If you were asked by a friend to use your resources to perform a job for them for free, would you do it to make them happy and avoid conflict? No. Then why do you do it on change orders for your customers? Contractors often try to avoid conflicts and keep their customers happy by not asking for extra money for work performed that’s not included in the contract. Everyone knows additional work orders must be in writing before you start extra work if you want to get paid for it. But, there are always excuses for why formal approval for added work wasn’t obtained until after the work was performed. When you perform extra work without prior approval, you are at the mercy of your customer. The following change order rules will minimize hassles and ensure you are compensated for your work.
1. Train your customers.
To make sure you don’t perform change orders for free, request a pre-job meeting with your customer to discuss the contract terms and how to proceed when potential change orders occur. Read the contract terms together, and ask if they want you to follow them. Most contracts will indicate that change orders must be approved in writing prior to proceeding with the work. Discuss what will be included in change order requests, such as labor and equipment rates, supervision and markup. Afterward, if the customer asks you to do something without putting it in writing, you can refer to that meeting and your agreement.
2. He who has the gold does not rule.
Read your contracts or subcontract, and know what it says about executing extra work and getting it approved and paid for. You were hired to do only what’s included in your contract. If the plans or specifications are incomplete or incorrect, you deserve to be paid for the required work involved. Don’t let your customer bully you to do extra work for free.
3. Charge the right price.
Make sure you know what labor, equipment, supervision, overhead and markup rates are allowed by the contract before you submit a change order request. The best way to avoid conflicts is to submit a standard time and material work order or extra work rate sheet at the start of your project to your customer and staple it to your contract. List your field employees, equipment, tools, overhead and the profit rates you charge. To help you create a change order system, email gh@hardhatpresentations.com for your copy of “Project Management Forms for Contractors.”
4. Two heads are better than one.
When determining the terms and pricing for a change order request, sit down with one of your company’s managers and discuss the options available, including how to get the change order request approved quickly by your customer. By talking about the issues, you will be able to view the situation more objectively and submit a change order proposal that is more likely to be approved in a timely manner.
5. Don’t play change order ping pong.
Settle change order requests quickly. Rather than submitting an unreasonably high lump sum price for the requests, arguing and possibly delaying the project for weeks, submit detailed cost breakdowns explaining how the costs were calculated. Then meet with the customer as soon as possible and negotiate a resolution. It is better to compromise and agree quickly than to engage in a drawn-out dispute with customers. Remember, if the situation ever becomes so drawn out that you and the customer end up in court, the only winners are the lawyers.
6. Solve field problems at the field level.
When managers and company owners become involved in every cost issue and potential change order request, it adds time and hassle to projects. Design your change order approval process to allow
field foremen and supervisors to resolve issues with their peers at the lowest level possible. Most foremen can get a fair decision with a customer in about five minutes. Running issues up the ladder can take weeks or months.
7. Don’t start without a signature.
Sometimes you can’t determine the final price for extra work before you need to start the work. If an underground water pipe bursts, for example, it must be fixed immediately to stop water flowing. When these instances occur, be sure to get a written notice to proceed or an interim construction change directive authorizing you to go ahead with the additional work. The directive must also include language that a final change order will be approved for the extra work based on standard rates and markup upon completion of the item.
8. Get it in writing.
Money fades as memories fade. Plus, people change their minds, forget the facts, change their story or leave the company. You have leverage with your customer before you do extra work, not after the work is completed. After you finish, the only thing to negotiate is price, and the only way you can win is to reduce your price. This is not good leverage. Put your detailed documentation and claims for changes, errors, omissions, time, delays, acceleration, differing conditions or money in writing the same day you become aware of the issue. And never do extra work for free.
