If there’s one thing every builder and remodeler can agree on when it comes to residential construction projects, it’s that there’s one element that will never change: the need to make an adjustment to the original plan. Or often many adjustments! There are a great deal of variables involved in construction—from clients who change their minds to inspectors who insist that work was not done to code. Or bad weather that revealed a roofing problem. Or a subcontractor who caused damage on the property. No matter the source, there is only one good way to deal with change on construction projects – by utilizing a construction change order.
A construction change order is a great tool to document and manage change requests from clients on the project. Some change requests are optional – like a client who decides they want to make the master bedroom larger. But others are not – like discovering the roof is leaking. Changes typically impact the budget and timeline.
A change order helps you document the details of exactly what needs to be done, what it will cost, how long it will take, and who is responsible for payment. Approved change orders become part of the original residential construction contract for the job.
Managing client expectations on a residential construction project is critical to its success. Be sure to explain the change order process to your client before you start the project by including verbiage in your standard residential construction contract that specifies how changes will be handled. That way, clients will understand from the beginning that changes can impact the budget and timeline, and therefore require written approval.
When a client requests a change – no matter how small – have them go through the change order process. It sets their expectation that you are serious about properly managing changes to the project.
Remember that how you handle change orders will become part of the contract. You want to be sure it has enough information to determine the cost and timeline impact, if any, on the project. A change order in construction is typically created on a separate form, which should include the following:
We know you’re busy, but taking 20-30 minutes after the project wraps up to review all of the changes that occurred will set you up for success with future projects.. Keep a project preparation checklist and add any changes you believe could have been avoided. The idea is to use this checklist on future projects to reduce the need to make changes. You may see the same types of change requests coming up time and again.
A checklist of changes that came up in past projects allows you to create strategies for avoiding them in the first place. (By the way, construction management software makes managing the change order process and project review much easier.)
You should develop a process for handling construction change orders. Here are some items to consider including:
It is best to assign roles – rather than names – to key tasks. For example, the project manager may be listed as responsible for incorporating the change into the project plan.
Task management is an important part of any construction change order process. Be sure to assign each task related to the change order to a project team member. Some tasks are assigned to the client but follow up with the client should be a task assigned to a team member.
Note that past project reviews can help you better estimate the impact of changes on the client’s budget. You can use this data to persuade clients to include a contingency for changes. This information can also help guide you in how much to cost out changes.
As a custom home builder or remodeler, you know that change happens on most projects. But there are ways to keep certain changes to a minimum:
Many changes can be avoided simply through coordination and communication between all team members and subcontractors, including architects and designers. Keep in mind that a high-quality construction project management software platform can make it easier to facilitate and document all communications.
When should you use a construction change order? The answer is always. If you have taken our advice to set client expectations before the work begins, they’ll know to expect a change order every time there is an adjustment to the original scope of work defined in the contract. Also, they will have signed something (either within the initial contract or an addendum to it) where they agree that all changes require a formal change order that must be approved. (Construction management software helps handle client approvals with a feature specifically for Change Orders.)
Change orders can be a chance to renegotiate the terms of the project. This is often with the client, but could be with a subcontractor too.
Let’s say the client wants to change the flooring, but the flooring subcontractor has already received the materials and wants to charge you a restocking fee. You will need to either get the subcontractor to back down on this charge – or pass it on to the client.
What you want to avoid is doing work that you won’t be paid for. It can feel uncomfortable to charge for a minor change, but once you agree to do one change for free, be prepared to be asked to do other “minor” changes at no cost. One way to handle this is to agree to a contingency budget up front. The client will see the charges against the contingency, so they know (and appreciate) that these little changes start to add up over time.
Think of every change order as an opportunity for your business. Obviously, some change orders are just a hassle. But many are true opportunities to improve the project and in turn, make more money. This adjustment in your mindset can be a game changer for your company. In fact, as you complete each project review, you will likely see which change orders increase revenue. You can use this information to provide clients with additional options that they can select early on in the project.
Picture a scenario where you agree to make a change that prices out to $10,000. Your change order process dictates that the client must sign off on all changes before work can begin. But, hey, you’ve known the client for years and trust them. So you start work on the requested change.
The client never signs off on the work – and doesn’t pay you. If the client signed a change order, you can likely file for a mechanic’s lien. If not…tough luck. Did we mention that these change orders become part of the contract? And an unsigned contract is not valid.
Again, keep in mind that each change order is a negotiation. You can charge overhead and a profit percentage if you choose. You can markup materials. The negotiation includes when and how you will be paid. You can charge the amount against the contingency budget. For a high-cost change, you should at least collect enough to cover materials.
BuildBook has a free construction change order template for Excel and Google Sheets you can download. This is a great tool to use for your residential construction or remodeling business. If you want to experience how change order management in construction works as part of an integrated software platform, BuildBook gives you an easy way to document and approve changes. Just sign up for a free trial today.
Change orders are an integral part of construction project management. Managed well, they can be used to set client expectations and control project costs. Keep in mind that each and every one becomes part of the residential construction contract after approval, so be sure to use a change order for every modification to the scope of work – big or small.