Software Solutions for Landscape Professionals

“Change Orders made easy with DS|Manage360”

Planning for Profitability 2012 Webinar SeriesJune 28, 2012

Presenter:Marcus vandeVlietConsultant – MV

Enterprises marcusv@aol.com

Agenda: Definition Why change Orders are more

common now Why you should avoid change

orders Types of change orders Change order information Mange 360 Demonstration

Definition: Change Order

A written document which modifies the plans and specifications and/or the price of the Construction Contract.

A supplement to the contract that provides authority to pay for revisions in quantities or authorize changes to design features or specifications

Written alteration/change in the provisions of a contract accomplished by mutual agreement of both parties

Current market conditions. Due to the present marketplace pressure on

price, change orders have become more common.

The signed contract may not include the complete scope of work required, or be marginal at best.

This leads to more change orders and customer dissatisfaction.

This will also erode your company’s reputation and reduce direct referrals.

The key to overcoming this is customer education and improved communications.

Avoid change orders whenever possible:

Reduce production efficiency due to lack of preparation and planning.

Creates short-term production problems due to project postponement.

Impact previous commitments made to the schedule.

Requires the salesperson to be involved during the production process.

Some companies feel that change orders are profitable, I disagree.

Additional Change Order Costs Redoing completed work due to changes in

design or scope. Additional material handling and delivery

costs due to vendor pickups or additional delivery fees required.

Crew inefficiency due to project being suspended, or waiting for the change order approval.

Additional mobilizations required due to delays. Create an additional mobilization fee clause for

your contract, to be used for billable change orders. This fee should be based on the load and unload,

mobilization and cleanup time multiplied by the number of men on the crew.

Salespersons CO role

Discuss the mechanics of the change order process. Best methods, time and place to contact the client. Is there a contingency change order amount built

into the project? Who has the authority to sign change orders? Can time and material change orders be

preapproved? Discuss not wanting any change orders. Review the possibility of the project being

postponed and rescheduled. It is critical to determine the entire scope of work,

and not just get the first phase of the contract signed.

Contract Details

Many companies do not include specific details on their proposals and contracts. Hardscape colors will not be specified. Plant varieties not specified. Material allowances are used. Miscellaneous materials of specified. To be determined is listed for materials.

Although this may reduce the estimating time, this practice should not be used.

It is impossible to build what you bid if you do not provide all the details and costs.

Customer Challenges

The customer will often state that the additional work can be sorted out at the end of the project.

Unfortunately the customer may not understand the final costs involved.

This will either lead to the custom of being unhappy, or you negotiating a reduced price for the change order.

A common customer statement “if I had known the change order was going to cost that much, I would never have done the work”

All change orders should be discussed up front before any work is completed.

Three types of change orders

Billable.Non-billable.Internal.

Billable Change Orders

Examples include: The customer changes the scope of work:▪ Increases the size of a paver patio.▪ Adds plant material to an existing screen planting.▪ Customer expectations of scope of work.

Additional work protected by contract clauses:▪ Underground obstruction close.▪ Additional structural and support requirements.▪ Damage by other trades.

Billable change orders may also include credits back to the customer for work not being completed as per the contract.

Non billable Change Orders Examples include:

Changes to paver or hardscaping colors. Plant substitutions. Small changes that do not involve large dollar

amounts, especially on larger projects. Bidding and Estimating mistakes and omissions. Customer negotiations. Sales giveaways.▪ Production bonuses should not include sales give away.▪ Salespeople should be held accountable for these

giveaways.

Small change orders on large projects.

Should you create small change orders on a large design build project? I would recommend creating a contingency cost

in the estimate.▪ For example: use 5% of the project total.

As small change orders occur generate a change order.

Provide the customer with a change order, but do not charge the customer until the contingency fee has been used.

Depending on the project profitability, the contingency can be given back to the customer in the form of project upgrades.

Internal Change Orders

These are a form of non billable change orders. Usually due to an error:▪ Bidding or estimating.▪ Incorrect material handling.▪ Layout error.▪ Quality issue.▪ Breakdown of internal communications.▪ Punch lists.

These are often discovered during the preconstruction phase, but will often occur during the production phase.

These issues should be communicated, so that as many as possible flow through the normal preconstruction and planning phases.

Change Order Notes

These should fully describe the changes to the original contract, including the scope of work changes.

These notes should be clear, concise and detailed.

With an existing client, the change order may be verbal but should always be followed up in writing and signed by the client.

The signed change order should always include a deposit payment.

Payment Schedules

Change orders should always include their own and separate payment schedule from the original contract.

Do not wait until the end of the project to discuss amounts and payment schedules.

Examples of payment schedules include: 50% upon acceptance of change order; and

50% upon completion of the change order. 34% upon acceptance of change order; 33%

upon commencement of the change order; and 33% upon completion of the change order.

Payment Schedules

The deposit payment confirms the change order for the customer.

The change order payment schedule will improve project cash flow.

Change order and final payments will be most difficult to collect on, this is due to the fact that the customer has what they want.

The larger the balance is at the end of the project, the more you will have to negotiate to collect.

The payment terms should always be: Due upon Receipt.

Change Order Terms and Conditions

Additional terms and conditions may be required due to the scope of work or type of work covered in the change order.

Additional warrantees may also be required, depending on whether the original contract included the scope of work. An example would be if lighting was

added to the project, then the lighting warrantee clause needs to be added to the change order.

Crew Notes

The crews should be provided with the change order description information, that the customer receives.

I would also recommend additional internal notes to fully communicate the scope of work, and costing information. Specific technical information. Estimating and bidding information. Vendor information. Special instructions.

CO Module:

Part of Job Tracking Upgrade to the module Process:

Create CO Print the CO Approve the CO Merges into the original contract.

Each CO is numbered as a decimal point to the original job #.

Manage 360 Demo:

Initial set upNotesChange quantityMake a substitutionDelete an itemBilling