Keeping Your EPC Project on Track: The Importance of a Clear Change Order Procedure
In an EPC (Engineering, Procurement, and Construction) project, unforeseen circumstances or adjustments to the project scope are inevitable. A well-defined change order procedure is crucial for managing these changes smoothly and fairly for both the Owner and the Contractor.
What a Change Order Procedure Should Specify:
- Initiating Changes: The procedure should clearly outline who can initiate a change order (typically both Owner and Contractor have the right). Importantly, it should expressly grant the Contractor the right to propose reasonable changes to the program or specifications.
- Cost Recovery: The procedure should explicitly state how the Contractor can recover extra costs associated with approved changes. This might involve cost adjustments within the change order itself or by utilizing other provisions in the contract, such as extensions of time due to force majeure.
- Evaluation Criteria: The procedure should define the criteria used to evaluate proposed changes. This helps ensure changes are necessary and align with the project’s overall objectives.
- Approval Process: A clear approval process should be outlined, specifying the steps required to obtain authorization for a change order.
- Documentation: The procedure should detail the documentation requirements for change orders. This ensures a clear record of all changes and their justifications.
- Timeframes: Defined timeframes for submitting and approving change orders help maintain project momentum and avoid delays.
- Pricing Mechanisms: The procedure should establish fair mechanisms for pricing changes. This might involve fixed pricing, cost-plus methods, or other agreed-upon approaches.
- Dispute Resolution: The procedure should outline the process for resolving disputes related to change orders. This helps minimize disruption and ensure a collaborative approach to resolving disagreements.
Overall, the change order procedure should be:
- Fair and Balanced: It should protect the interests of both the Owner and the Contractor.
- Collaborative: It should encourage open communication and problem-solving between the parties.
By establishing a clear and well-defined change order procedure, EPC contracts can ensure a more predictable, efficient, and less contentious project execution.
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