Change Order — A Form That Will Guarantee You Make Money - 11/8/2004 - Real Estate Home House Condo

Change Order — A Form That Will Guarantee You Make Money

Change orders are simple to use, yet many companies do not use them. I often wonder why, especially when considering how much money has been lost because companies simply don’t use change orders.

Let me begin by saying that change orders do not work on time and material projects — yet one more reason not to use time and material contracts.

Change orders indicate to the customer how much their contract price will change.

Conversely, time and material contracts never indicate a final amount — or even provide a complete set of specifications. Without this kind of backup, how can you expect to even tell your customers what their changes are, much less charge them appropriately?

Change Orders — Where to Start

First, you need to assemble a complete set of specifications for your project. Then, explain to your customer that your price is developed from these specifications.

Any deviation from these specifications will result in a change order. When the customer does change the specifications, you need to write up the change order — immediately.

Once a Change Order Is Written

This is critical:

• Do not do any work until the customer has approved the change order.
• Do not do the work even if the customer tells you not to worry about the change order.

We took a customer’s word for it once and the customer complained about the price after we completed the work. The customer said that if he had known the cost of the change, he would not have had it done. We were both unhappy.

Also, in most cases, you should collect payment for the change order on the very next invoice.

Overcome Customer Resistance — Explain How Change Orders Keep Them Informed

Some customers may be a little leery of  “change orders.” Try to calm their fears. Explain the change order process to them. Tell them that the process lets them know about every change they want to make from the original specifications, and that these changes affect the price. They probably will feel a little more comfortable about the process once they understand it better.

Issue Change Orders Even When the Price Isn’t Affected

We also issue change orders when the change alters the specifications but not the price. Why? Because a change order is an extension of the contract.

Change Orders Improve Your Estimating

You can also use change orders to evaluate your estimating process.

In the past, I noticed that our company worked on some projects in which we issued quite a few change orders. When I looked into it, I found that the problem with these projects was that the specifications weren’t finalized. Contracts were written and the projects were started even though they had too many unknowns or allowances.

To counter this, I have since tried to get customers to make as many decisions during the design stage as possible. I even tell our customers I am trying to do this so we can minimize the amount of change orders we have during the project.

Change orders will save you money and add credibility to your company. Call an office supply company today and get some forms. Use them and don’t give me any excuses as to why you are not.

Erik Anderson, CGB, GMB, CAPS, is vice president of Anderson-Moore Builders, Inc. in Winston-Salem, NC. He also currently serves as vice president of the Home Builders Association of Winston-Salem. For more information, contact Anderson via e-mail.

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