7

Managing Changes
to the SOW

Regardless of how well the SOW is planned, changes inevitably occur throughout the lifecycle of a project. To allow for these changes, FAR Part 43.201 states:

One of a project manager’s main responsibilities is to maintain a balance between the scope, cost, and schedule of a project. These three variables are typically referred to as the triple constraints of a project and are often illustrated as an equilateral triangle, as in Figure 7-1. The SOW establishes the initial parameters for the triangle by defining the baseline scope, cost, and scheduled project completion date. When one side of the triangle increases or decreases, it has a direct impact on the other two.

To maintain a balance between these triple constraints, a detailed change management process must be in place. Failing to document and manage changes to any of these constraints properly will force the triangle out of balance very quickly. When this happens, the project is heading for trouble.

This chapter has been adapted with permission from Delivering Project Excellence with the Statement of Work, Second Edition, by Michael G. Martin, PMP. ©2010 by Management Concepts, Inc. All rights reserved. www.managementconcepts.com/pubs.

FIGURE 7-1:
Triple Constraints Triangle

LEGAL PRECEDENTS BACKING CHANGE MANAGEMENT

Failing to manage project change can lead to a multitude of problems, including scope creep, cost and schedule overruns, poor resource utilization, reduced product quality, and wasted funds. In addition, if either the government or the contractor were to seek retribution for any changes that took place without an approved change order, the probability of winning the suit would be very low.

Several court cases have litigated this very issue. In Miorelli Engineering v. County of Brevard (1997), Miorelli Engineering sued Brevard County, Florida, for breach of contract and sought damages for work the company had performed outside the scope of the contract. After going through the trial court and the court of appeals, the case was eventually elevated to the Supreme Court of Florida for a decision. The Supreme Court ruled that Miorelli Engineering could not recover the cost of work it had performed outside the scope of the contract with Brevard County because without a written and approved change order, the county was protected by the sovereign immunity doctrine.² This doctrine precludes the institution of a suit against the sovereign (government) without its consent.³

In the case of Choate Construction v. Ideal Electrical Contractors (2000), Ideal Electrical Contractors sued Choate Construction, arguing that the theory of quantum meruit allowed Ideal to recover the reasonable value of services performed outside the scope of the contract.⁴ In the law of contracts, the theory of quantum meruit is a doctrine by which the law infers a promise to pay a reasonable amount for labor and materials furnished, even in the absence of a specific legally enforceable agreement between the parties.⁵ The agreement between Choate and Ideal specified that Choate would pay Ideal the amount set forth in the subcontract, but both agreed that this amount could increase or decrease to accommodate any changes the parties agreed to in writing. The subcontract further specified that Ideal would not be paid for work performed outside the defined scope unless Choate authorized that work in writing before the work was initiated.

Although Ideal won the case in trial court, Choate appealed the decision to the Court of Appeals of Georgia, which reversed the decision. The appellate court ruled that Ideal had accepted the terms of the subcontract but had not followed the change management process for work performed outside the original scope. Since Ideal did not follow the terms of the contract, it was denied payment for the work under the theory of quantum meruit.

The case of A.H.A General Contracting v. New York City Housing Authority (1998) provides yet another example of how not following an agreed-upon change management process can negatively impact an organization.⁶ In this case, A.H.A General Contracting was awarded two contracts with the New York City Housing Authority, one for $2.3 million and the other for $2.4 million. Each contract specifically required A.H.A to submit all claims, along with any supporting documentation, to the Housing Authority in a timely manner. This provision was meant to give the Housing Authority sufficient time to review the claims to ensure that any additional work performed outside the original scope was justified and that public funds were being spent wisely.

Upon completing the work for both contracts, A.H.A submitted two claims for additional work it had performed. A.H.A. claimed an additional $700,513 on the first contract and $205,125 on the second. After reviewing the claims, the Housing Authority recognized only minor adjustments for the additional work and refused to pay the claims in full. A.H.A sued for breach of contract, seeking full payment for the additional work performed.

The trial court and the New York Court of Appeals dismissed A.H.A’s claims, ruling that the company had not met the notice of claims and reporting requirements specified in the two contracts. A.H.A lost close to one million dollars in claims on the two contracts, not including legal fees, simply because it did not follow the change management process agreed to in the contract.

These three cases clearly demonstrate the importance of ensuring that change is managed in accordance with the requirements set forth in the contract or the SOW. The companies in these cases wasted millions of dollars on mismanaged projects. Extrapolating these figures across all industry sectors, the impact can easily reach well into the billions or trillions of dollars wasted each year on mismanaged projects.

IDENTIFYING CHANGES

To properly manage project changes, the first step is to identify when a change is proposed or when it occurs. For the purpose of this discussion, change is defined as any deviation from the scope agreed to in the SOW (or contract), also referred to as a cardinal change.⁷ Consider the following three factors when determining whether a change is significant enough to be classified as a cardinal change:⁸

• Has the magnitude of the project work been significantly changed, or will it be?

• Will the change require the procurement of a totally different product or will it alter the quality, character, functionality, or type of work defined in the SOW?

• Does the cost of the proposed change greatly exceed the baseline cost established in the SOW?

If the answer to any of these questions is affirmative, the proposed change can be considered a cardinal change. According to the cardinal change doctrine, contract parties are generally restricted to requesting changes within the general scope defined in the SOW. If a proposed change is determined to be a cardinal change, then the contractor will not be required to implement the change unless specific SOW clauses address how to manage changes of this nature.

The cardinal change doctrine also has legal precedent in the case of Becho, Inc. v. United States (2000).⁹ In January 1997, the U.S. Army Corps of Engineers contracted Becho to deliver two separate piles of riprap to a quarry in Jackson Hole, Wyoming. The contract required Becho to group the riprap in piles containing materials of dissimilar sizes, in such a way that minimized breakage. The Corps would then pay Becho based on the total number of cubic yards of acceptable material in each pile.

During the course of the project, the Corps determined that some of the material in both piles was unsatisfactory and did not meet the required specifications. The Corps issued a change order that required Becho to remove the unsatisfactory material from the piles and transport it to another location away from the quarry. The change order, however, did not allow for an adjustment in the contract price of the work. Becho agreed to remove the material from the second pile of riprap, but refused to do so for the first pile because the Corps had already accepted and paid for the material.

After removing the material from the second pile, Becho removed its equipment and requested payment for the work. The Corps, however, considered Becho to be in breach of contract because it had not also removed the unsatisfactory material from the first pile. Becho argued in court that the Corps had issued a cardinal change and that Becho was therefore under no obligation to perform the work.

The court recognized the cardinal change doctrine in this case and found in Becho’s favor, noting that a cardinal change did not obligate the contractor to perform work outside the general scope of the contract.¹⁰ This issue could have been avoided if the SOW had contained language or a clause specifying how unsatisfactory material was to be handled, including the cost for removal.

Some SOW development teams will choose to identify out-of-scope elements in the SOW. This is essentially a wasted effort that adds no real value to the SOW or the project. A better approach is to make it clear that anything not identified in the SOW is considered out of scope. The project manager or contracting officer’s technical representative (COTR) plays a critical role in ensuring that this is clearly communicated to all parties and is adhered to throughout the life of the project. If not, changes on the project can get out of control very quickly. (It should be noted that the COTR’s role is specifically to communicate the information to the parties, not to issue the change order. In the federal government, the contracting officer is responsible for issuing any change orders, except when authority is delegated to an administrative contracting officer.¹¹)

The Big Dig Project, a federal highway project in Boston, Massachusetts, is a great example of what can happen if change is not managed properly. In April 2000, the Federal Highway Administration released an audit report on the project, which identified enormous cost overruns as well as an overall lack of management control. The report concluded that the estimated total cost to complete the project was approximately $14 billion—$11 billion more than the original estimate of $2.6 billion.¹² This was for a single project! Clearly, the additional expenditures caused by the unexpected changes on projects across all industry sectors could easily reach into the trillions of dollars.

MANAGING PROJECT CHANGES

At first glance, the concept of managing change seems simple. So why do so many organizations have such a hard time with it? The reality is that managing change can be one of the most difficult things to do, particularly if your organization has immature project management processes and procedures. The difficulty arises not because the process is technically complex, but rather because of the challenge of getting the project team members to follow the process.

Factors Affecting Change Mismanagement

Factors that contribute to change mismanagement include:

• Lack of a detailed SOW to establish baseline information against which to measure future change

• Lack of a change management section in the SOW that is understood and accepted by all parties involved in the project delivery

• Lack of discipline and rigor among the project team in adhering to and enforcing the change management process

• Poor communications among the project team, causing problems in identifying changes

• Lack of understanding by the project team of what was agreed to in the SOW

• Misinterpretation of changes as not significant enough to warrant or justify a change order.

Each of these factors can easily impede the management of project changes. Thus, it is important to understand what they involve and how they can be avoided on your projects.

Lack of a Detailed SOW

To call a detailed SOW an important factor in managing project change is a tremendous understatement. Without a detailed SOW, it is impossible to determine when a change has occurred and it is impossible to manage the change. It is critical not only to understand when a change occurs, but also to determine how that change is impacting the project’s scope, schedule, cost, quality, and manpower.

If an SOW is not in place to establish limits on the project’s scope, then essentially all changes are in scope. In this scenario, the scope of the project can quickly grow out of control. Without an SOW to establish a baseline to measure change against, there is no way to manage and quantify the true impact of changes to the project. Having a detailed SOW in place will help establish a baseline to determine when a change has occurred and to measure its impact on the project.

Lack of a Change Management Section in the SOW

Even if a project has an SOW guiding it, there is no guarantee that changes will be managed properly. The SOW can describe the scope of the work in great detail, but if it doesn’t address how to identify, review, and approve changes, it could easily contribute to the mismanagement of changes to the project. Having the appropriate change management processes and thresholds in place will help avoid cost overruns.

Lack of Adherence to the Change Management Process

Some projects may have a detailed SOW in place that includes a change management process, but the project team simply isn’t following the process defined in the document. This situation is often attributed to a lack of discipline and rigor in the organization, the project manager, or the project team responsible for enforcing the process. If a change process is defined in the SOW, then it must be followed. Otherwise, the team will ignore changes that may drastically increase or decrease the scope of the project. Ignoring the changes also means that no adjustments are being made to the cost, scheduled completion date, or manpower.

If you define a change management process and don’t follow it, you set a precedent with the team that managing change is not important. The team will ignore the process, leading to scope creep, cost overruns, schedule slips, poor quality, and poor resource utilization. The change process must be enforced with discipline and rigor to ensure project success. The individual leading the project must not only have strong project management skills, but must also be well-respected by the project team.

Applying the change management process must be an objective driven from the executive leadership of the organization down to the individual team members. Visible support from the top will greatly expedite acceptance of the process at the lower levels of the organization.

Poor Communications

Difficulty in managing change on a project can be amplified by poor communications among the project team members. Lacking mechanisms to ensure that changes are identified and communicated will inhibit the project manager’s ability to properly manage changes on the project. To avoid miscommunications, the SOW should address the escalation process that team members should use to identify or request changes. This process will define who can request a change and how to submit it to the appropriate individuals.

Lack of Understanding of the SOW
The project team often lacks an understanding about what was agreed to in the SOW because project managers and organization leaders fail to communicate that information. Some organizations may consider certain information to be confidential and not fully disclose it even to their own personnel. Thus, they either neglect or refuse to provide the project team with a full copy of the SOW. When this occurs, the team goes into the project blind, not knowing what has been agreed to or even what deliverables or services the project is meant to provide.

A simple way to avoid this type of miscommunication is to provide a “cleansed” copy of the approved SOW to each team member, with information specific to their area of responsibility. The cleansed version of the SOW simply omits confidential or proprietary sections as well as information outside the group’s area of responsibility.

When team members are aware of what the project is intended to deliver, it is much easier for them to determine when a change or proposed change will impact the agreed-upon SOW. This awareness will help ensure that all changes to the project are captured and properly documented.

Misinterpretation of Changes

Sometimes a proposed change may seem so small or insignificant that it doesn’t appear to justify going through the complete change management process. Teams will argue that it will cost more to go through the process than it will to simply document the change. Although this may be true for individual changes, the justification does not hold up against the impact of aggregate changes over time.

A change may seem small or insignificant when proposed, but it may have a cascading impact on other parts of the project. The resulting impact could lead to rework as well as schedule and cost overruns. The cumulative effect of changes could even lead to project failure. Thus, it is imperative that all changes be documented and managed according to the agreed-upon change management process, regardless of their size.

TOOLS FOR MANAGING CHANGES

To manage changes properly, standard processes and tools must be in place for documenting and tracking changes to the project. A tool can be defined as a customized template or form used by the project manager to manage change. In addition to the SOW, two primary tools should be used to manage project change: the change order form and the SOW change order tracker.

Change Order Form

The change order form is typically customized to meet an organization’s specific change management requirements. The federal government uses Standard Form 30 (SF30), presented in Figure 7-2.¹³

FAR Part 43.301 provides the following guidance regarding the use of the SF30:

SOW Change Order Tracker

This quote speaks volumes on the importance of tracking changes on projects. From the perspective of the project manager, it’s easy to get wrapped up in day-to-day management activities and focus exclusively on the day’s most urgent issue. But a day-to-day perspective can cause problems for the project over the long run.

Along with SF30, the SOW change order tracker plays an important role in managing project change. This tool assists in tracking all approved and unapproved changes to the project by capturing them in one comprehensive document. Having this information in one place provides a powerful perspective to anyone reviewing the evolution of a project’s scope, cost, schedule, and staffing from its original baseline estimates to its completion.

The change order tracker provides several benefits to both the government and the contractor. First, having all the information in one location allows anyone to quickly audit the project to ensure that the final cost is equal to the baseline estimate plus all cost increases attributed to approved change orders. This will confirm that all additional costs were approved by both the government and the contractor, and that no costs were arbitrarily added to the project without prior approval.

Also, if any disputes about increased costs or schedule slips arise between the government and the contractor, the change order tracker can be referenced to quickly identify specifically when the change occurred and its impact on the project.

Another benefit of the change order tracker is that the government and the contractor can build a detailed knowledge base simply by analyzing and comparing the types of changes that arose on similar projects. The respective parties can then use this information to develop future estimates or proposals for similar work. Applying this information on future projects will make project teams more likely to address these issues during the planning phase, which should lead to fewer change orders during project delivery.

The SOW change order tracker can take many different forms, depending on the needs of the organization responsible for managing changes to the project. Figure 7-3 presents a sample SOW change order tracker. This tracker captures basically the same information as the change order form. The difference is that it also shows the cumulative impact of all approved change orders on project cost, schedule, and staffing in a single document.

FIGURE 7-3:
Sample SOW Change Order Tracker

A change order tracker typically includes the following information:

• Project name

• Baseline project cost from the approved SOW

• Baseline scheduled completion date from the approved SOW

• Baseline staffing (number of resources) from the approved SOW

• Change or contract order (CO) number

• Section of the SOW impacted by the change

• Impact of the change on the language contained in the approved SOW

• Impact of the change on project cost, scheduled completion date, and staffing.

Because this information is obtained directly from either the SOW itself or an approved change order for the project, the project team will not need to generate any additional information. Regardless of the particular structure or format of the tracker, it should always capture the data elements that correspond to the triple constraints of scope, time, and cost.

The process of managing and tracking changes on a project requires a great deal of discipline and rigor on the part of everyone associated with the project. For organizations with immature project management processes and methodologies, implementing a change management process can be difficult. However, if new processes and tools for managing change allow for data to be transferred easily from one form and process to another, without requiring a great deal of additional effort by the team, then they will be much more likely to be accepted.

Simply having the processes and tools in place to manage project change is a step in the right direction, but if no one uses them or if they are applied incorrectly, the effort it takes to get to this point will be wasted. When introducing or implementing a detailed change process, it is important to consider the organizational transition to and acceptance of the process. Achieving acceptance at both the organizational and individual levels is a major factor in ensuring that project changes are managed appropriately. When they are, projects will benefit tremendously.