Scenario: Construction on the Byer’s new home had gone quite well. The Byers had made their selections in a timely manner, the weather had been good, and the house was a few days ahead of schedule. The next task was installing the hardwood flooring, which was scheduled to begin in two days. Then Barry Builder got a call from John Byer. “Barry,” he said, “we need to change the flooring in the foyer. We had dinner at a friend’s house last night, and they had a beautiful tile floor in the entryway. Now Jane is convinced that that is what she wants.”
“Anything is possible,” Barry said. “But it won’t be easy or inexpensive. It all depends on the type of tile you choose, how quickly we can get an installation bid, and how much this will delay the rest of construction.”
“Well, I think we want to do it anyway,” John said. “We’ll go to the tile showroom and pick out a tile today. Can you get me a price?”
“Of course,” Barry said. “Give me a few days.”
Solution: How should Barry price this change order? Normally Barry simply takes his estimated costs, adds a change order fee plus a percentage to cover on-site supervision, overhead, and profit, and then submits the change order to the client. But in this case, this may not compensate Barry sufficiently for the aggravation and disruption to his schedule.
He can call his tile contractor and get a price for tiling the foyer. But then he has to call the hardwood flooring contractor and tell him to back out the hardwood costs. If the subcontractor has already taken delivery of the wood (which is likely), he’ll have to add a restocking fee for the returned flooring. The baseboards had already been installed in anticipation of the flooring, so those would have to be removed before the tile is installed, and then replaced after installation. And of course, this doesn’t begin to address the issue of whether the tile contractor is available on short notice, or what this will do to the hardwood flooring contractor’s schedule or that of the subsequent subcontractors.
Frankly, this is a can of worms. If Barry had had more notice, he might have been able to fit all this into the schedule smoothly. Because the Byers have been good clients so far, Barry may be inclined to give them a break to keep them happy. However, unless he bills them for the true costs of the change, he may set a precedent for other last-minute changes.
So what are Barry’s true costs? In addition to whatever outside costs his subcontractors charge, Barry must include the time it takes him to call the subcontractors, obtain new bids, and reschedule the work. He must also include the costs of any construction delay. Even if the client is paying the interest on the construction loan, every additional day of construction adds additional supervision and overhead costs. And these often-overlooked costs may exceed the cost of the work itself.
Barry could price the change order to determine how badly they want this change. Buyers often want to make “minor” changes until they see how much those changes will cost them.
Perhaps if Barry marks it up enough, they’ll decide they really don’t want the change that much.
When Barry submits the change order, he needs to accompany it with an explanation of the additional work that would be required. Otherwise the client may simply look at the differences in material costs of the two floorings, and think the builder is ripping him off.
Al Trellis, a co-founder of Home Builders Network, has more than 25 years of experience as a custom builder, speaker, and consultant.
