How to Improve Your Change Order Process and Ensure You Get Paid
Handling change orders can be a pain if the process is inefficient, but it doesn't have to be. When it comes to construction projects, change orders are an inevitability that contractors should be able to manage with ease. You can improve your change order process if you take certain steps to simplify it. In this guide, we’ll talk about how to streamline and standardize your process to minimize the costs of each change order.
The Actual Costs of Change Orders
Change orders can culminate in several costs for construction companies. Assessing these costs will help your company improve your change order process and reduce the most worrying inefficiencies.
Specifically, there are certain direct, indirect, and consequential costs that can result from a change order.
These are costs that a change order directly impacts. They include:
- The cost of communication between engineers and other personnel
- Other expenses resulting from the additional work
Indirect costs pertain to overhead, which may be either variable or fixed. In many projects, indirect costs may increase significantly as the project becomes more complex. The company's accounting practices will help determine how change orders might impact indirect costs associated with overhead.
Consequential costs are relative to the change order timing. Certain factors, such as inclement weather and labor shortages, can all have long-term consequences on the cost of the project. Change orders can also decrease productivity by 30 percent, resulting in even more consequential costs.
Understanding each of these potential costs can help construction companies determine how to mitigate them. Implementing a simplified change order process won't just help account for the costs of a project. It can also help speed up or at least improve the organization of the payment process. Subsequently, you'll be able to eliminate a considerable amount of frustration that can arise during change orders. If you know which of these costs are slowing down your business the most, you can improve your change order process by specifically targeting the inefficiencies driving those costs.
How to Improve Your Change Order Process in Seven Steps
The following steps can help you improve the change order process throughout your company.
1. Take Another Look at the Contract
It's important to remember that a change order is essentially an addition to the project's original contract. There are many reasons why a change order might occur and require additional work. Maybe errors occurred during the original project. Alternatively, certain changes regarding materials, weather conditions, safety issues, or regulations took place.
When you begin the change order process, the first step you should take is to look back at the original contract and determine what details are in place around change orders. The contract may list certain information about change orders, such as documentation needed and the specific timeframe in which a change order can be requested.
If there is any confusion regarding the nature of change orders or their relation to the original contract, resolve them as soon as you can before executing it.
2. Go Over the Specific Plans in Place
While reviewing the existing contract, look into the project specifications and plans. If you notice anything unclear in this documentation, make sure you consult with the owner before processing the change order, or you may find that the lack of clarity leads to additional complications throughout the project. Subsequently, you might find yourself dealing with more change orders that could have been avoided. By looking at the project specifications, you can solve potential labor or material shortages that might occur due to a lack of preparedness before beginning work.
You'll also be able to improve your reputation if you work to ensure that you and the owner are on the same page regarding the work for each project. This will also make the process smoother and the clients happier with the results.
3. Maintain Good Communication
One of the best ways to improve your change order process is to focus on communication gaps. When managing the changes, you need to establish and maintain consistent communication with everyone involved. First, speak with the owner and other parties about the specific reason behind the change order, along with the specific process for addressing the issues with the original work.
Consult with the party responsible for overseeing the project to better understand the nature of the change order and its effects on the project's timeline. Every party involved should have a good understanding of what the change order entails and the scope of work required. In addition to speaking with the owner's authorized agent, communicate with any subcontractors involved to discuss changes to their own schedules. Subcontractors should also understand how the change order will affect their work and determine if they are able to perform the necessary work.
Once you've spoken with all relevant parties regarding the change order, keep them updated. This will help further improve efficiency and avoid complications. A good company knows how to work cohesively with everyone from the owner to the subcontractors.
4. Address Change Orders Immediately
Companies should avoid delaying change orders as much as possible, regardless of which party initiated them. If you let a change order stagnate, then the project will stagnate. Initial delays could lead to significant costs and a difficult schedule, which will turn the project into a nightmare.
As soon as the change order process begins, companies need to work fast to negotiate the cost. Companies also have to modify their schedules, seek written authorization to initiate the project, and begin the work. Postponing any step will only result in mounting inconveniences and costs that make the change order much more difficult (if not impossible) to complete. If needed, make changes to your schedule to accommodate both the change order and other projects for which you may have strict timeframes.
5. Keep All Necessary Documentation
Like every other aspect of a construction project, it's necessary to document everything pertaining to change orders. You can make documentation easier if you take the time to develop templates and process documents. Then your team can use them each time they initiate a change order process. In addition to the forms required for each change order, make sure you keep records of all communications to ensure that all parties are held accountable.
Before beginning any work around the change order, make sure the owner has signed an official document that discloses the project's total cost and specific terms. Be sure to maintain documentation of the materials and labor involved in the changed scope. Throughout the work, discuss the documentation with the owner; try to identify and address any problems that could develop.
6. Keep Negotiations Efficient
The last phase of the change order process before beginning the work will be negotiating the change order. Negotiating can be somewhat challenging if there are any disagreements about the change order or the cost. Some modifications to the project timeline extensions may also be required.
If you want to keep negotiations smooth and make sure you receive payment for the change order, build that into your process. Start by communicating with the owner to discuss the overall scope of the additional work and the final cost. The project's agreed-upon price may appear in the original contract. But in some cases, you might have to decide on a mutually agreeable cost while negotiating the change order. You may provide either a lump-sum cost or divide it based on the pricing of materials, time, and units.
After you've discussed what the work will entail and the pricing around it, you will need to discuss changes to the schedule. Work with the owner to figure out if the project will require a timeline extension to complete the change order work. Be honest with the owner regarding any timeline extensions and clarify how long the additional work will take. Some change orders may require a significant extension to the original deadline, which the owner will hopefully understand.
7. Use Construction Billing Software to Help Automate the Process
When you want to improve your change order process, don't just stop at communication procedures and expediting payment. You can further simplify things by using comprehensive construction billing software. A reliable solution will enable you to make the change order process far more painless. Just as importantly, it gives you the ability to manage your documentation and subcontractor submissions. Construction billing software can also help you with payment management through automated payment approval. Also, it can further prevent delays in the billing process by sending reminders to subcontractors.
If you're worried about aspects of the change order process becoming disorganized, the right software solution will help. It will eliminate many of the complications around change orders and other aspects of your construction projects. You'll ultimately benefit from total transparency regarding the change order billing workflow. While this may not help guarantee faster payment, it will assist with the organization of payments.
Taking the time to improve your change order process will help you avoid or successfully handle the many possible issues that may arise. At the same time, you'll be able to more effectively ensure you receive payment for the change order on time. Whether you want to streamline your business or start scaling it, that's a time investment worth making now.
Once you improve your change order process, share it with everyone within the company. This will ensure that your employees know how to manage and process change orders properly.