Time for Change (Order)?

Our board selected a contractor for an exterior repair and roof replacement program for what we thought was a reasonable price, $400,000. (It’s a six-story building with a 10,000-square-foot roof.) A little more than a month into the project, however, and we’ve already been hit with two big change orders: one for $20,000 to reinforce the structural steel column on a corner of the building, and the other for $38,000 to install tapered insulation on the roof. Shouldn’t these items have been part of the original scope of work? What types of additional work items can be reasonably expected during the course of a repair project, and which should be identified early on and included in the project budget?

Many property owners are wary of change orders, suspecting they are a sneaky way for unscrupulous contractors to jack up the price of a project they’ve won with a low bid. And sometimes they’re right. But change orders are a fact of life with any repair or upgrade project. It’s simply not possible to identify all of the underlying conditions in a building or predict every potential problem before a project begins – it’s inevitable that unexpected issues will be uncovered during the course of construction. Therefore, the key questions are: what are legitimate change orders, and how much should be allotted for them?

Many exterior restoration programs run over budget and are plagued with seemingly endless change orders because of a lack of sufficient investigative site work during the discovery phase. The firm hired to prepare the scope of work, budget projection, and construction documents for bidding must spend enough time at the site to properly evaluate building conditions and document the necessary work items and quantities. Failure to identify the likely scope requirements will lead to more problems and money spent addressing overlooked conditions that should have been spotted.

On a typical exterior repair/upgrade project, the engineer/architect will ride several scaffold drops to conduct a hands-on examination of representative façade elements and analyze perhaps up to six investigative probes into the façade and roof to better determine underlying conditions. Based on this site work, an experienced engineer/architect will usually have a good idea of the overall condition of the building and the extent of repairs needed. (Of course, even the best design work is dependent on the engineer/architect properly administering the construction once the repair work begins.)

Conducting extra site work beyond what is necessary to compile a reliable budget and scope of work isn’t always practical or cost-effective, however. An exhaustive investigation during the design phase will probably just duplicate the work performed in the construction phase – the engineer/architect will still have to ride all the scaffold drops and mark locations once the repair work begins. Excessive discovery work during the design phase could add tens of thousands of dollars in engineering and contractor fees to the project while providing little useful information.

Every project should include an extra amount – called the contingency – reserved for legitimately unforeseen circumstances that will need to be addressed with change orders. For most exterior repair and upgrade projects, our typical recommended contingency allowance is 20 percent of the base bid price.

Keep in mind that the contingency fee should be thought of as part of the overall project budget. A project with a $200,000 base bid and a $40,000 contingency allowance should be budgeted at $240,000, not $200,000 “if everything goes as planned” – no project ever does. Maintaining a 20 percent contingency enables the board to operate from a position of strength by having the funds ready for unanticipated situations or conditions that will require change orders.

Legitimate Project Changes. On an exterior restoration project, the contingency allowance should take into account items that cannot always be detected during the initial site work. In your building’s example, structural steel deteriorated from long-standing water penetration may not be evident when viewing the face brick, and investigative probes may not find all of the corroded sections. Missing waterproofing membrane, as another example, is usually not apparent until brickwork is removed during construction. Older buildings filled with architectural detail may have decorative elements with loose anchorages, and it’s often not financially feasible to sound out all elements before the construction phase.

Such items may not be part of the original scope of work, but once they are uncovered they must be addressed to restore the building’s watertightness and keep the façade in a safe condition. Older, neglected buildings, and/or buildings inadequately repaired in previous projects, are more likely to have hidden problems that may go undetected until the construction work begins, so the possibility of change orders on those projects will be higher.

Unexpected problems aside, the contingency allowance also gives the board the option to add items or features to the project during the course of construction. Working with a cost cushion enables the board to choose a better-quality (but more expensive) waterproofing material than originally specified if conditions warrant it, for example, or to add a traffic-bearing coating to the roof even if it were not part of the original construction documents. Such opportunities are available only if a contingency has been built in to the budget.

Major Oversights. The contingency allowance, however, is not intended to cover major changes to the scope of work that should have been accounted for during the design phase, which seems to be the case with your building’s roof replacement. On a roofing project, proper investigation of the underlying roof deck is critical when developing the scope of work and budget. One of the more common oversights is failing to detect that the underlying roof deck is not properly pitched until after the roof has been torn up and the deck exposed. The finished surface of a roof should be higher at the perimeter (near the parapets or bulkhead walls) and lower at the drain for proper drainage. An improperly sloped roof causes water to pond, which deteriorates the roofing membrane and contributes to leakage. It will also likely void the roofing manufacturer’s warranty.

During the discovery phase, the engineer/architect must determine whether the underlying roof deck is flat or pitched. A properly pitched roof deck requires uniform insulation, which is the same thickness throughout, to maintain the proper slope. On a flat roof deck, however, tapered insulation must be installed to add pitch.

A proper investigation of your roof should have included probes to determine the thickness of the existing roofing system. The probes would have revealed that your roof deck was flat and that tapered insulation instead of uniform was needed in the design. Tapered insulation costs approximately $4 more per square foot than uniform, so for your 10,000-square-foot roof that would amount to the additional $38,000 in your change order.

Installing tapered insulation may affect other items in the scope of work. With the newly added slope, the base flashing (the roof surfacing membrane that extends onto vertical walls) will reach higher up on the parapet wall than shown in the design documents. If the existing through-wall counterflashing (the metal flange installed into the parapets to prevent water from dripping behind the base flashing) is now too low, it will have to be replaced, increasing the cost of the project even more.

Not identifying the roof deck as flat in the design phase could lead to still other change orders and additional costs. For example, if the height of the parapet above the finished roof surface is less than the 42 inches required by New York City Building Code, you will need to install railings atop the parapets (or add to the height of the parapet walls). In addition, bulkhead door saddles as well as skylights may have to be raised to accommodate the sloped roof.

Even without the additional cost of the new counterflashings, railings, and other items that may be needed, the change order for the tapered insulation will eat into your 20 percent. That leaves your board with less flexibility to address other possible problems that could arise, such as finding deteriorated sections of the roof deck or badly damaged joists, which typically cannot be comprehensively detected by probes.

As a check against excessive change orders, the agreement with the contractor should state that the price of a base bid item will be renegotiated when its quantity increases by more than 10 percent above what was specified in the original bid document. In addition, all change order requests should be put in writing, reviewed by the engineer/architect, and signed by the building owner or manager before the additional work is undertaken. Orally approving change orders in the field will only lead to arguments later about who agreed to what.

It’s unfortunate your board must bear the added costs to the roof replacement project, but even if your engineer/architect had determined the roof deck was flat in the design phase, you would have still needed the tapered insulation. Of course, in that case the additional work item would have been part of your original scope of work and not an unexpected change order, which would have mentally prepared your board for the extra cost required and enabled you to budget for it beforehand.

Despite the additional work items your cooperative now faces, the board should not automatically reject every change order request, because some will be legitimate. The key is performing an appropriate level of investigation during the discovery phase of a project to avoid the big-ticket change orders that will haunt you later.