IMPACT OF BIDDING ENVIRONMENT ON CHANGE ORDERS

Change orders occur during construction, and usually increase both construction cost and project duration. This paper investigates how change orders are related to the bidding environment. The data used in this study were collected from 74 public building construction projects awarded by the Public Building Commission of Chicago in the seven-year period 2008-2015. The contract values range between $0.3-$70 million, and the total worth of the projects is a little over $1.1 billion. While delay may result in liquidated damages for contractors, increase in project cost can cause financial problems for owners. It is in the interest of owners and contractors to study similar past projects, and to observe how change orders are affected by the level of competition in bidding. Owners must budget for contingencies, and contractors must adjust their resources in anticipation of change orders. It would therefore be quite desirable for owners and contractors to be able to predict the dollar amount and duration implications of potential change orders by making use of past historical data. The prediction of the dollar amount and duration implications of potential change orders before the construction starts can alert construction owners and contractors to potential delays in total project completion time and potential overruns in total project cost. Knowledge about potential change orders creates a predictable environment and improves the relationship between owners and contractors. The results of this study indicate that contractor-driven change orders are positively related to the difference between the lowest and the second lowest bids.