lectured at more than 350 events and courses at different locations in the Middle East, North Africa, Europe and South America. He has written more than 500 articles on project management and project management information systems that were featured in international and regional magazines and newspapers. He is a co-founder of the Project Management Institute- Arabian Gulf Chapter (PMI-AGC) and has served on its board of directors for more than 6 years. He is a certified Project Management Professional (PMP) from the Project Management Institute (PMI), a certified Planning and Scheduling Professional (PSP) and Earned Value Professional (EVP) from the Association for the Advancement of Cost Engineering (AACE) and Green Project Management (GPM).

Bassam holds a Masters in Engineering Administration (Construction Management) with Faculty Commendation, George Washington University, Washington, D.C., USA, Bachelor in Civil Engineering – Kuwait University, Kuwait and has attended many executive management programs at Harvard Business School, Boston, USA and London Business School, London, UK.


Contact us