Once a scope is defined for a contract or project and a price is agreed upon with the customer, contractor and other the stakeholders, the project or contract is ready to be executed. During execution it is likely that there will be changes to the initial order. A contract change order (variation order) will allow you to handle these changes to the original contract in a controlled way. The contract change order allows to have the, e.g. new work added or deleted, from the original scope of work, which alters the original contract amount or completion date without the need to create and approve a new contract.
The causes of contract change orders are often:
It is important that proposed changes are received, analyzed, valuated and approved before they are implemented. It is also necessary that the implemented changes can be tracked together with the original contract or project since the original plan does not represent the current situation correctly. Contract Change Management will give you commercial control and a financial view of a change to a contractual agreement. It is easier to track the changes and the consequences of the changes that have been approved or requested to be added to the original contract.
Contract Change Management includes the following key capabilities:
Once this contract change order is submitted and approved it generally serves to alter the original contract and/or project such that the contract change order now becomes part of the contract and/or project.
Contract Change Management goes through the following stages:
A request for change can be received from a person inside or outside the organization. Once the request for change is received, it can be justified as a valid change order. Important information at this stage is who is the requester, who is responsible, the type of change, why is the change required, what will happen if the change is not carried out, whether a proposed solution exists, important dates etc. The status is in this stage set to Preliminary.
At this stage the change is reviewed, e.g. by the project team, and the decision is made on the validity of the change. If the decision is to continue with the change, the status in the change order will be set to Analysis in Progress. If the change is decided as not valid, the change order is set to Canceled and the requester/responsible person is notified with the reason for rejection.
The next step in the change order process is to analyze. The team analyzes the required change and assesses the impact e.g. regarding:.
When the analysis is ready the status of the change is set to Analyzed and the impact of the proposed change is registered.
The impact analysis is reviewed internally and maybe externally. If internal approval is required, approval routing templates can be attached and used to any stage/status. The sponsor and e.g. customer are required to approve the requested change. If it is not approved, the requester/responsible person is notified of it. If the change is approved, the requester/responsible person and the team is notified and the project plan is amended in a later stage. When the internal and/or external approval has been gained the status is set to Approved.
If external approval is required, e.g. by a customer owner or another external person, information should be submitted to them. Before this information is submitted you can let it be internally approved regarding the values and other information. When it has been approved you raise the status to Submittal Approved and then you can submit the information. After it has been submitted you will later register the response e.g. that it has been externally approved or externally rejected.
If the requested change is rejected the requester/responsible person can be notified about it. It is possible to reopen and modify the change order so it fulfills the approvers’ requirements. This revised change order will need new approval. When the change order is approved it can be set to the Active status and ready for implementation. Once the change order has been activated it is time to carry out the work according to the change order. You can update the project plan and add/update contract lines accordingly.
Once the work and all financial transactions related to the contract change order have been completed, it is set to the Closed status.
If the contract change order is not valid anymore, e.g., the requester has changed his mind or it is rejected by some internal or external part, it can be canceled.