New Construction Change Order Negotiation Process. In-Service Training September 2007

Transcription

1 New Construction Change Order Negotiation Process In-Service Training September 2007

2 Change Order Negotiation Process Negotiating change orders is a process. Well negotiated change orders result from up-front preparation and documentation. Today we are going to discuss the process to effectively negotiate change orders.

3 Topics Covered The Major Steps in the Process Events leading up to a COP from the contractor the origin and initiation of a change. Analyzing a COP. Negotiating the change. When negotiations fail to fully resolve the issue. 3

4 Topics Covered Cont: o Why is good documentation important? o Example of a well documented negotiation process. 10 most important things to do. 10 things that hinder negotiations. What our negotiators have to say. Questions. 4

5 Events Leading to a COP Be event oriented! As discussed under claims avoidance training, follow the contract. If LAUSD initiates a change, issue an RFP. If an RFC response is a clear change, issue an RFP. For both of the above, determine if the work must proceed immediately or can it wait for a negotiated change order issue a CD as appropriate. If time permits the preferred action is to issue an RFP per GC If time is critical issue a CD with a not to exceed amount per GC , and instruct contractor to issue a COP within a defined time. New GCs change this to 10 days unless the COP says otherwise. Otherwise, make contractor issue Notice of Event Form and respond as appropriate. 5

6 Analyzing a COP Scope determination. Cost determination. Impact determination. Review of contractor COP. LAUSD documentation. 6

7 Scope Determination Is the COP complete and reviewable? Contractors position on why a change occurred clear? Sufficient backup for quantities and costs? Time impact analysis? If not complete, return it to the contractor. Consider if a CD needs to be issued to get the work moving while contractor is preparing a proper COP. Analyze the scope of work and prepare LAUSD s position while the revised COP is being prepared. 7

8 Scope Determination Cont. Question, did an event change the scope of work? Considerations: What was supposed to be constructed? Order of precedence in the contract, specifications vs. drawings vs. details. Submittals, manufacturer s instructions. Supplemental information, geotech reports, building codes, etc. Owner implied warranty - construe ambiguity against the drafter. What would a prudent bidder have priced on bid day? 8

9 Scope Determination Cont. What is now being constructed? Is it different from what was supposed to be constructed? How is it different? Change in material type. Change in quantity. Change in method of construction. Other. Why is it different; who caused the change? Contractor defective work correction. DSA required change. LAUSD desired change. Architect change; RFC, ASI, etc. Be on the lookout for credits. 9

10 Scope Determination Cont. Define the scope in your own words, use photos, sketches, etc. Make sure you understand the scope as well as implications of ancillary work. Get input from contractor. Get input from A/E. Get input from Inspector. Do your homework. Make up your own mind. Always discuss big issues with supervisor Review examples of contract language when preparing correspondence to contractors. 10

11 Cost Determination Perform a detailed take-off of the scope change, assess delta of what was to be constructed vs. what is now being instructed. Consider method of construction and equipment needed. Determine if unit prices in contract apply. Develop cost estimate based on applicable rates, see contract. Keep very detailed records and notes to refresh your memory for negotiations. 11

12 Impact Determination Has contractor requested a time extension? If so, require a detailed time impact analysis from the contractor. Make the contractor take a contemporaneous position on the extent of the delay. Has contractor put LAUSD on notice of additional impacts, or ripple effects, e.g. lost productivity, wage and material price increases, etc.? If so, require a detailed cost proposal from the contractor. Never consider, Time extension or impacts to be determined later. Contract requires time extension and impacts to be part of the COP. 12

13 Reviewing the Contractor s COP Is all the scope covered? Credits accounted for? Are all required trades represented. Identify differences in quantities between COP and Fair Cost Estimate. Assess labor hours and crew make-ups. Are costs acceptable; labor, material, equipment, etc. Is every thing in line with the ground rules established a the first negotiation meeting, see below. If acceptable issue a CO. No need to negotiate. If unacceptable, list in writing queries on portions of disagreement and call a meeting. 13

14 Negotiating the Change Negotiation Preparation. Setting the initial ground rules with the contractor. Negotiation Meeting. 14

15 Negotiation Preparation Review your detailed notes in advance. Have key documents at hand. Determine LAUSD participants. The fewer the better. You as the OAR want to be known by the contractor as the decision maker. Consider having estimator present. 15

16 Setting the Initial Ground Rules The first negotiation with the contractor is the most important. It establishes processes, expectations and cost standards. Be personable but contractual; do not involve personalities. Enforce the requirements of the contract. Make the contractor aware of the standards of documentation and backup required if it expects to be paid. 16

17 Setting the Initial Ground Rules, Cont. Develop agreement on cost standards. Follow the contract, but set specifics about; Labor rates Equipment rates Standard material Crew make-up Unit prices, etc. Remember, whatever you do or agree to in the very first meeting will set the contractor s expectation from that point on. 17

18 Negotiation Meeting First, give the contractor it s say. Have it walk through why there is a change from its perspective. Take notes. Be personable but contractual. Discuss LAUSD position after contractor establishes its position. Have contractor rebut LAUSD position, not the other way around. This causes the contractor to recognize the weaknesses in its position and make it more likely to negotiate. If and only if a scope change is agreed to, discuss quantities, labor hours, etc., save costs until the end. 18

19 Negotiation Meeting, Cont. Have a computer handy with the fair cost estimate spreadsheet; fill it in as you negotiate and the final number will calculate. Try to find points of agreement early on in the discussion, focus on discrepancies after that builds credibility with the contractor. Document agreements made and why on record of negotiation form. Work to reach resolution on all items, remember the intent is to close the issue. 19

20 When Negotiations Fail to Fully Resolve the Issue If issue fully resolved follow the contract, get the change order out timely. May need to issue an expedited change order for that portion of change agreed to or for LAUSD fair cost estimate. Make the contractor fill in the blank as to the disputed amount of the change order on the change order form. Document LAUSD position on the issue in correspondence. 20

21 Why is good documentation important? Facilitates approvals easier from upper management & Inspector General audits. Demonstrates and records that LAUSD is following contractual procedures. Becomes an official record of what transpired for future reference. Documents the contractor s and LAUSD s contemporaneous position important if there is a later claim. Document, who, what, when, where & why. 21

22 When Contractor s Pricing is Late Contractors do not always respond to requests in a timely manner. Remind contractor at weekly meetings of outstanding COPs. Record in minutes. Issue dunning letters to contractor. Instruct contractor that failure to submit a COP by required date will precipitate issuance of a CO per Deny the COP as untimely when necessary. 22

23 Well Documented Change Orders include: Change Order Checklist CO generated from the CO Workbook CO logged in Expedition CO signed by all required parties Justification included Record of negotiation included OAR estimate / Fair Cost Estimate COP submitted RFC submitted, if applicable 23

24 Example of a Well Documented Negotiation Process 24

25 Example 25

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31 Example 31

32 10 most important things to consider 1. Do your homework & prepare a complete folder. 2. Research the issue to ensure it is a real CO item. 3. Be fair, courteous & professional throughout process. 4. Avoid the blame game; e.g. A/E mistake. 5. Expedite the process to meet the 60 day billable metric. 6. Understand Contractors means and methods both original and changed. 7. Bring related documentation to meeting for reference; e.g. RFC, drawings, etc. 8. Be prepared to compromise. 9. Deal with all the issues & not just the easy items INSIST on submission of time extension requests and impact costs with the COP if applicable. 10.Take care in the preparation of documentation and make it simple for others to understand on review. 32

33 10 most things that hinder process 1. Failure to establish proposal standards to be met by contractor at the beginning; even if you join a project underway set your own standards. 2. Participant opinions not based on the contract documents and GCs. 3. Having an adversarial attitude towards contractor. 4. Attitude to prove you are right. 5. Contractor not submitting the COP in a timely manner. 6. Proposal not based on GC guidelines. 7. Quibbling with the Contractor on small items and not focusing on the larger issues. 8. Getting upset when feelings are hurt. 9. OAR unwilling to make up own mind on differing positions. 10.Poor documentation, including conflicting or overly complex explanations. 33

34 What our Negotiators have to say! Input from: Marcy Szarama Issue Support Group Steven Ross Close-out Phillip Cotton Central Region 34

35 QUESTIONS 35