T ARTICLE PEER REVIEWED Evaluating the …

1 Changes on a construction projectare commonplace, despite thefact that contractors often signfixed price contracts. This may be due inpart to the fact that the owners often have aunilateral right in the contract to imposesuch change. Reasons for changes mayinclude new requirements, design errorsand omissions, inadequate contractdocuments, and differing site conditions, toname a every change to a constructionproject has some effect on the project s costand schedule. There are generally twocategories of this effect: The actual direct cost and time ofperforming the change (additionallabor, materials, equipment). And, The impact the change may have onother unchanged or contractual workbecause of delay, disruption, change ofsequence, lack of resources, generally do not havemuch difficulty estimating the direct costsor time required to perform a single change,but it is very difficult to accurately estimatethe impact of that change on theunchanged or contractual part of the execute a change it may be necessary todisrupt or delay the unchanged work, orperform it in a manner or sequencedifferent to that originally planned, all ofwhich may lead to a loss of productivity andincreased costs.

2 Difficulty in estimating the impacts,coupled with the resistance on the part ofthe owner to recognize such impacts, oftenleads to a decision to leave impacts out of achange order. Neglecting impacts may notbe a big problem if the number and value ofthe changes on a project is minimal, but thesituation becomes much more complex inthe case of hundreds if not thousands ofchanges on a large project. When numerous changes occur, thereis a compounding and negative effectcommonly called cumulative impact. This impact is poorly understood, difficultto measure, and seldom reflected in thesum of the estimated costs of individualproject changes. The additional or changedwork is often executed by means such asshort-term hiring, overtime and doubleshifts. There can be disruptions and delays,loss of learning, trade stacking, materialsourcing problems, low morale, all of whichlead to significantly lower levels ofproductivity.

3 This compounding and negative effectoften goes unnoticed until it is too late. Itgenerally becomes apparent only in thelatter stages of a project when work cannotbe completed on time and when laborproductivity does not measure up to theanticipated difference between actual hoursand estimated hours cannot, however, beexplained simply by the number ofapproved change order hours. The balancerepresents unexplained extra hours whichmay partly be the result of anunderestimate, the contractor s owninefficiencies, or, in the case of a projectsuffering a multitude of changes, the lossmay be the impact of the change orders. Most project mangers, when looking atan individual change, also tend to beoptimistic about their ability to incorporatethe change without otherwise disruptingthe project.

4 When pricing numerouschanges, the contractor fails to foresee, andthe owner fails to acknowledge, that theimpact on the project as a whole may begreater than the sum of the hours workedon the individual changes. Furthermore,because of pressure from owners and theiragents, project managers will allow latechanges to be introduced, even on projectsthat are trending behind schedule or overbudget, further aggravating the later a change occurs on a project, theless efficiently it is implemented. Determining the impacts that changescan have on contract price and time can bearduous. As a result, it is difficult for ownersand contractors to agree on equitableadjustments, especially for cumulativeimpact. Consequently, projects that havesuffered a multitude of changes and exceedcost or schedule targets are likely to lead tocumulative impact disputes.

5 A simplemethod for estimating the possible impactwould be invaluable. Evaluating THE IMPACTO wners frequently think thatcontractors make money on changesbecause their estimates are too high. Inreality, contractors often lose money onmultiple changes because their estimatesare too low and because they underestimatethe administrative effort required tonegotiate and process the change. Pricingmethodologies for changed work are oftenweak. Few contractors maintain adequatejob-site records to allow evaluation ofimpact costs for individual change orders,let alone a multitude of change orders. With each individual change, acontractor will estimate the work-hoursrequired, but because of the inability ofproject personnel to fully anticipate theconsequential effects of multiple changes,the actual final work-hours required may bemuch greater than originally anticipated.

6 Asthe number of changes increases, thedifferential between estimated work-hoursand actual work hours widens at anincreasing the last 20 years, a number ofstudies have been published that attempt toCost Engineering Vol. 50/No. 12 DECEMBER 200823 TECHNICALARTICLEPEER REVIEWEDE valuating the Cumulative Impactof Changes on Labor Productivity an Evolving DiscussionDr. William Ibbs and Gerald McEniry, CFCC PSPABSTRACT:This ARTICLE presents the results of a meta-analysis of two studies and shows in quan-titative terms that increasing amounts of project change will have significant impact on laborproductivity. The result is a series of curves that can be used as guidelines for both estimatinglabor productivity before and after change event(s). Two standards have emerged from work byCharles A.

7 Leonard in 1988, and by William Ibbs in 1995, 1997, and 2005. Compiled fromresearch studies of actual construction projects, these studies developed a statistical relation-ships between the amount of change and end-of-project labor productivity. Though not per-fect, they are more impartial, clearly defined, and easier to WORDS:Change orders, construction, labor productivity, overtime, projects, and standardsevaluate this impact. Two standards haveemerged from early work by Charles in 1988 [11] and more recently byWilliam Ibbs in 1995, 1997, and 2005 [6, 7,8]. Compiled from research studies ofactual construction projects these studiesdeveloped statistical relationships betweenthe amount of change and end-of-projectlabor productivity. This ARTICLE will focusprimarily on these two studies, yet will alsoprovide some comments on other methodsas they relate to these MethodLeonard s work was the first publishedstudy to test for a statistical correlationbetween change orders and productivity[11].

8 Using data gathered from 90construction disputes arising on 57 differentprojects while working for a claimsconsulting firm, he parsed the informationinto two different graphs, one forcivil/architectural contracts and the otherfor electrical/mechanical 1 is representative, and showsthree curves for his electrical/mechanicalprojects. The lowest curve is a linearregression for those projects in his databasethat were substantially affected by changeorders only. The other two curves representprojects that were substantially impacted bychange orders and one or more majorcauses of productivity loss such asinadequate scheduling and coordination,acceleration, change in work sequence, latesupply of information, equipment ormaterials and increased complexity of other diagram, which is not shown herefor reasons of space, is for architectural/civilprojects and also has three parallel illustrated in figure 1, Leonardchose to illustrate the impact of the changesin terms of percent lost productivity (LOP)which is the ratio of the unproductive laborhours to the actual labor hours spent on theoriginal contract ( , unchanged work).

9 Most researchers have chosen to illustratethe impact of changes in terms of theconstruction productivity index (PI)defined in equation 1: LOP = (1-PI) x 100%, where PI = earnedhours actual hours(equation 1)Figure 1 can be transformed into figure2 for the purpose of comparing Leonard sresults with other research. Although different in appearance, bothfigures 1 and 2 are basically the same sincethe loss of productivity is related to theproductivity index as mentioned earlier. Italso should be noted that figure 2 includescertain outlying data points, at values of lessthan 10 perent change, discarded byLeonard from his final graph. He cautionedthat his results were only good for change inthe 10 percent to 60 percent percent change order factor iscalculated by dividing the change orderlabor-hours by the actual contract labor-hours.

10 Actual contract labor-hours aredefined by Leonard to be the total actualhours on the project less change orderhours less any hours attributable to thecontractor s own inefficiencies or bidmistakes, see equation change orders = change orderlabor-hours / (total actual labor-hours -change order hours - contractor mistakes)(equation 2)As an example calculation, consider acase where the normal or earned number ofhours required for a project was determinedto be 10,000 hours but that 20,000 hourswere actually spent, including 6,000 hoursworked and paid on change for simplicity that no inefficiencyhours could be directly attributed to thecontractor alone, removing the changeorder hours leaves 14,000 hours actuallyworked on the base contract (including anyloss of productivity because of the changes).