Try as you might to eliminate them, change orders are part of the business of remodeling. Homeowners have been served misinformation that every remodeler uses them to jack up the price and extend the schedule. Remodelers know them to be an inevitable part of the remodeling process for a range of other reasons, but they do have a reputation for robbing profits and throwing schedules out of whack. Change orders are not necessarily a bad thing, though. The trick is to manage customer expectations and prepare them - and yourself - for the inevitable.
Sources of Change Orders
First let's review the actual sources of change orders:
Hidden conditions. Almost every job of any size and complexity generates changes due to concealed conditions - pipes or wires in the wall, for example - that no one could have anticipated and that are not uncovered until work is under way. It's hard to get into trouble here unless you had an opportunity to inspect the area in question beforehand and chose not to. Most homeowners would rather pay extra for problems you uncover than agree to a price that's padded with contingency money. Make sure your contract includes a clear scope-of-work description and language that specifically addresses hidden conditions.
Customer-induced changes. Beyond hidden conditions, most other changes start with the homeowner, although remodelers often share responsibility. Product swaps are common - this sink instead of that one - and can originate on either side of the table.
Allowances are even more common, and here remodelers share in the blame. Allowances are essentially delayed specifications for products, materials, or details that should have been selected or resolved before work began. Homeowners who miss product selection deadlines generally do so because they are given too many choices and not enough deadlines. Some remodelers report success with incentive systems that either refund money when choices are made on time or delay the start of the job until all selections have been made.
Inability to visualize the project. The costliest changes result from the homeowners' inability to visualize the project from a two-dimensional set of plans, a malady that is fairly common in the typical population. Solutions include a CAD or Sketchup "walk-through," a scale model, and on-site mock-ups, but nothing is foolproof.
Budget for Change Orders
Building in to the budget a 10% buffer can often save the day. While change order costs are sometimes higher than 10% of project cost, they are rarely lower, so this is a good place to start. If homeowners understand how and why change orders arise, and if they also budget an additional 10% to cover the costs, the inevitable will be a lot easier to swallow.
Remember, though, that paying extra for changes is palatable only if the charges are presented in a timely fashion. Remodelers who wait until the end of the job to ask for additional money will have a hard time collecting 1%, let alone 10%. And without proper documentation, the chances of collecting are practically nil. This is where a strong change order process, managed with software or strong office admin support, can make all the difference.
Change Order Checklist
WIth or without software, here are the essentials of any successful change-order process:
Document all changes. Memory has been proven inadequate to the task of keeping track of who said what. All changes should be described in writing and signed by all parties. Even a change with no cost attached (such as a tile color change) should be recorded to prevent misunderstandings later.
Extend the schedule. Time is one of the hidden costs of change orders. Standardize your change order form to include an automatic extension of the project completion date.
Increase your markup. It's difficult to anticipate all the ways a change order will disrupt the job. Increasing your markup will help ease the burden of underestimating the actual cost.
Pay to play. To prevent customers from using you as an estimating service for change orders they never approve, try charging an administrative fee. A non-refundable $50 up front is usually enough to discourage frivolous requests. You can always make exceptions, waive the charge, and be a hero.
Pay as you go. Don't let change orders accumulate until the end of the job. Charges for changes should be included with the next scheduled invoice. Some remodelers have gone one step further and get paid for changes in advance.
