Taking Control of the Cost of Changes

by WOHe

Taking Control of the Cost of
Changes

Perhaps no other area of our business has the potential for
producing problems like a change from the original plans and
specifications of a kitchen or bath project. Change orders are
rarely seen as a positive by our clients, who often view them as
overpriced and/or as an error in planning on our part.

For the purpose of this column, we will assume that your work is
done on a fixed price contract basis as opposed to time and
materials. This month, we’ll look at several aspects of the
challenge of changes: planning, selling change orders and
pricing/cost control of change orders.

Planning
The best way to avoid the problems and tensions that accompany
change orders is through thorough planning of the project in the
first place. All too often, a project is rushed into without proper
planning and specifying. At the beginning of the process, our
clients are excited about the project and anxious to get started.
There is a tendency to rush through the planning and specification
process in order to get the hammers and saws going.

When we first started our remodeling business 25 years ago,
remodelers had a very poor reputation they were known for chaotic
projects and massive cost overruns from the original budget. As we
considered this, the advice of a high school shop teacher came to
mind: “First, plan your work; then, work your plan!” With this in
mind, it’s important to remember that the process cannot be rushed;
you need to allow the client time to carefully consider all aspects
of the project being planned. Be sure to use all of the planning
tools available: photos and magazines to settle on style,
checklists and agendas to guide in the selection of features and
plans/elevations to allow the client to visualize the finished
look.

From the start, we’ve made it our responsibility to completely
plan and specify each project before work begins. We also make it
our policy to wait at least four weeks from the time of signing a
contract until work actually starts on the project. This “catch
your breath” period allows us to get materials ordered and gives
the clients time to get comfortable with the decisions they have
made.

The best way to avoid conflicts over changes is to adopt a frame
of mind that it’s your responsibility to address every detail of a
project. Obviously, there will be instances of “hidden
contingencies” that will have to be dealt with, and your contract
should provide a means to handle such items. Most clients will be
comfortable if you have a policy of accepting responsibility for
anything of this nature that would have been disclosed by a
reasonable investigation of either the existing structure or any
available blueprints.

Selling Changes
Of course, there will sometimes be occasions when changes occur and
a change order is required. When this happens, it’s important that
your client is comfortable with this and is convinced that you’re
not taking advantage of him or her.

The key to making sure this situation doesn’t become a source of
tension and misunderstanding is to make sure that you educate your
client as to exactly what will be involved in the additional work
and what the costs are. Even more important is to come to an
agreement and get a change order signed before this work is
begun.

If you wait to get the change order priced and signed, your
clients will feel that they never had the option to forego the
additional work.

The easier changes are those where the client chooses to expand
the project once it’s under way. The challenge here is that there’s
usually not time for the planning process we described above. Be
careful, however, not to ignore the planning process or you will
find at least this portion, and possibly the whole project,
spinning out of control as your schedule is disrupted and you find
needed materials backordered.

Once you’ve evaluated the additional work to be done and
determined the cost, you should go over the change with your
client. Make sure that this work is as carefully documented with
plans and specifications. Although there will be pressure to keep
moving on the project, it’s more important to make sure that the
changes are agreed upon, even if work has to stop for a time. Not
doing so puts you at a disadvantage while negotiating the price of
changes with your client.

Another pitfall of changes is the impact on your scheduled
completion of the original project. Do not take it for granted that
your client will understand that adding the remodeling of a
bathroom to a kitchen remodel project will push out the original
scheduled completion date, so be sure to make this clear in your
change order form.

Cost and Pricing
Cost and pricing of change orders is always a challenge, since
you’re usually under time pressure in order to keep the job moving.
In addition, there are a number of not so obvious costs that must
be considered, such as recycling sub-contractors back through the
project, often for a small amount of work where travel time is more
than the time to actually do the additional work. You may also have
to purchase parts and materials from other than your normal sources
or pay specialty shipping charges to get products on a timely
basis.

When it comes to pricing a change order, it’s easy to sell
ourselves short, thinking that the price attached to some changes
will seem outrageous to our clients. While the cost of some of the
changes our clients may want can seem extreme, we need to remind
ourselves that we’re not running charities and need to make a fair
profit on the work we do. Here, again, it’s very important that
these changes be agreed to before work begins on them. You’ll find
it nearly impossible to collect for changes where the price seems
high if not approved in advance.

If changes cannot be avoided, plan them carefully, price them
fairly and communicate openly and honestly with your client about
them. Remember that the primary objective is to end up with a happy
client.

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