0385: Contractor Clients' Four Critical Words That Leads To Change Orders

This Podcast Is Episode Number 0385, And It's About Contractor Clients' Four Critical Words That Leads To Change Orders

Are you sick and tired of customers continually changing stuff on you and creating delays or extra work?

Is your customer leaving you "love notes" regarding minor changes they would like to make on the counter or someplace you can easily find them when you first arrive in the morning? Or the never-ending chain of emails. Or greeting you with "I/we thought we would like to have...."

Do these notes, emails, or greetings send you into a mental or alone verbal rant about why they can't leave you alone to get your work done?

Are you concerned they expect you to do the additional work for FREE, NO CHARGE, NA-DA, ZIP, ZERO?

You needed to be compensated for your time and your crew's time, and you need to do it right away.

Listen to your clients and watch out for these four critical words at the beginning of their sentence:

While you're here anyway That should be included Since it's open anyway You get it wholesale It's a small change While we're at it It's easy for you I have an idea I need a favor

Contractors hear these all the time. Part of the root cause can be traced to a mild case of "Stockholm Syndrome," where contractors feel their cash flow may be held captive by their customers or clients. They do not want to upset their "Captor-Customers," and so they tend to do more than they should.

I have a Randalism to share with you: "Hammer, Hammer, Who Has The Hammer?" In this case, the "Hammer" is a change order. This is a bit harsh; however, if you are a contractor, you live in a harsh reality, and the sooner you realize that and take steps to protect yourself, your company, and your family's financial future, the better.

80% of your customers are going to play fair. You do what you promise, and they will pay you, no questions asked, and are the foundation for high-profit repeat clients. 15% of your customers will try to get a bargain - little extras, minor changes. These are marginal customers you will want to replace with high-profit repeat clients. 3% of your customers are "Grinders" and will try to take all your profit by telling you too "Sharpen Your Pencil" which means do the job for your hard cost for material and whatever you pay your employees in gross wages with no allowance for overhead costs. 2% of your customers will do everything to lie, cheat, and steal. This is harsh but true from my experience as a contractor and now as a construction accountant. I have seen it happen to hundreds of contractors and clients, and more than once in some cases.

There Is A Hall Of Justice, But There Is No Hall Of Fairness

No law says there have to be change orders. A lawyer may enforce a verbal contract; however, for contractors, unless you have something in writing, it is my opinion that construction contracts are fixed in stone. If a deal states, "I will pay you $X to do Y scope of work", your customer cannot force you to do more, and you cannot do less than agreed.

Change orders can protect you and your client. Change orders give contractors leverage because you can refuse to make the change unless you are paid.

Six Tips To Help Contractors With Change Orders

1. When The Four Important Words Are Spoken STOP, LOOK, AND LISTEN!

If it looks like a duck (change in scope of work) walks like a duck, quacks like a duck, it is a duck (change order). There is no such thing as a no-cost change once you understand "What Ten Minutes Costs Your Construction Company ". The little leaks sink the ship (construction company's) because they are "no big thing" a simple "freebie" to maintain "goodwill" so that in time the contractor can go to Goodwill charity for a handout. In many cases you are dealing with a customer who has a "Champagne Diet On A Beer Income" and if your customer understands that something is extra and how much it will cost in time and money, they may change their mind or at least they will know ahead of time how much and when they need to pay. Get the change order filled out and signed before any work is done. There is likely to be pressure on you to "just do it" with the assurance that "it will be worked out later." and other fairy tales. 80% of your customers will pay for services and will not object to signing a change order. In fact, they love it! They want certainty and to know exactly what to expect. That is how they live their lives.

2.  Ask For Payment In Advance

What? Ask for payment in advance? Am I crazy? - Contractors are not bankers, but they seem to finance much extra work using their credit cards and paying finance and interest charges. Hint: if you do not have enough cash flow to pay off your credit cards every month, chances are you are acting as your customer's lending institution or their sugar daddy!  Randalism "I am not an excellent judge of a person's credit score; however, I am a good judge of cash, checks, and we accept all credit cards." If you do not accept credit cards, please click here and read this

3. Consult Your Employees

Your construction workers are the ones who will do the work. Consulting them and getting their feedback about any potential problems you may not be aware of can save you tons of grief later.

4. Consult Your Subcontractors

Consulting the sub-contractors and getting their feedback about any potential problems regarding scheduling and additional materials shows respect and may mean the difference between profitable change orders and non-profitable or even harmful profit change orders. 

5. Pay Your Subcontractors In Advance

You are going to pay for the change anyway, so why not get some additional benefit from it? Everyone makes choices about which job to give priority to and which ones can wait. In construction, time is money, and whenever a subcontractor makes your job a priority, you make more money. Make your subcontractor's life easy, and they will make your life easy!

6. Download Our FREE Change Order Form

We have a FREE Change Order Form Click Here you can download or check our Contractor Payment Application.

Final thoughts

For homeowners and prospective customers - most contractors have big hearts and want to do what is best for their customers and clients. Most of them have equally big hearts and would never want to cheat you or take food off your table. 

For contractors - business is all about building relationships. If someone has invited you into their home, they already know, like, and trust you. Please do the right thing for them, you, and your crew. Give them what they want and get paid for it.

About The Author:

Sharie DeHart, QPA is the co-founder of Business Consulting And Accounting in Lynnwood, Washington. She is the leading expert in managing outsourced construction bookkeeping and accounting services companies and cash management accounting for small construction companies across the USA. She encourages Contractors and Construction Company Owners to stay current on their tax obligations and offers insights on how to manage the remaining cash flow to operate and grow their construction company sales and profits so they can put more money in the bank. Call 1-800-361-1770 or sharie@fasteasyaccounting.com