If So Many Issues Come from Not Doing Change Orders, Why Are They Not Done?
A Proposed Change Order is another very important tool that should be in the business toolbox of every construction company. However, it’s probably used less than almost any other business tool. Its lack of use causes as many, or even more, problems than any other tool.
If it’s that important, why is it not used?
We’ve discussed multiple times the reasons for doing Proposals for construction projects and the importance of communication with construction customers.
Proposed Change Orders are just as important.
If Proposed Change Orders are so important why are the done less?
The main reason for paperwork not being done is time. Time is the one thing that there is a limited amount of. There is more of everything else in construction. We can look for and find more help, job materials, money, etc. But, no matter how hard we look we can never get more time.
This time limitation is the main reason paperwork isn’t done. It’s easy to see the direct connection between production and revenue. Paperwork…not so much.
Doing a proposal or estimate is done before any construction agreement is made. This has a direct connection to the cash flow and increases time being spent on them. If we don’t have construction work to do, we don’t get paid.
After the project is started though, our focus shifts to the construction of the project. From that point forward paperwork takes a back seat on the priority bus.
Like any tool…it costs more money if you don’t use it.
I was speaking with my mechanic earlier this week and he told me a story about a contractor that he knew, that took a $15,000 hit on a job because he neglected to provide the customer with a Change Order.
The contractor and customer agreed on the work that was to be done and a price of $20,000. While the contractor was working on the project, the customer asked for some additional work to be done. The contractor did the extra work.
When finished the contractor gave the customer a invoice for $35,000. The customer was furious and would not pay the additional $15,000.
Not communicating with the customer before the work was done cost the contractor $15,000.
Spending the time to do a Proposed Change Order would have been worth it.
A Proposed Change Order is like a proposal…it lets the customer know what to expect. It gives both the contractor and the customer clear expectations before costing either.
In my forty plus years in construction I have witnessed this story happen too many times.
In addition to the time needed to do a Proposed Change Order another reason for them not being done is simply not having a process in place for doing them.
This is common in the construction industry. Most people running construction companies were taught construction…not paperwork.
It doesn’t have to be this way.
That’s why we’re in the process filling up a Business BUILDing Toolbox with ready to use templates, fill-in-the-blank worksheets, instructions, and examples of:
- Change Orders
- Payment Applications
- Profit Comparisons
- Job Cost
- Six-week Cash Flow
- Savings Account Transfers
This Business BUILDing Toolbox (future link) is just one part of the 5-step Business BUILDing Plan.
Fixing problems such as neglecting to do a proposed change order as discussed above comes down to –
- Being aware that there are problems
- Understanding those problems
- Getting the Information about and Instruction of systems and processes needed to solve those problems
- Learning to use those systems and processes
- Delivery of your DREAM business
Check back to find out when the tools are in the toolbox and ready to go.