Expert’s Corner Paper 2014-01

How to Properly Control Client-Induced Changes in Your EPCI Project

by Hervé Baron

Changes cannot be fully avoided during project execution, but they should be minimized to avoid disturbing the execution. One major
practical concern is the amount of changes that can be created by the Client, and which are too often not acknowledged. This leaves the
Contractor in a sometimes difficult conundrum. Yet it is essential for the Contractor to remain protected because a significant value
can be at stake. This Paper examines some good practices that should be implemented by Contractors to protect themselves.

Why it is important to avoid • Non-acknowledged changes that come in the

form of comments on deliverables, requirements
Changes in a Project – but why they transmitted "candidly" via letters, records in
cannot be fully avoided minutes of meetings, informal communication
Changes to the Project technical baseline must be avoided (oral, emails etc.)
as much as possible, for two reasons:
• First of all, changing the technical requirements Acknowledged changes are a lesser issue as they will
might change the cost from what it was normally lead to compensation (time and money) from
estimated at bid stage, the Client through a Contract Change Order.
• Secondly, changes always lead to disturbances Non-acknowledged changes are the most numerous.
and re-works, for all parties impacted, far more They are the most damaging for the Contractor as they
damaging and difficult to evaluate than the are often undetected and incorporated by Contractor at
direct costs. its cost.
Industry sources estimate that Contractors lose between 5
Moreover, the impact of changes tend to increase and 7% of the Contract value due to non-acknowledged
dramatically as the project progresses as they imply more changes.
rework and a broader consequences on interfacing
scopes.
Numerous changes are implemented during the execution How to Deal with such changes?
of a Project.
First of all, the Contractor
Some are normal part of Project
must request from the Client
execution, and cannot be avoided. They Contractors lose on average to receive an official
include design development,
incorporation of information from 5 to 7% of the Contract instruction.
vendors etc. value The practical way to do this
is to provide the following
Numerous changes, however, can be due to undetected standard answer to any such
avoided. These are the requests made by additional requirements request, e.g., that made as a
the Client which are actually extras over requested by their Client comment on a Contractor
the Contractual requirements.
deliverable etc.:

“This comment constitutes an additional requirement to the

Managing Changes created by the
Contract. (Explain why by referring to the applicable Contract
Client documents). This request will not be considered unless Company
These are two types of such requests: issues an official request pursuant to Article X of the Contract
"Company initiated change-order" ”.
• Acknowledged changes, i.e., formal letter
from the Client with a request for additional
work, implementation of new requirement, etc., This will eliminate the vast majority of such requests, as
asking the Contractor to provide an estimate of the Client will want to avoid the resulting extra costs.
the cost/schedule impact, and It will initiate, for the remaining ones, the process leading
to Contractor compensation.

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Maintain your position in the case of

non-acknowledged changes

Should the official request be received from the Client, it

could either acknowledge that the request is a change to
the Contract or not.
If the change is acknowledged, the Contractor will
prepare the cost/schedule impact estimate. Discussions
will then take place with the Client about such estimate.
The challenge for the Contractor would be to promptly
agree such estimate with the Client, which will then be
recorded in a signed change order. The Contractor wants
to avoid proceeding with the change, because of time
pressure, without a signed Change Order.
When one knows that on large projects it takes typically
one year between the date of receipt of the an
acknowledged change request from Company and that of
the signed Change Order, one understands that the
Contractor is exposed for a long time.
In case the request is not acknowledged as a change
to the Contract, the Contractor must notify that it
constitutes such a change. If the Contractor fails to do so
within a specified time period, it will forfeit its right to be
compensated for extra cost / time.
The Contractor may either directly submit the cost/time
impact estimate or state that it will not consider the
request unless the Client acknowledges it as a change.
This will depend on the Contractor willingness to Conclusion
implement the change, its impact, and time/effort It is critical that Contractors implement a tight system to
required to evaluate the latter. detect the Client requests that constitute changes to the
Once the above notification / estimate has been issued, Contract, such as the own depicted on the flow chart
the answer from Company shall be closely tracked. above. Contractors shall indeed only implement the
requests that are recognized as changes or the ones they
Such answer may be a denial that the request constitutes a
are forced to implement by formal instruction.
change. In such a case, Contractor shall not implement
the request. Failure to implement such a tight system, which is fairly
common, results systematically in significant losses for the
There is an exception to this when the answer from the Contractors.
Client contains a formal instruction to Contractor to
implement the change. Contracts indeed usually give the
Client such right to force Contractor to proceed and
Contractor the duty to comply.
If you would like to raise your contractual
The Contractor will then record the costs incurred to awareness further and practice on real
claim them latter to the Client. cases, join the author’s hands-on
Should the answer contain no instruction to proceed,
however, or should there be no answer received from the Contract Management Training .
Client, the Contractor shall not implement the request. The next session will be held on October
Proper tracking by the Contractor of the Client answer
and communication to all concerned parties whether or 20-21, 2014, in Jakarta. For more
not to implement the request is essential. details and to register, please visit:
www.rhenindo.com

© Hervé Baron and Project Value Delivery, 2014 Expert 2014-01 rev 0