Change Orders 101
Mar 2, 2022 12:00:00 AM
In a perfect world, the job we do would match the one we quoted exactly. Every dimension would line up exactly, every assumption would be correct, and no one would ever change their mind.
Pity we don’t live in a perfect world.
The truth is most people will never have a construction project that ends up being precisely the same in practice as it was in theory. That’s true whether you estimate or plan or site visit, use spreadsheets or estimating software and no matter what you specialize in.
However, while change orders might add some extra work to your project management, they don’t have to be terrible. Here’s what you should know.
Always Provide Detailed Quotes
You probably don’t need to be told this, but if you’re not giving your customers detailed quotes outlining precisely what is included and what’s not, you’re going to have a tough time getting change orders approved.
Creating detailed quotes from scratch can be time-consuming (unless you’re using the right construction estimating software), but that time is a small price to pay.
Misunderstandings with customers are among the most common reasons contractors, home builders and remodelers lose money on their projects. A detailed specification and line-item quote both go a long way to eliminating that problem.
When you work on commercial construction projects with complex contract documents, there’s usually a time limit on change orders. You only have a few days from when you become aware of a problem to let your client know, and then there’s a time limit on providing pricing.
Most residential projects don’t have those kinds of hard and fast rules, but they’re still the best way to deal with things. The sooner you can let your client know about the problem, the better. Try to call or email your client the same day you become aware of a problem, so they have time to digest the impact and prepare for the change order quote.
Do It in Writing
Whether you use construction estimating software or a pencil and calculator to work out the cost implication, you should always put any significant changes to any project in writing.
Whether it’s a delay in material delivery or a change in the price, if it’s not written down, you have no proof that any of your conversations happened, and you could run into trouble later.
This doesn’t have to be a complex or formal change order request (although that’s never a bad thing!) You could simply follow up your conversation with an email to your client. Make sure you request their confirmation of receipt and keep a copy for your records.
Track Your Change Order Quotes
If you use cost estimating software, there might be a feature included that tracks all your change order quotes, so you don’t have to worry about it.
If you don’t, you need to make sure you have an excellent system to keep track of every change order quote on every job.
One way to do this is to use a per-project numbering system, where each change order request gets a number regardless of whether it’s approved or not. You can keep them in a binder with three sections – one for approved change orders, one for pending change orders, and one for change orders that have been rejected.
At the end of the job, this makes it easy to make sure that you have billed for all of the work completed under the main quote and all change orders.
Be As Detailed as the Client Requires
When you’re dealing with a commercial client or general contractor, they probably know exactly what you’re talking about, so your description of the problem and solution you’re providing can be reasonably high level. They probably don’t need too much information to understand the problem.
However, when you are dealing with people who aren’t in the construction industry and don’t regularly use project management and construction estimating software in their day-to-day lives, you probably need to provide more information. Often, photographs and sketches are an excellent way to show homeowners what you’re talking about and what your change order offers them.
Differentiate Between Wants and Needs
Sometimes, change orders happen because your clients want to make a change. So, you fire up your construction cost estimating software or spreadsheet, calculate the price based on their request, and give them a quote. The choice is theirs, and as long as it doesn’t hold up work anywhere else, the urgency level is relatively low.
However, not all change orders are based on wants.
Sometimes, they’re absolutely essential to the project, and everything else hinges on getting them approved and done. You still need to punch the data into your construction estimating software or spreadsheet, but time is a serious factor, and you need immediate feedback.
Make sure that your customers always know when their project will be delayed until a change order decision is made. It will help to move the process along, and if there are delays because they haven’t agreed to the change, you can request extra time to finish the work because of them.
Take Your Time
With all the talk of delays and timely turnaround, you’d be forgiven for thinking that you have to rush every change order quote out of the door.
The opposite is true. In fact, as counterintuitive as it might seem, you need to take extra time to make sure that you include everything necessary to get the work done – and enough profit to make it worth doing.
A good estimating software that’s already set up with all your assemblies and products can cut the time required to do this. Still, even if you do things the “old-fashioned way,” you need to make completely sure that you’ve covered everything before you send your quote to the customer. It’s challenging (if not impossible) to change a quote once you’ve sent it to your client.
Don’t Forget Omissions and Reductions
When we think about change orders, we usually think about things we are adding to a project.
However, you should also send your customer a formal change order request to have them approve any omissions and reductions in writing.
If you have included something in your quotation in writing, and you don’t get acknowledgement in writing that it is not being done, you might find yourself on the hook for the work at the end of the job. Conversations are always subjective, and even if you think you’ve explained the change, your customer might not feel the same way!
A Necessary Inconvenience
When you’ve got multiple jobs running simultaneously, and you’re trying to fit project admin in between work on-site, managing crews, dealing with suppliers and everything else that means, it’s easy to see project administration like change orders as an inconvenience.
However, on most projects, money is made or lost based on what happens after the initial quote is signed and staying on top of change orders is one of the best things you can do to make every job profitable.
They’re even a good way to recoup any money you might have left on the table during the quoting process – whether you deliberately cut costs or you missed something on your estimate!
CostCertified Automates Most Change Orders
We know that when you’re not working in a project management office at a big construction company, there’s not always time to get change orders done to the standard you know you should.
This is why we built many of the features you need to manage change orders right into the CostCertified system. In fact, it might be the most straightforward cost estimating software system for change orders on the market right now.
You can add, edit, and omit most line items on any quote – even after it’s been signed and accepted. Clients are automatically notified of your changes, and your original quote doesn’t change until they accept each one – so you’re never left wondering what’s approved and what’s not.
Real-time changes and updates to the CostCertified estimating system are some of the biggest things that set it apart from anything else out there, and it doesn’t only work before the quote is sent.
In fact, the CostCertified construction estimating system lets you manage every job in real-time, with an easy-to-use interface and automatic changes to billing and more. So, you don’t need the spreadsheets, the emails, the binders or the signatures. It’s change order management at the click of a button!
So, if you’re tired of trying to stay on top of change orders and clients who don’t remember what was discussed on site, maybe it’s time to make the change. Take your estimating, quoting, project management and more online, and give yourself more time to focus on getting the job done.