How to Handle Change Orders

Check out these tips for putting a process in place.

Remodelers hate change. More specifically, they hate change orders, those alterations to projects that arise after the customer has signed. And unfortunately, there's no way to avoid them altogether.

"You can't control the customer changing his mind or having a follow-up thought once work begins," says Dale Nichols, president of Artisan Remodeling in Granite Bay, Calif. "But if you aren't sure to add in every cost, including overhead and travel time to pick up products, you're giving away your profit on the job."

Gary Nash, president of Nash Construction in Marshall, Va. addresses his procedure for change orders twice in the sales process, first when going over the contract prior to signing and again in the pre-project conference. He spells out four situations that require change orders:

  • When additional work is required due to unseen conditions

  • When the client requests additional work

  • When variances in allowances occur (caused by clients' wanting higher-grade products than originally agreed to)

  • When handyman projects are not included in the project

The last type is the most insidious and often avoids detection, Nash warns. "The project manager's job is to make the client happy, so if something comes up — a closet shelf falls down, for instance — he takes a couple hours to fix it." That's fine to do, Nash stresses, but it has to be written up and paid for.

Having a readily available form for handling small changes ensures that the work isn't lost and is added to the final contract, both remodelers agree. Crews from Nash Construction keep pads of handyman tickets available so they can quickly write down the work and provide a price. Artisan crews use a three-copy form that provides copies for the customer, office and field.

If the job is more complicated—a client of Nichols' once added a new garage to the existing scope of work — it goes back to the office and is calculated on a worksheet. "The worksheet ensures we don't miss minor activities like going to the store or cleaning up a new area," he says. "It's easy to forget everything that new work requires."

Neither remodeler has had a client reject a change due to the price, but neither negotiates, either. Customers sometimes are surprised by the cost because they don't understand the need to add in factors like overhead and the total time required for product acquisition. Nichols will show customers the worksheet to explain a cost if it's requested. Since changes are completed on a cost-plus basis, there are no real secrets. It's simply a matter of ensuring that everything is included and explaining what’s entailed in adding to a project.

"We explain that we don't work for free," Nichols says. "They sometimes ask why it's so much, since it'll only take an hour or two and we're already there. We explain that we agreed to this scope of work for this much money. Now we're being asked for something outside of that." He explains that the company has to pay its tradesmen by the hour and cover expenses like supervision and travel time.

"I made mistakes early in my business, and I learned," Nash says. "Don't be afraid to charge for every change, but don't pad the bill, either. And make sure everything gets written down."

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