4 Tips on how to present a change order
Change Orders are part of construction and we should not expect them to go away. The reason is simple…..construction is not a perfect science and things change. The problem is, many subs and gc’s don’t follow some simple strategies that will increase change order acceptance and reduce frustration.
In this post, we’ll discuss 4 tips on how to maximize your chances for change order request acceptance and minimize the negative impact it can have on your relationship with the client.
What are valid Triggers for a Change Order?
Change orders occur for many reasons. The main reason is in the name itself…….something changed. At our construction company, we limit change orders to the following key triggers:
1) The client (GC or Owner) makes a change in the scope
This change order trigger is simple and nobody should question getting a change order for more work being added. Now, there are always those people that will question every change order request no matter how justified it is. Don’t worry about that, just be ready to defend your request. If the added work is really minor (a few hours of work or less), consider doing the work as a favor to build the relationship.
2) The city official makes a change in the scope
If a building inspector shows up and points out that something wasn’t done to code…...that is NOT a valid reason for a change order. But, if they show up and say that the drawings are missing details or that something needs to be done that isn’t on the drawings, this very well may trigger a change order. I had a project recently that was missing some structural details. Once the engineer completed their design, it added $20k to the scope of work. This is a justifiable change order.
3) There are unexpected existing conditions that cause extra work.
Once a project starts and demo begins, there are times where surprises are found. As much as we try to pre plan and explore, this can happen. Any added scope like finding asbestos that needs to be removed or structural elements that were hiding in the walls and now have to be re-designed are all valid change order triggers.
There is a fourth one that we never use but some contractors do…..
4) I didn’t have that included on my bid even though it was on the drawings
This last one in my opinion, is unacceptable. It’s simply not fair that a sloppy bid should cost the GC or owner more money. In our company, if we miss it, we eat it. This policy forces the PM or estimator to focus and make sure they have the scope accounted for. Most owners and GC’s are not going to accept this reason for a CO so it’s probably not worth the reputation impact trying to get money for items you missed. Most contracts are tied to the drawings and specs so the chances of getting more money is low anyway.
With that being said, you may find ways to make up that gap in other ways. For example, you may get a valid change order opportunity and can pad that a little to help out. Another way is to look for ways to perform the job more efficiently to cut costs. Using a time tracking app is a great way to monitor productivity.
How to request a change order
Nobody likes surprises when it comes to change orders. It’s important to give a quick heads up to your customer that a change order is coming as soon as you can. It can be a simple comment made in person or an email that is sent. Communication is key to getting acceptance on a change order. This advance warning allows them to prepare for it and if it’s a GC you are working for, it gives them the opportunity to prepare their client for it which is very important.
The early warning will also allow you to get a read on whether it will be difficult or easy for this change order to be accepted. That information can help you when you prepare the change order documents.
4 Tips on how to maximize change order acceptance
1) Timing is everything
Being quick to provide the change order before the work is performed is absolutely essential. Too many times, work will start or even be completed and then followed up with a change order. This approach not only hurts your chances of getting the CO, it really hurts the relationship. Here is why…..Clients like to have the choice to move forward or not with the work. If the CO is presented afterword, they no long have a choice and they feel like they are being forced into it…...and that feels bad!
I know that sometimes, the work can’t be avoided so it seems like there is no choice…..but it doesn’t matter. The client always wants to approve added work before it is done...period.
One of my plumbing subs routinely presents change orders late. Sometimes it’s months after the final billing. It’s not fun for him when these get rejected. How can we bill the client and get paid for this extra work months after the job was delivered. His sloppy and slow CO process is costing him money.
2) Can this CO be sold?
GC’s and Subcontractors forget sometimes that a change order needs to be sold to the client. It needs to make sense that this is a change order based on a valid triggering event and the cost associated with it should pass the laugh test.
Some contractors have a business model where they make all their money on change orders….this I think is a bad model. They think that the client is locked in and has no choice but to pay it…..not true. They can still bring in someone else if they need to and they might if they feel like they are being taken advantage of. Be careful and be reasonable with your change order pricing if you want to keep long term relationships with the client.
3) Use Favors to soften the blow
Many subs and gc’s do small favors during the project. It’s important to track these favors so they can be used later. When you have a change order to present, list on the change order all the favors that you did with “No Charge” on the price column. This reminds the client that you do a lot of extra work and it can soften the impact on the pricing change. It goes a long way to keeping great relationships with your client.
4) Is the CO detailed enough
Change orders need to have a breakdown of the scope with ideally labor and materials broken out. In some cases, the client wants to see backup of the costs as well and even labor rates. Be prepared to provide the support documentation that will be needed to justify the change order.
One strategy is to start with the basics and then add more details if they request them.
Change orders are part of construction but so many companies don’t present them correctly to maximize acceptance and lower frustration. Using some basic tips outlined above you will be able to handle change orders with better success.
Using tools like BuildCenter to record favors and track time spent on projects is a great way to support your change order process.
Try BuildCenter for Crew Scheduling and Time Tracking and see how it can give you more freedom.
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