Particularly for those preparing for the PMI Construction Professional (PMI-CP) examination, understanding the difference between change/variation orders and claims is critical. These are two distinct concepts that directly impact the scope, cost, and timeline of a construction project. While both pertain to alterations in original plans or contracts, they differ in several fundamental ways.
Change/Variation Orders
A change order or variation order, in construction project management, refers to a component of a change management process whereby changes in the scope of work agreed to by the owner, contractor, and architect/engineer are implemented.
For the most part, change orders are not uncommon in construction projects, especially considering that complexities often arise during construction that were not apparent during the design stage. These changes could range from altering building materials, redesigning elements for enhanced functionality, or even adjusting project timelines.
Example:
Let’s say, during a construction project, the team discovers unanticipated soil conditions that would require a different type of foundation than initially planned. Rather than sticking to the original contract which doesn’t account for this reality, a change order would be used. This change order would detail the necessary changes to the materials and construction processes, as well as potential changes in cost and timeline.
Claims
On the other hand, a claim in a construction project context refers to a demand by the contractor, owner, or another party involved in the project, seeking compensation for damages incurred due to disruptions or changes in the planned work that were not initially included in the contract.
Claims are typically filed when unexpected conditions or events happen that are beyond the control of the parties involved, or when there is a disagreement between the parties on their contractual obligations. It’s crucial to note that claims can lead to legal disputes if not resolved timely and adequately.
Example:
Sticking with our previous example, if the encountered soil conditions could have been anticipated and included in the original contract but were not, the contractor might file a claim. In this scenario, the contractor could contend that they’ve incurred additional costs and lost time due to these unanticipated conditions. The claim would hence seek compensation for these damages.
Comparison
To better understand, here’s a comparative overview of change orders and claims:
- Origin:
Change orders result from changes in the scope of work mutually agreed by all parties.
Claims, conversely, originate from disagreements or unexpected issues outside the control of the involved parties. - Impact:
Change orders affect project cost, timeline, and scope, since they implement deviations from the original plan.
Claims primarily impact project cost and can lead to legal disputes. - Acceptance:
Change orders require the mutual acceptance by the owner, contractor, and architect/engineer.
Claims are typically contested and may need legal or contractual resolution.
In conclusion, both change orders and claims are essential aspects of managing changes and unexpected events in a construction project. However, their reasons for necessity, their consequences, and the manner in which they are handled, set them distinctively apart. Understanding these differences is critical for those preparing for the PMI Construction Professional (PMI-CP) examination and also key for effective project management in the construction industry.
Practice Test
True/False: A claim refers to a request for additional time and/or money outside the original scope of the contract, while a change order is a document used to record an amendment to the original contract.
- Answer: True
Explanation: A claim is indeed a request for extra resources not originally accounted for in the contract, while a change order is used to record any changes made to the original contract.
Multiple select: Which of the following statements are true?
- A. Change orders can lead to claims if not handled properly.
- B. Change orders and claims are used interchangeably in project management.
- C. Change orders can only be initiated by the project owner.
- D. Claims can sometimes lead to disputes and litigations.
- Answer: A, D
Explanation: If change orders aren’t properly managed, they can lead to claims. Also, claims can escalate into disputes and litigations. However, change orders and claims aren’t used interchangeably, and change orders can be initiated by any party, not only the project owner.
Single select: When can a contractor typically submit a claim?
- A. Before the project commences
- B. During the project execution phase
- C. After the project has been completed
- D. Both B and C
- Answer: D
Explanation: Claims can occur during the course of the project, or even after completion if there are any discrepancies or outstanding matters related to performance, cost, or timeline.
True/False: There is no need for a change order if all parties have verbally agreed on a change.
- Answer: False
Explanation: All changes to the original contract, regardless of verbal agreements, should be documented in a change order for traceability and legal purposes.
Single select: Who usually initiates a change order?
- A. Project owner
- B. Contractor
- C. Sub-contractor
- D. It can be any of the above
- Answer: D
Explanation: Any of the parties involved in the project could initiate a change order surrounding the scope of work, timeline, or budget.
Multiple select: Which of the following are potential reasons for a claim?
- A. Delays in work
- B. Unexpected costs
- C. Changes in work scope
- D. All of the above
- Answer: D
Explanation: Any unforeseen delays, unexpected costs, or alterations in work scope can be legitimate reasons for a contractor to submit a claim.
True/False: A change order does not affect the original contract.
- Answer: False
Explanation: A change order modifies the original contract as it revises aspects like the scope of work, timeline, and budget.
Single select: What is the typical result of a successful claim?
- A. Additional work
- B. Penalty
- C. Extra time and/or money
- D. Cancellation of the project
- Answer: C
Explanation: If a claim is successful, it usually results in the grant of additional time and/or money to the contractor.
Multiple select: Which statements are true regarding claims?
- A. Claims are always negative
- B. Claims can arise due to changes in laws or regulations
- C. Claims are always resolved through litigation
- D. Claims are a common part of construction contracts
- Answer: B, D
Explanation: Changes in laws or regulations can indeed lead to claims and they are a common part of construction contracts. However, claims can be resolved through various methods and aren’t always negative, as they can be justified and necessary adjustments.
True/False: A change order needs to be approved by all parties involved before it can be implemented.
- Answer: True
Explanation: Yes, all parties involved need to agree on the contents of a change order before it can affect the contract. The change order documents the agreement, limiting the potential for disputes.
Interview Questions
What is a change order in construction project management?
A change order is a formal communication within construction project management that alters the original agreement of scope, timeline, or budget of the project. A change order might be initiated due to unforeseen changes in project requirements, changes in stakeholder expectations, or unexpected project conditions.
What is a variation order in construction project management?
A variation order is a change in the original contract documents and it changes the conditions of a contract. It typically arises due to omissions, additions, or alterations made to the original project’s scope or contract details.
How does a claim differ from a change order and a variation order?
A claim is a request for reimbursement or payment made by the contractor due to unexpected events or delays that were not their fault. While change orders and variation orders are related to changes in project requirements, scopes, or conditions, a claim is associated with additional costs that the contractor might face during the construction.
What is the process involved in implementing a change order?
The process involves documenting the change, assessing the impact on the project, gaining the necessary approvals, and then implementing the change. All these move through a formal pathway including a review by the project manager, an estimate from the cost department, further review by the project team, approval from the client, and lastly the change order is executed.
Who has the authority to approve a change order in a construction project?
The project manager, in collaboration with the project team and client, has the authority to approve a change order. Depending on the scale and impact of the change, higher-level management may also be involved in the approval process.
Are contractors obliged to proceed with work in the absence of a formal agreement on a change order or variation order?
No, contractors are generally not obligated to proceed with changes until a formal agreement has been reached on the associated change order or variation order.
What kinds of problems may occur if change orders and variation orders are not managed properly?
If not managed correctly, change orders and variation orders can lead to project delays, cost overruns, disputes between parties and potential contractual or legal issues.
How are claims typically resolved in construction projects?
Claims are resolved through negotiations between the parties involved, or by involving a neutral third party such as a mediator, arbitrator, or a court.
Is it common to have change orders or variation orders in a construction project?
Yes, it is very common as construction projects often encounter unforeseen conditions, changing stakeholder requirements, or regulatory changes that affect the original plan.
Can a contractor make a claim without a change order or variation order?
Yes, a contractor may make a claim for additional payment or time due to unforeseen events or delays that they consider were not their fault. This claim may or may not lead to a change order or variation order depending on the conditions of the contract and the nature of the claim.
How does a project manager handle multiple change orders in a construction project?
A project manager assesses the impact of each change order on the project timeline, budget and scope. They then prioritize these change orders, communicate the potential impacts to stakeholders and seek approval to implement the changes.
What happens if there is a disagreement about a change order in a construction project?
If disagreement arises over a change order, it’s usually resolved through negotiation between the parties involved. If agreement can’t be reached, it may lead to mediation or arbitration, and finally to a legal resolution in court if necessary.
What are the most common causes for claims in construction projects?
Most common causes for claims include scope changes, unexpected delays, unforeseen site conditions, changes in specified materials, and disputes between parties involved in the project.
How can a project manager avoid the need for claims in a construction project?
Project managers can reduce the chance of claims by ensuring accurate contract documents, managing changes effectively, managing risks proactively, maintaining clear and consistent communication with all parties, and promoting a positive and collaborative project environment.
How does a Project Management Professional (PMI-CP) handle changes and claims?
A PMI-CP certified professional handles changes and claims in a systematic manner, utilizing best practices outlined in PMI standards and guidelines. They ensure changes are appropriately documented, evaluated, approved, and communicated, while claims are dealt with through proper negotiation or dispute resolution procedures. They also use their expertise and competency to anticipate changes or potential claims and manage them proactively.
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