4 Mistakes that Make Messy Change Orders and Cost You Money

We’ve all been there. A project has commenced. The work is being completed on time. The profit margin is looking great. Suddenly a homeowner wants to add a hallway, a GC wants touch-ups, or an employee doesn’t show up to work that day. Or perhaps the worst because it was your company’s fault: your estimate was inaccurate.

At the time this article was being written, Ryan Amato of Ryan Amato Painting in Lehigh Valley, PA, was wrestling with a change order problem. “We just had a change order issue today.  It was a $14,000 change order with no deposit, and now we have a disgruntled client who was difficult during the entire job.”

So a contest ensues. Who’s going to eat the cost? Contrary to what you might feel in the moment, most people--even your opponents-- don’t like confrontation. Social psychologists tell us that unless the risk of uncomfortable confrontation is reduced to almost zero, most people will avoid doing business and interacting with you. That’s important to know because smooth interaction and that guarantee a predictable and pleasant experience is pivotal to continued and repeat business.

Here are a few contractor-proved solutions to common mistakes that lead to messy and confrontational change orders:

1. Mistake: Inaccurate estimate.
   Solution: You simply CANNOT estimate from the gut. Those days are over. You need to know the production rate of your team, and you need to use consistent processes, technology, and materials. Anything less is downright medieval.
   
   
2. Mistake: No clearly-communicated plan for accidents or unforeseen difficulty.
   Solution: You need to have clearly communicated terms, conditions, and processes that your customer can see and acknowledge from the very outset. You can’t prevent every obstacle, but you can have a contingency plan in place. Research shows that customers who are aware that you have a firm change order process that is communicated up front are less likely to throw in half-hearted requests with unrealistic expectations, and are more likely to accept professionally formatted and guaranteed up-sells.
   
   
3. Mistake: Under-performing employees.
   Solution: Measure performance, use accurate time-keeping, schedule individual reviews, promote advancement pathways, and consistently train to the next level. Your employees have to know that you are invested in their continually improving performance. What’s not measured doesn’t improve.
   
   
4. Mistake: No process for additional requests.
   Solution: Some contractors just say no. Others, the more enlightened ones, say, “Not a problem! Let me check with our estimator and get a price for you” (à la, Nick May and the estimating team at Walls By Design in Denver, CO). Of course, if it’s too difficult of a process to add or subtract, no one will want to do it for long. But if you have the right tools in place, options and add-ons are great money-makers that contractors should be thrilled to offer.

The change order, however it is presented, has to be clear and detailed, and needs to stand out from the previously approved project scope. If it is not distinct, misunderstanding is the result. And it needs to be easy. A painless change order process is essential if it is to remain a consistent, profitable part of business. 

“The most important thing about change orders is to document everything. Get them approved before anyone starts ANY work. They can make a bad project good, but you shouldn’t take them when you're extremely overloaded on your schedule or have a difficult client,” says Ryan Amato.

Estimating and sales-enablement software can help, and most people use them because you can’t beat the consistency and clarity of preloaded templates and language. We’ve kept the process of creating change orders as clear and simple as possible at Estimate Rocket.

Here’s an inside look at our change order process:

1. Add a new line item in your project estimate for time and material (eg.,10 hours and 1 gallon of paint).
   
   
2. Add this new line item to a separate group in the proposal (eg., family room or new construction touch-ups), to keep it separate from the original items in the previously accepted proposal.
   
   
3. Now create a new proposal and add the new group as a labeled “change order.” As a new proposal it can be approved by the customer separately from the previously accepted proposal.
   
   
4. Send the proposal with all details to the customer for electronic signature. If the Change Order is a subtraction instead of an addition, simply edit a line item’s time and/or materials and submit the new proposal to the customer for their signature.

The customer will now have a record of two accepted proposals that outlines the different scopes of work and balance due after the change order, and any canceled proposals due to subtractions will be available to view and contrast with notes. The contractor will have explicit details of those change orders on hand at all times (which, by the way, would come in very handy for training and performance review if the change was due to operational inefficiencies or low-performing employees). 

With good change order tools and process, both contractor and customer are safe and happy. Hello repeat-business. Good-bye cranky customer.

Watch our Tech Tip on how to painlessly add a change order and get a signed approval from the customer in minutes.