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The Importance of Mastering Change Orders for Contractors

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Updated July 18, 2019
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Change Orders for Construction Contractors - Importance

Let’s face it; there are many times during the process of completing a job for contractors where a lack of communication can affect the bottom line. Most often contractor’s think everything happens upfront with the initial contract detailing the scope of work to be done.

But, it’s actually during the project where contractors often lower their profits by not training their staff, not thoroughly communicating with the homeowners, and not documenting a very common occurrence: change orders.

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Change orders are exactly that, a change in plans to the original scope of work

The change order may come out of necessity, such as joist or stud that unexpectedly needs to be replaced, or maybe the homeowner deciding to add to or change the scope of work during the timeline of the project. Either way, it’s the contractor’s responsibility to properly communicate all details surrounding the change order, and document just as they would the specific information on an initial contract. These specifics include time and material requirements, price, and expected payment due date.

Change Orders for Construction Contractors - Importance

Timeliness is crucial

One of the largest issues I see with my clients regarding change orders is that the details of the changes to the scope of work aren’t making it to the person overseeing operations in a timely manner. Their employees or subcontractors are making changes without documenting their conversations with the homeowners, and by the time it reaches the contractor, the details might be less clear from the initial conversation.

That leaves the contractor scrambling to make the homeowner happy, while also trying not to lose potential profit.

Proper training and an emphasis on communication

The solution for this, as it is for many problems in the construction industry, is proper training and an emphasis on communication. All employees and subcontractors need to document change orders immediately in a spot where the General Contractor can review, and ask any needed questions. This could be on a cloud-based platform, or something as simple as an email or text.

After the conversation is communicated, someone in operations can send a document to the homeowner for approval with all of the essential details, ensuring everyone is on the same page. This not only allows the homeowner to review and approve the change order, but also comes in handy for the contractor is there are any questions about the work done, or the price of work, down the road.

Document the changes right when they come up

Another issue is a much simpler one, documentation. Too many times I’ve seen contractors handle the change orders on the fly, and not document the conversations, changes, and price discussed. In those instances, realistic expectations aren’t often set, most notably on price, for the homeowner. On the final invoice, the Contractor then scrambles to find all of the change orders, receipts, and timesheets to go with them, and add to the final invoice.

Not only does it allow for mistakes to be made, but it also can lead to more questions from the homeowner. The research, reviewing of documents, and questions then lead to more admin time for the contractor, and potentially a crucial loss in profits. All of this can be avoided with prompt documentation and approval from the homeowner.

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Your profit is what’s at stake

In an industry where the margins are getting tighter and tighter, every dollar of revenue counts. Change orders, if not documented and communicated properly, are one of the most common areas that can contribute to unexpected losses. They also are one of the easiest areas to fix. Though they can often be smaller mistakes, they can incrementally add up to severely affect a contractor’s bottom line, both at the end of the job, and the end of the year.

With a stronger focus on documentation and communication with the homeowner, the contractor can avoid uncomfortable discussions and unfair discounts, and add revenue to their firm.

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Jesse Meehan
Jesse Meehan

Jesse Meehan is a seasoned construction admin consultant, having troubleshot problems large and small for contractors struggling with the accounting, staffing, and contract side of the business.

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