George Hedley works with contractors to build profitable, growing companies. He is a professional construction business coach, popular speaker and best-selling author of Get Your Construction Business to Grow & Profit!, which is available online at hardhatpresentations.com. To sign up for his free monthly e-newsletter, get involved in a BIZCOACH program or get a discount for online classes at hardhatbizschool.com, email email@example.com.
In your company, who decides if extra work is free? Lots of changes, problems, requests and trade-offs occur on construction jobsites to keep your projects moving. Your customer asks your crew to move a pile of dirt, fix a mistake on the plans or do a little extra painting to help them out, or the superintendent gets your foreman to unload a truckload of material as a trade-off for eliminating a small connection detail. Are you OK with this?
A typical five-person crew with a piece of construction equipment, such as a forklift, backhoe or scissor lift, costs your company over $300 per hour. When you let your crew leaders do extra work without getting paid for it, are you willing to donate over $300 for a small favor? Do this on a regular basis and you could be donating $15,000 to $50,000 per year. Have you ever swallowed extra costs because they weren't approved before you did the work? Are you OK with this?
Friends Pay and Enemies Don't
Recently, I spent several days helping a successful contractor draft his business plan. His success and growth was built on longtime customers who give him steady work year after year. He constantly received calls from these customers asking him to cut prices, reduce charges for extra work and accept less than owed. Over time, he had allowed his good customers to take advantage of their relationship and take money out his pocket for work performed based on trust. Friends pay for what they commit to, and enemies don't.
Change Order Excuses
I have heard every excuse why contractors do extra work without prior approval:
- "I'm too busy to get the signature now, but not too busy to go to court."
- "We have to keep the job moving, and I don\'92t want to rock the boat this early in the project."
- "I trust my customer like a friend. He seems fair and I am confident he will pay us for any extra work we do."
Are You a W.I.M.P.?
On the jobsite, your customer says to your project manager: "Would you mind mucking out this wet soil or extending this wall 2 feet or adding a door?" He responds: "No problem, we'll get started and work out the costs later." The contract requires you to first get approval in writing for any extra work and change orders, but you do not want to put pressure on a good customer, so you trust him and hope you will get the extra work approved and paid for later. A contractor or project manager who handles change orders like this is a W.I.M.P.
Train Your Customers
W.I.M.P.s don't get signatures. WI.M.P.s do what customers want without following the contract. WI.M.P.s are too weak to stand up for what is right for their company. WI.M.P.s beg after the fact; and WI.M.P.s aren't tough. WI.M.P.s would rather please other people than take care of themselves. Customers walk all over these contractors, pay them less than owed and do not approve their change order requests in full.
Use the contract and standard project management procedures to train your customers. If you are firm, but fair, from the start, you will get what you deserve and have the right to collect. In your customer meeting held at the beginning of every job, explain exactly how extra work requests and change orders will be handled.
Read the contract change order clause together, line by line, and verify how the contract requires changes to be handled. If customers want additional work that's not in the contract, tell them you will require extra work requests to be documented and approved.
Give your change order labor and equipment rates to your customer before you sign the contract. If possible, attach your rate sheet to the contract as an attachment to the executed contract. Discuss them with your customer and agree that these rates and markups will be used for all extra work required.
Late Means Never
Requested changes and constructive changes require different approaches. Requested changes are additional items or work the customer wants, but are not in the original scope of work. Have them submit their requests in writing to your project manager and then get them a prompt proposal for the additional work requested. Constructive changes occur in the field as unforeseen conflicts or omissions. By contract, you must submit your claims for this required extra work within a specified number of days after the problem becomes apparent. Late notice can result in no payment for work performed without prior approval.
Change Order Tips
- Change orders are not extras. They are additions, changes or deletions to the contract scope of work.
- Never give it away. You are only responsible for what is included in your contract. If the plans are incomplete or the specifications don't match what your customer wanted, it is not your fault. Giving away additional work to customers avoids confrontations and conflicts, but doesn't make you rich.
- Charge the right price the first time. Too often, subcontractors present change order requests that are overpriced. When this occurs, customers lose trust and faith in their contractors.
- Charge the right markup. To avoid future conflicts, always agree to your change order markup with customers before you start the project. Put the approved markup percentage and terms in your contract.
- Never do additional work without knowing if the work is extra. How will it be charged? Who pays for it and when? Is there money available to pay for the work? Who is authorized to approve the work?
- Always include additional time required. Most customers do not want to approve a time extension until the end of the job. Additional work requires additional time. Always include how many days this will extend the project on your change order request.
To request and track changes during a project, submit timely field memos or change requests documenting all extra work before you do the work or within 24 hours after discovering the problem. Outline the additional work, time required and terms to submit to your customer per the contract requirements. Make sure you get it signed before it's too late to benefit your bottom line.
Don't be a W.I.M.P.—get approvals in writing or stop complaining about customers who don't pay fairly for extra work.