When you hear the words "change order" do you feel your blood pressure rise? Do you wonder if you're going to have to sacrifice meeting the project's completion date in order to get paid for the changes that were made or vice versa? While change orders are often an inevitable part of the construction business, there are strategies that can help minimize their effect on your bottom line.
Change Orders Defined
There is a general consensus that a change order must be written for modifications in the schedule, cost, or scope of the work in question. Some contractors use a change order when a spec -- no matter how minor it might seem -- is altered. Before beginning a project, it's important to clearly define when a change order should be used so that everyone is on the same page.
The Problem With Change Orders
Change orders can often create problems for general and subcontractors.
Working on a tight deadline that might already be exacerbated by the weather, unforeseen permitting delays and the like, can make the thought of sending everyone home early while you wait for the owner's request to change the paint colors to be written into a change order seem like a poor business decision.
On the other hand, if you decide to plow on ahead with the alteration and stay on track to meet the deadline, adding in the change at a later date, it could cost you more down the road if you have to go back and fix the changes.
Plan improvements, unforeseen difficulties, or other issues can take a project off course. In some cases failure to document change requests properly can result in contention between client and contractor that can only be resolved through legal action. Proper documentation signed by both parties provides protection against the high cost of a court battle.
Another issue often arises when there are details of a project left for a subcontractor to decide. The sub can view these changes as an increase in the scope of work while the general contractor views them as part of the initial agreement. Documenting that you’re on the same page with your subs can not only protect you financially but also keep you in good graces with the skilled tradesmen you prefer to work with.
Solutions for Addressing Change Orders
Developing a method of dealing with change orders before they occur can increase your productivity and protect your profit margin.
You probably already use a standard contract to protect your business and help you stay organized. You should practice the same standardization when it comes to change forms. Building in a consistent method that you use every time helps you create a paper trail while reducing the time spent on documenting change orders.
Set Limits and Clear Expectations
Handled improperly, change orders can bog a project down in excess paperwork. Authorize one or two people on your team, that you trust, with the power to draw up a change order within certain cost limits. The project manager -- especially one who is on-site regularly -- is often a good choice.
Make the Necessary Adjustments
An important aspect of a change order is the effect that this change will have on the rest of the project. Don't forget to adjust the construction schedule to reflect the extra work a change order entails. In addition to increasing cost for the additional work on your end, make sure you secure new pricing schedules that reflect these changes as well.
Build in Quick Payment for Changes
Resist the temptation to lump the additional costs that a change order triggers into a lump sum due at the end of the project. Instead, state in your change order that payment is due on the completion of the change order work. You can also break the additional cost into a series of draws if it's a large amount.
Communicate With Everyone, Often
Start off each project by setting up good communication via an initial meeting. Plan to meet the client regularly -- preferably on the jobsite. In between these face-to-face meetings, maintain frequent contact through text messages, smartphone photos, and email. Construction management software gives the project manager the ability to stay informed of every change, even during those days when they aren't able to visit the jobsite.
Change orders don't have to be tricky to deal with or make you lose your mind. Being proactive and upfront, as well as tapping into the technology that is changing the industry, helps you and your team weather them easily and without skipping a beat.