PCO in Construction: What to Know to Get the Most Out of Potential Change Orders

April 15, 2022 by Michael Gober & Denis Gritsiyenko

You know this situation well as a contractor - you're working on a construction project, and hundreds of change orders are coming in.

You’re beginning to feel overwhelmed and stressed out. No fun, right?

Keeping others in the loop and answering questions can take up a lot of time during a busy week.

Untrained eyes may not think much of change orders. For the seasoned contractor, however, a change order is often an indicator of whether or not a project will succeed.

An easy-to-use construction change order software could simplify your life.

In this article, you will learn:

What is PCO in construction
When it is necessary to use a PCO in construction
Considerations to be aware of when using PCOs in construction
And much more

CM Fusion: Helping Contractors Tackle Construction Administration Tasks With Construction Management Software
What Are Potential Change Orders?
Are Potential Change Orders and Change Orders the Same Thing?
When Is it Necessary to Use a PCO in Construction?
4 Considerations to Be Aware of When Using PCOs in Construction
Managing PCO Access
How to Direct the PCO Process
CM Fusion: The Easy Way to Handle PCOs in Your Construction Project

CM Fusion: Helping Contractors Tackle Construction Administration Tasks With Construction Management Software

CM Fusion is a cloud-based construction management platform that keeps construction teams connected and organized. It is built to be…

Fast,
Scalable; and
Reliable

… while easily adjusting and growing with your business.

The CM Fusion software system is designed to make communication and project management:

Easier
Faster; and
More efficient

With our software, you can work smarter, not harder.

You can also rest assured that all your project files and data are protected and backed up in multiple places.

What Are Potential Change Orders?

Potential change orders (PCOs) are changes to the contract you are pricing and getting ready to negotiate with the owner.

A PCO outlines potential issues that could arise in a construction project. Subcontractors are also asked to contribute quotes regarding the possible cost of the change.

Are Potential Change Orders and Change Orders the Same Thing?

No, they are two different things. Change Orders (COs) are precursors to PCOs.

Essentially, a PCO is a forecasting tool to determine what changes may be needed. Upon selecting the change to be necessary, the PCO will switch to a CO.

Types of Change Orders

Project owners and contractors collaborate using various types of change orders.

The most common change orders are:

Lump-Sum — When an increase in the scope of the work can be quantified with a firm price and results in an increase in the total project expense. It can happen when a project owner or a hired contractor discovers conditions warranting a change in the scope of the work.
Zero Cost — A zero cost change order is similar to a lump sum change order. The primary difference between the two types is that the zero cost change order does not alter the contracted price for the project. The purpose of this type of change order is to document scope-of-work changes without affecting the contract price.
Time and Material (T&M) — T&M change orders are issued when the entire cost of the proposed change cannot be estimated. Contractors are required to record the time they spend working on the change, along with any costs associated with the materials or equipment needed.
Unitary Cost — Most contractors will negotiate this type of change upfront before any change-related work begins. These are based on additional scopes of work that can be defined by specific measurement units. The contractor must track completed work according to the specified measurement units.

Can a Contractor Skip the PCO and Move Directly to a Change Order?

The PCO can be skipped (and might be, in some cases, unavoidable), but doing so can result in a delayed project and more costs.

A few downsides of skipping the PCO include:

Projects falling behind on schedule and delays occurring
Rework caused by communication breakdown; or
No transparency or clear communication with the client

When Is it Necessary to Use a PCO in Construction?

A Potential Change Order (PCO) identifies the cost exposure.

This may be the result of a:

Request for Information (RFI) with a cost impact
Change request from a contractor
Claim from a contractor; or
Log of future options

The PCO can also be accompanied by supporting documents.

A potential change order is routed via workflow to gather additional backup information and can then be merged into a change order without the need for additional data entry.

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4 Considerations to Be Aware of When Using PCOs in Construction

A project's potential change orders may appear unimportant to an untrained eye, but a construction professional can use PCO’s to predict whether or not a project will succeed.

Construction companies should refine their change order management system since they encounter these change orders often.

#1: Pricing

Entering the pricing for a PCO takes time and patience without an advanced platform.

Manually transferring the pricing information from the PCO document to the accounting system is required.

The following reasons can make this problematic:

Pricing information is often inaccurate and costly as a result of typographical errors.
Multiple entries must be made across different platforms, wasting time and decreasing productivity.
Data flow between team members is slowed down, causing delays in projects.

#2: Submitting a Request for Quote (RFQ)

Construction firms must balance precision and speed when creating RFQs. This requires producing accurate documents within a short period of time.

Unfortunately, many firms still struggle with this — some still re-key information to and from scope documents and emails during the RFQ process. In addition, searching through email folders and copying over costs for a change order consumes countless hours.

CM Fusion simplifies the RFQ process. The platform stores scope information and changes so that you can quickly transfer data at the click of a button.

#3: Approval Delays

Getting the final approval for a change order can delay the project significantly.

Many firms expedite the process by requesting approvals from project management or financials in person, but this strategy won't work if an external stakeholder is holding up approval. In addition, the hourly and salaried workers waste valuable time and money waiting around.

CM Fusion offers a unique solution to this problem — documents are routed to relevant parties for approval, and recurring alerts are sent to keep things moving.

The decision-maker can view and approve all pending changes in their workflow queue at one time. Once all parties have approved the construction PCO, the status will automatically be changed to approved.

#4: Communication and Collaboration

In traditional change order management, there are three documents:

A potential change order
An owner change order; and
A subcontractor change order

Data is copied and pasted between these three documents, and they are shared separately.

Through CM Fusion, these documents are consolidated into a single file sent through the approval pipeline and updated automatically at each stage.

Owner and subcontractor change orders are also customized with relevant information using CM Fusion — the document will state precisely if the client denies approval for a change.

This process simplifies communication and collaboration. Anyone receiving the report can be sure that the information contained within it is accurate and up-to-date, and they'll be able to see the status of the change order. There's no need for re-keying information, and by looking at a change order's status, you can find out what's going on.

Also, this process protects against client backlash: if they take issue with your work, this document will contain all the evidence you need to prove your due diligence.

Managing PCO Access

It is crucial to know who has the authority/responsibility to submit a PCO and who will approve it. In many cases, this will be the Project Manager.

When these roles are not identified and in place, they can affect workflow and can prevent change orders from being unexpected.

How to Direct the PCO Process

Manually — The Hard Way

When people work with manual systems, they have to be attentive to details.

Unfortunately, manual systems make it too easy to accidentally switch details, resulting in data entry or handwritten orders inconsistencies.

The process of …

Tracking paper documents
Finding information; and
Protecting information

… takes more time and effort.

Sometimes a manual transaction must be re-done rather than updated when a mistake is made, or a correction is needed.

Customer service is another impact of manual systems. As information is stored in different places, responding to customer queries can be difficult, and you may even have to track down the right person before you can respond.

CM Fusion: The Easy Way to Handle PCOs in Your Construction Project

Are you convinced that cloud-based construction software could be beneficial for you and your company? You won't have to look further than CM Fusion.

CM Fusion was created for everyone in the construction industry. We serve:

General contractors
Sub-contractors
Specialty contractors
Construction managers
Architects
Engineers
Homebuilders; and
Property investors

Our software lets you manage all your projects in one place from anywhere at any time, and it is easy to install and use.

Not only does CM Fusion keep track of all your project activities so that you can work more efficiently, but it also includes the following features:

Document management
Scheduling
Daily field reports
Project tasks
Time and cost tracking
Change orders
Submittals
RFIs and RFPs
Bidding; and
Image management.

Best of all, we offer a free 30-day trial so that you can make sure we are the right cloud-based construction management software for you. You won't need a credit card to sign up, and if you like it, you can upgrade to a paid plan after your trial ends.

We offer different pricing levels to best serve your company, regardless of how big or small it might be.

Consider CM Fusion — a cloud-based construction management software that keeps teams connected and organized. Contact us today for more information.