NARI: How to Manage Change Orders

by Kyle Clapham

Even the best laid plans require adjustments. Knowing when and how to do it is vital for any remodeler today. This NARI University lesson comes from Ben Nichols, CR, CRPM, who is senior project manager for Waunakee Remodeling, Inc. He conducted a webinar on the topic of Best Practices for Managing Change Orders. That webinar can be found at NARI.org and formed the basis of this article.

When You Need a Change Order

“This is remodeling, right? Many projects will deviate from plan, even those that are meticulously planned,” say Ben Nichols, a 20-year remodeling industry veteran. “Why? Because remodeling is not conducted in a controlled environment; we don’t operate in a factory.”

Nichols emphasizes that a need to change plans doesn’t mean there was poor planning on the part of the remodeler. Some factors cannot be anticipated. Clients can change their minds or get new ideas. “If something changes your contract or your scope-of-work, you probably need a change order,” Nichols explains.

What Is a Change Order? What Is Not?

A change order is an amendment to a contract. Sometimes it goes by different names, such as addendums. “Just because we can write a change order doesn’t mean that we should lean on it heavily,” Nichols says.

A change order is not a way to skip the planning process; not a way to allow scope creep; not an excuse for poor time management; not a guarantee you will get approval for what you ask for, nor do change order account for costs and expenses.

All projects should begin with a high-quality scope of work. They should have a contract that defines the work and specifies what’s in and what’s out of a given project. What’s excluded from the project can be just as important as what’s included. Be as specific and transparent as possible, so the expectations are the same between the client and contractor. This includes everything from brands to product numbers.
“Remember your P’s: Proper prior planning prevents painfully poor performance,” Nichols adds.

Always include a change-order clause in the contract. Consult an attorney to ensure adherence to state and local guidelines for what’s required. A change-order clause, when included in the original contract, gives a contractor the ability to more easily make necessary changes down the road.

Who Can Initiate a Change Order?

Any stakeholder in a project, from the client to the contractor or trade partner to a vendor, can initiate a change order. Oftentimes they are initiated by clients when they change their minds. But the contractor may find rot and need to adjust the plans. An electrician may find the need for additional wiring.

Whichever party seeks to initiate a change order should write out that request and factor in the following considerations: a description of the initial scope of work and an explanation for any clarifications or misunderstandings. Estimate the potential change in project timeline as well as the potential budget impact.

For budgeting, outline direct and indirect costs that may be accrued. Direct costs include labor, material and trade partner estimates. Indirect costs include overhead, markup and lost time (opportunity costs). “Don’t miss your indirect costs and be sure to break down your overhead into a daily rate,” Nichols notes.

Project Planning with Change Orders

Changing an item in a scope of work can create a domino effect, necessitating additional changes. A larger room is a good example. It can affect whether you need a zoning permit, a larger foundation, more windows, etc. Sometimes a single change order becomes a mini project of its own.

If that happens, write a detailed scope of work. Create a work breakdown structure (WBS) workflow and schedule. Obtain estimates and create budgets. Execute the change and integrate with the main project.

The Mechanics of Writing a Change Order

It is important to get it down on paper, email or text message. “The idea here is to formalize it. Write it down. Get it approved. Include all the specifics: what’s affected, time, scope and budget,” Nichols says.

Items to include are:

  • Job name, job number
  • Job address or project identifier that matches other documentation
  • Company name and address must match the contract
  • Client name, contact info
  • Other stakeholders and trade partners
  • Change-order number
  • Scope of work, costs
  • Change to schedule
  • Signatures and dates

Remember to use consumer friendly language in the entire change order. Don’t use industry language. Approval is the final step in a change order, which can include a wet signature, text message, email or electronic signature.

Once the specific change order has been approved by the client, it’s important to communicate in a timely manner and order the necessary products, especially right now when there may be a six-week lead time on a given product.

“Be timely and transparent, crystal clear, with your customers about where you are on your project and any extra expenses. No client wants to get a bill for a bunch of extras,” Nichols says. QR

The full webinar is available for you to watch, compliments of NARI. Click here to view it. This month’s quiz can be found at https://NARIchangeorders.questionpro.com. To receive continuing education credit for this NARI University lesson, take a quiz on this content then email Heidi Riedl at heidi@solabrands.com. NARI will notify you of any CEUs earned.

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