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Document All Change Orders and Avoid Potential Headaches
 Why are so many home builders reluctant to document change orders? Is it because they can save five minutes in the field?
If that’s the reason, those five minutes saved are not worth the potential long-term consequences.
When builders don’t document their change orders, they still end up spending extra time reconciling invoices with the changes made on a project during the construction process because they don’t have the paperwork or paper trail to justify the work done. And that can mean lost revenue ― and trouble.
The least painful outcome would be suffering the bookkeeping headaches that arise from trying to track down non-existent paperwork to justify the invoice for the change that you made.
But if the home owner is persistent and wants to see the documentation to justify his payment, you also could find yourself in a legal battle.
Granted, change orders are not popular. Builders don’t like them because they can be costly and typically add time to the construction schedule.
Home buyers don’t like them ― many actually cringe when they hear the term ― because change orders can be confusing. That’s probably because many builders use “change order” as a blanket term for all customer decisions made during the construction process.
Don’t confuse your customers. Call the decisions they make what they are — selections, options, enhancements and upgrades — and use the term “change order” only for when they make changes to those decisions.
For instance, if a home buyer selects a red brick façade, that’s a selection. If the home buyer then changes the selection to brown, that’s a change — and reason for a documented change order.
Bad Decisions Lead to Change Orders
The best way to handle change orders is to eliminate as many of them as possible. To do that, implement a decision-making process that helps home owners make good, timely decisions.
Some change orders are inevitable, however, so the following is a simple change order process that I found works almost every time:
- The builder or home buyer initiates a change order request.
- The builder provides the cost for the change, the time it will take to implement it and any other pertinent details.
- The home buyer approves or cancels the change order.
Those three steps may seem overly simple, but in truth, the process should be that simple.
As a builder, you can include additional details that meet your needs and business processes — for example, you might want to include change order fees, interest fees, profit margins and decision deadlines when discussing the change order process with your home buyers. But keep it simple.
Documenting a change is the critical step in the construction and remodeling processes, and implementing changes and accounting for them will become easier once you begin documenting them on a regular basis.
And you don’t have to start from scratch. Most home building and remodeling software offer automated change order systems. So there’s no excuse for not documenting change orders — and a lot to gain when you do.
Andy Elsbury, a member of NAHB’s Custom Home Builders Committee, is the founder of Indianapolis-based SelectionWare, which provides consulting services and solutions for home builders to improve the building process. For more information, e-mail Elsbury, call him at 866-585-9222 or visit the SelectionWare Web site at www.SelectionWare.com.
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