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The Contractor Coaching Partnership Blog

Change orders; written, approved and paid before you do them.

Posted by Mark Paskell on Mon, Aug 01, 2016 @ 09:31 AM

When do you get paid for change orders on your remodeling projects, before you do them or after they are completed?

lGetting your change order approved in writing and then obtaining payment before you do the work is usually the best outcome for the contractor.change_order_form-resized-600.jpg

Homeowner refuses to pay change order.......

Last week a remodeler called me to discuss how to handle a a homeowner who refused to pay for change order work after it was done. I asked the remodeler did he have a written change order and the the client was traveling, I was too busy to meet up with him, i didn't think it would be a problem and the client is a nice guy.

Does this sound familiar? Can you relate?

Of course you can, we often think the client who hired us for the project will never stiff us. We ASSUME we can deal with the additional work order later. BIG MISTAKE!

Note; Be sure to download the Change Order Checklist 

Remodeler has change order process and Cradle to Grave System

This remodeler has a change order policy but uses it sparingly. Now he is facing a dispute with his client who is happy with the kitchen remodeling project but unwilling to pay for additional work that was discussed and not memorialized.

I asked the remodeler why he did not use the change order process he clearly understands and has used in the past. He said I am falling back into my old ways and not following the coaching process you taught me.

This remodeler is a client and in the past has done a great job following the Cradle to Grave Design Build Process we taught him. However, any program learned can be forgotten if it is not reinforced through continuous practice.  For his own reasons he got busy and stopped practicing including neglecting to do change orders when required. He concluded that he needs to get back on track and use the Cradle to Grave Design Build Process he learned in the coaching program.  

Steps to avoid change order nightmares

  1. Include a clear change order policy in your contract with an acceptance signature line and have your client acknowledge that they understand and agree to your terms.
  2. In your contract state that all change orders have to be memorialized in writing and paid for either in advance or by the agreed payment schedule for the work.
  3. Clearly state that the change order will add additional time to the completion date.
  4.  Remember to add change order amounts to the contract price so the client always knows the total increase to the contract.
  5. Consider charging a processing fee for all change orders so the client knows if you stop performing contracted work they have to pay you for your time to scope, write and price the CO. Let them know that even if you stop to figure a CO and they chose not to go forward, that they will at a minimum have to pay the processing fee. 
  6. Markup on allowance clause; include in your contract that if the client selects products or methods above the allowance amount that they will have to pay the overage and a markup on it. Include your markup in the clause and have them approve it.
  7. Decision delays; if a homeowner fails to make a timely decision on product selections be sure to write a change order alerting them to the fact that their delay will cause a later completion date.
  8. No cost change orders; memorialize any work done outside your contract even if it is something you wish to take care off at no charge. Anything you do must be warrantied so make sure you have a record of it.
  9. Work by employees or sub outside the contract; be sure to have an internal policy that no one under your employ or sub contract is allowed to do work on your projects without written consent.  

Over the years you have likely discovered that most consumers don't like change orders. They one of the major complaints against contractors, they wreak havoc with critical path schedules and they affect our employees who want to get on with the project. To make your projects flow evenly work hard to eliminate them before the work begins.

In spite of our best efforts change orders will happen. When they do take the time to assess them, write the scope of work, price with your markup and most of all get the money before the work is started.     

Tags: change orders, remodeler education, business coaching