Selling the Change Order
November 2005Notice the operative word in the headline of this article is Selling.
How often do you send in a request for a change-order without having to send in backup documentation or answer a number of questions about the change?
If you do not have to send in documentation or answer a number of questions to support your request for a change-order, then you are (a) working with an easy-to-get-along-with company or (b) not putting enough money in the request for a change-order. I would say that in most cases it is option (b).
If you are not hearing them squeal, then you are not pinching hard enough. If you are not pinching hard enough, then you are probably losing money on your change-orders. Personally, I detest changes, and if I’m going to be involved in a change-order, I’m going make sure I have recovered all my cost.
You are normally obligated (by the language within your contract) to perform work that is outside of your agreed scope of work. This additional scope could be the result of the plans having a dimension bust, or it could be the result of a subcontractor improperly installing his work. In any case, it is left up to you to make it "right.” Does this mean you have an obligation to do the extra work at your cost? No! Your contracting company is a business producing a product in order to make a profit.
Because I’m in the business, I know there are times when you will perform some work as a favor for another subcontractor or for the general contractor, and I encourage that. I am not advising you to request a change for the nickel and dime stuff. Those little insignificant change-requests irritate everyone. Learn to pick your battles and not waste your time and your argument on the minutia.
When it is time to ask for a change-order, your goal is (or should be) to be paid for all of the cost of labor, material, tax, equipment, supervision, overhead and profit related to that change. I just mentioned seven categories of cost and mark-up that need to find their way into every change-order you do.
You might not want to expose some of the cost categories where it is available for individual scrutiny. Let’s take supervision for example: The argument I hear from some general contractors or owners is, How can you charge me for supervision when you had to have supervision on the job anyway? There is also the usual disagreement over how much your overhead and profit percentage should be.
Here’s where the selling comes in:
- If your change involves a quantity of work that can be taken off of the plans or verified in the field, take the time to make certain you have the correct quantity on your change-request. You don’t want a disagreement here, because everything from here on will be in question.
- Double-check all the math. A math error opens the door for closer scrutiny.
- Make sure your documentation is well organized and easy to follow.
- Don’t request reimbursement for items you feel are questionable.
- Use categories such as your labor burden to absorb some of your overhead and profit percentage. If your labor burden is a real 28 percent, how would they know (and prove) that it isn’t 35 percent? Also, increase your actual labor rate and material prices enough to absorb some of the cost but not enough to raise the red flag. Be creative!
Whatever you do, don’t become weak and back down from the person reviewing your request. Remember that whatever you do here will not only set precedence for the remainder of this project, but it could have a negative effect on any future project change-orders.
About the Author
Charles Mahaffey is president of Accuest, LLC, Marietta, Ga. Accuest provides estimating and consulting services for commercial drywall subcontractors.