Change Orders Serve Positive Functions
Change orders should not be regarded as casual add-ons to projects. They are valuable tools for both home owners and contractors — as long as they are prepared and implemented professionally, Winans said. Home owners appreciate change orders because they ultimately get the result they want from the remodel or construction.
Winans said change orders enable contractors to solve unexpected problems and improve the project while it is underway. Plus, contractors can get compensated, sometimes handsomely, for the additional work done.
For this to occur, however, Winans said contractors have to “treat change orders as if they are a separate job."
“Don’t just fix something because you’re on a tight schedule and have to get the project done or it’s too easy to just do it. Stop and write the change order. Then do no work before it is signed,” he said.
Change Order Pitfalls
Change orders, when managed badly, can be detrimental to a project:
- Change orders can adversely impact a schedule and prevent a job from being run efficiently.
- Clients are shocked by their costs.
- They can create bitterness between the client and the contractor.
- They can lower the produced gross profit of a job.
Badly Managed Changes: An Example
The bitterness stemming from change orders can escalate into an all-out battle. Winans told of one occasion in which his company completed about $10,000 worth of changes for a client. But he did not write up or have signed a proper change order. Instead, his company just did the work.
After the job was done and the additional fees were submitted to the client, rather than pay for the changes, Winans said the client sued his company for not providing the specified work in the original contract.
The legal proceedings dragged on, causing Winans much undue stress. Ultimately, the case was resolved in the plaintiff's favor and Winans was ordered to pay the client $40,000. In hindsight, Winans said it would have been better just to absorb the $10,000 loss rather than pay the award, his attorney’s fees and go through the stress.
How to Gain Control of Changes and Change Orders
Confrontations and surprises can be avoided when change orders are pursued rigorously and managed professionally, Winans said.
The steps to take include:
- Have a change order policy included in your original contract.
- Write a change order for everything (even if you don’t intend to collect on some of them, i.e. weather delays that disrupt the schedule).
- Sell the change order to the client.
- Know the contract scope.
- Write the change order so it meshes with the scope.
- Remind the client of the reasons for the change.
- Provide a thorough estimate — include as much detail as possible — and be confident in your total cost, no matter how you arrived at it.
- Go for the close.
- Follow up with reassurance. (Help them realize that they made a good decision.)
Once clients have agreed to the change order, stay on top of it.
- Don’t get behind in the paperwork.
- Do no work before you have a signed change order.
- Conduct regular weekly meetings with your clients to discuss changes and present change orders.
To make money with changes orders, Winans said, maintain a detailed paper trail and have it signed by the client. Don’t do the change and hope a client will pay, Winans said. “Don’t hinge your success on pleasing people who want to take advantage.
“A client will pay if you have a signed change order,” he said.
The NAHB University of Housing Offers Designation Programs and Other Courses
The NAHB University of Housing offers CAPS, CGR, CGB and a variety of other professional designation programs and business management courses that set builders and remodelers apart from the competition. To learn more about NAHB’s designation programs, visit www.nahb.org/designations. For a complete list of all current education offerings, click here.
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