Contracts are usually negotiated or formed on the basis of a specific set of commercial terms and technical requirements and conditions. Contracts preferably address the consequences if actual conditions differ from expected or assumed conditions under the contract. “Change management” describes the contract clauses, process and techniques used to address these situations when actual conditions encountered during contract performance differ from the conditions or circumstances expected or assumed under the contract.

Change management is important because it is a useful method of allocating risk of changing project conditions. Various methods of change management exist, but is generally comprised of two components; contract terms allocating the risk of changed conditions and the methods used to implement or administer contract provisions relating to change management.

Several elements of a balanced change management have been identified as strong indicators of successful construction project outcomes. An adequate financial allowance for addressing changing conditions is one of the most important indicators of successful project results. Active project team responses to changing conditions using excellent project communication and problem-solving techniques are other strong indicators of successful project outcomes.

Change Management Clauses

Contract documents prepared by all construction industry groups, such as AIA, EJCDC, AGC, FIDIC and DBIA, recognize the need for some form of adjustment to contract price and schedule due to conditions or assumptions that have changed from the conditions that formed the basis for the original contract.

Accepted practice using this balanced change management approach is to establish allowances or contingencies for risks associated with changing conditions, so adequate project funding is available for risks that may occur during project performance. Risk-avoidance clauses used by some owners often result in claims when changing conditions occur, due to the lack of adequate funding of the changed condition.

Contract Administration

The administration of change management provisions will usually involve prompt notice of changed conditions, evaluation of entitlement to any changes in contract scope, price and schedule and negotiation of equitable adjustments to the contract. Contract expectations can be undermined when contract administrators substitute their personal philosophies on change orders, rather than implementing the mutual intent of the contracting parties. A contract administrator who defines “success” as not approving any change orders may be an inappropriate selection for a contract with a balanced change management program.

Value of Balanced Change Management Approach

A balanced, equitable change management program using equitable risk allocation contract clauses and contract administration consistent with the contract clauses is recommended by all major industry contract document providers because industry research confirms that projects tend to have more successful outcomes if an equitable change management program is used.

Effective change management is an integral part of the team construction processes, forms and techniques advocated by CSG. We can assist in implementation of equitable change management processes into many standard form contracts and owner-drafted contracts. See Tools for change management tools.