Taking Control of the Cost of Changes

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.

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.