Tracking Changes — All of
Good Advice for Young Companies
Keeping Labor Codes Practical
— All of Them
Like any builder talking to a prospective customer, I get two
questions more than any others: "How much will it cost? And
when will it be done?"
These are important, valid concerns, but the answers depend on
another question: How many change orders will there be? No
other single item can do more damage to the budget and schedule
than change orders.
As a custom builder, I know to expect change orders. It's
unreasonable to expect homeowners to reach a final decision on
every item in the house before the project breaks ground. The
key is to make sure clients understand all the implications
that even the smallest of change orders can have on the overall
project. Otherwise, there may be hard feelings when there's a
budget overrun or a schedule delay.
I've implemented a simple system that allows me to track not
only cost overruns but schedule delays as well. My change order
form is a basic Word document that spells out exactly what will
happen to both the budget and the schedule if the change order
is executed. Once it becomes evident that a change order is
necessary, I follow a few simple guidelines.
Don't Quote a Ballpark Price
Many times change orders are conceived as you walk around the
job site with your clients. "Wouldn't this room look nice with
a tray ceiling? How much?" they ask.
From experience, I've learned never to answer that question on
the spot. Instead, I tell them I'll price it out at the office
and give them an exact cost. I found that when I gave a
ballpark price, that inevitably became the price the customer
expected. If the true price was higher, it created a sense of
distrust — that I was trying to profit unfairly from the
change. I found myself trying to justify the new number when I
shouldn't have had to.
No Change Too Small
Regardless of how small a change is, I insist on noting it on a
change order form. This may seem like extra paperwork, but it
will protect you in the long run.
For example, we include a list of paint colors in the project
specs and sometimes a client will want to make a change. "We
were at the house over the weekend and we noticed the painter
has not yet painted the master bedroom. Could we change that
wall color to linen white?"
I make a note of the conversation and write a change order;
it's my only proof that we ever had that conversation. If the
clients later decide they prefer the original color, it's nice
to have a record in case they forget the conversation.
Use a change order form to
track schedule delays (left) as well as cost
variations (right). And make sure to get it signed
by all parties.
Get a Signature
This is the most important rule. I never execute a change
without first giving the client a written change order form
with both the cost and the schedule delay clearly outlined.
Otherwise, if you make a change and the client thinks it cost
too much, you may never get paid. I don't accept a verbal okay,
either. I wait till the change order is signed by the client
(and architect if necessary) and has been returned to my
Note Delays With Change
Not all change orders involve cost; some involve only delays.
Last winter, I was doing a renovation for a client who was
intending to move in at the beginning of the summer. Every time
we had inclement weather, I noted it in a change order and had
it signed by the homeowner. When it dawned on the homeowner
that the project wouldn't be completed by Memorial Day, he
wanted to know why. When I reminded him of the weather delays,
he couldn't remember that many bad days. It was not until I
pulled out 12 change orders totaling 45 days of weather delays
signed by him that he realized I was right. Without those
signed change orders, the outcome would have been much
It's important to make homeowners aware that certain delays
may also affect other subs. Delaying the plumber by changing a
bathroom layout can affect when the insulation contractor can
get started. That can create a snowball effect if not managed
Predicting Change Orders
The timing of a change order can be critical. Obviously, the
sooner the change, the easier and less costly the job will be
to complete. I try to stay ahead of the client and anticipate
future changes. For example, I recently built a house in which
the architect had shown a vanity in the powder bath. Although
it seemed to work on paper, I knew the bath was going to be too
crowded. Before plumbing rough-in, I suggested to the homeowner
that she might want to change the vanity to a pedestal sink.
She agreed. Because the vanity hadn't been ordered yet and the
plumber didn't have to open the walls to accommodate a
pedestal, we avoided a large change order.
When to Say No
One of my goals as a custom builder is to give homeowners
exactly what they want. But sometimes it's too late to execute
a change order, even if the homeowner doesn't care about the
expense. Change order requests must be reasonable; when they're
not, you have to tell the homeowner that the change isn't
possible at this point. You can't be expected to remove and
replace the kitchen tile floor at the very end of the job
because the homeowner doesn't like the color. It can be tough,
but you have to know when to say no.
Fred Seifertand his brother John operate Seifert
Construction in Mattituck, N.Y.
Good Advice for Young
Companiesby Patricia McDaniel
Rome wasn't built in a day, and my company didn't get to where
it is overnight. I still wouldn't be anywhere without ideas and
strategies that I've gleaned from other contractors over the
years. My goals for the company have grown and changed over
time — today we're implementing practices that were too
complicated even to consider in the beginning. What I'm
offering here, however, are my basics for moving yourself up
the contracting food chain. You don't want to be a bottom
1. No whining. If you're not
happy in this business, either get out now or change your
approach. Whining is not a solution (though it probably is a
symptom), and it will bring you and the people around you down.
Lord knows, this is a business that will kick you around. You
need to be able to bootstrap yourself up.
2. Respect others. This is
basic stuff. Clients can't always judge your technical ability,
but they can (and will) judge your behavior. Be on time. Call
when late. Return phone calls. Don't promise what you can't
deliver. Just say no to jobs you don't want or are too busy
for. Keep your job sites clean.
3. Respect yourself. Hey, you
are your own best resource. Step away from the tool box and
send yourself to school. Get away to conferences and
conventions and classes. Yeah, I used to use that "too busy"
excuse myself. You wouldn't keep cutting with a dull saw blade,
would you? And on the subject of respect, how about paying
yourself what you're worth? At a minimum that should be the sum
of what someone else would pay you to do what you do now, plus
a return on the investment in your business (i.e., cash,
vehicles, tools, that second mortgage you took to pay the
vendors) and a return on the risk you're taking.
4. Have a plan. As the
Cheshire Cat said to Alice. If you don't know where you want to
get to, then it doesn't matter which way you go. Put a plan for
yourself on paper. My first attempt at this was only a page
long. Today our business plan runs to 20 pages. At a minimum,
include the number, type, and dollar value of jobs you plan to
sell in the next year; how you will find your clients; your
annual sales volume; who will get the work done; and what your
assets are (your cash, tools, office, trucks, and so
5. Show me the money. This
one goes hand in hand with item 4. You must charge what you are
worth (unless, of course, your plan is to work yourself to the
bone and then go broke). Or you can try what I said the first
time I was counseled to raise my prices: "No, you don't
understand. We are getting to build these really incredibly
beautiful houses with just exquisite workmanship." As if the
karmic reward justifies doing charity work for people who have
more money than you do. To charge what you're worth, you will
first need a budget so you can see what your costs are.
6. Hire great people (and compensate
them fairly). If you're a control freak (go ahead, admit
it — you're among friends), doing everything yourself
will come naturally and you will resist delegation. Some of us
(not you, of course) reinforce our belief that we are the one
and only by hiring people who just aren't skilled enough. Then
we give them about half the info they need and are disappointed
when we don't get the results we could have if only we had done
the job ourselves. In the very short run, you get to pat
yourself on the back — "I knew I was smarter than that
guy" — but in the longer run, you're the idiot that hired
him. Let it go. Find the very best people. Figure out what they
need to know and tell them. Compensate them (including
benefits) in such a way that they won't leave. Yes, this is
expensive (see items 4 and 5 above). If you don't want to run
with the big dogs, stay on the porch.
7. Follow the recipe. It's
not just sticks and bricks anymore. There are all kinds of
high-tech and low-tech manufactured projects out there, and
guess what — they all come with directions. Rest assured
that if you don't read the directions, your educated client
will. (After all, the directions for most products are
available on the Internet.) You absolutely don't want to give
your clients an opening to believe that they are smarter than
you are. Once that happens, they will want to instruct your
every move. So get the instructions, and, for crying out loud,
read and follow them.
8. Get a life. This is not an
easy business. Don't fall into the trap of ignoring your life
to make your work work. Keep things in balance. Be happy.
9. Join a peer group. The
first eight rules sound easy, but truth be told, this is not an
easy journey to take by yourself. It's hard to hold yourself
accountable for some of these steps when there are phones to
answer and Junior's basketball game to get to. A peer group is
a tremendous help. Its members will not just make sure you
follow the rules, they will actually help you. And it's
perfectly acceptable to find a kindred spirit and use his or
her business plan as a guide to write your own.
Patricia McDanielis owner of Boardwalk Builders in
Rehoboth Beach, Del. She is also host of the Exterior Details
forum at jlconline.com and a frequent speaker at JLC
Keeping Labor Codes
Practicalby Melanie Hodgdon
One tricky part of tracking your company's labor hours is
making sure that everyone is working from the same assumptions.
To avoid confusion, guesswork, and skewed reports, the company
needs a good shared understanding of which tasks go into which
categories. You can't rely on common sense: While it may seem
obvious to the estimator that gutters belong with roofing, an
employee on site may find it equally valid to log gutter
installation with exterior trim (after all, it's attached to
Confusion in reporting plays through onto estimates. For
example, I worked with a company recently whose job-cost
reports were consistently out of line with estimates within a
pair of job phases. It appeared that the estimator always
underestimated on one category and overestimated in another.
When we looked into it, we found that the estimator was
counting exterior prep and cleanup work under a different phase
than interior prep and cleanup work. But all the crew members
were happily and consistently recording all the prep and
cleanup in one category. Once everyone got clear about what the
estimator meant by each labor code, the problem went
When the goal is reliable reports and estimates, too much
detail can hurt you. There's a natural tendency to make
reporting forms highly specific — people figure that if a
reporting form has lots of precisely defined labor codes for
workers to pick from, fewer labor hours will end up classified
under the wrong code. In fact, I often find that the more labor
codes a company has, the less accurate its field reporting
This happens, in essence, because too much detail tends to
confuse people. Field personnel have confided to me that they
sometimes pick a job code thinking, "I haven't used that in a
while" or "I really should have spent more time on that." And
when everything is spelled out, too many tasks are excluded: If
there are lots of narrow categories, any task that doesn't
quite fit tends to get dumped under the category "Other" if
that choice is offered. One contractor's data-entry person told
me that "Other" was the company's most popular labor category.
Obviously, those labor reports don't tell you much.
The more practical approach is to create a reasonable number of
labor codes with clear titles but leave the categories broad
enough that your field personnel can make useful judgment
calls. For example, it might work better to have Exterior
Painting Prep and Exterior Painting as categories, rather than
Fill, First Sanding, Prime, First Coat, Second Sanding, Second
Coat, and so on. If some related item like power washing only
happens occasionally, it will still drop readily into the broad
Exterior Painting Prep category — and it won't end up in
the mystery grab bag of Other.
Melanie Hodgdonis a business systems consultant for
builders in Bristol, Maine.