Change work orders (CWO), also known as additional work orders, are one of the major reasons contractors go out of business. They don’t close their doors because they want to – they quit when they can’t pay their bills because their clients won’t pay for change work orders, claiming they didn’t know how much it would cost and they never signed an agreement for the change.
It’s an easy mistake to make. Let’s see how it happens.
You’re busy working on a job when your client comes to you and says, “We want to put a new almond colored, dual glazed, vinyl sliding glass door in the west wall where the 6′ window is now. Can you do that for us?”
You say, “You asked just in time, we’re framing that wall today.” You know you should write a CWO because you’ve read our book, Markup and Profit; A Contractor’s Guide Revisited, but the clients are good people and you know they’ll keep their word. You don’t have enough time to do the estimate, write the CWO and get it signed without stopping work, and you don’t want the extra expense of sending the crew home. So you make the change.
At the end of the job, you’re meeting to collect your final payment when you present the Change Work Order for the sliding glass door. They gasp and say, “$3,011 for that door? We saw one at the Big Box Store and the price tag was $595. That’s outrageous.”
Now they’re upset and start seeing you in a different light. They continue, “While we’re thinking about it, we want to see all of your invoices and time cards for our job. We were told we were paying you too much for this job and this confirms it. We won’t pay for the door and we’re not giving you any more money until this is settled.”
If you think this doesn’t happen, or won’t ever happen to you, think again. It happens often. The nicest of people can change in a heartbeat when money is involved.
What should you have done? When your client asks for a change, remind them that the procedure for making a change is outlined in your contract (be sure it is), and it requires a written, signed change work order. Explain that making a change at this time will probably delay the job, increasing the cost. If possible, give them a rough estimate of the price of the change, but be careful to go high, not low. You don’t want them surprised with a higher price after you make the estimate.
If they agree, let me offer two alternatives for how you should proceed.
- Stop the job, estimate the cost and write the change work order. Be sure to include the cost of stopping the job. Get it signed before proceeding. This is the best alternative.
- If you don’t want to take the time to create an estimate and you’re confident of the cost of the change, write a change work order on the spot, get it signed and proceed.
The second alternative is risky if you estimate low, and it’s dangerous if you’re guessing on items that should be quoted by a sub. But it’s better than proceeding without any signed Change Work Order at all.
Make sure that any employees in charge of running jobs know about this procedure. Having all changes covered with a signed Change Work Order will keep your business covered and help you sleep at night, knowing the relationship you have with your clients is in writing.
Comments from Michael
A young man from one of the southwest states called recently looking for help. I applaud anyone who knows they have a problem and is willing to do what it takes to solve it, and he was getting after it.
This young man’s story was typical of so many that I hear. His business did less than $100,000 last year. He has no advertising plan, no website, one employee, his average job size is just over $3,000 and he’s badly in debt. On top of that, he’s paying himself 25% of the gross sales from his company as a salary because he has a family to feed.
If any of this sounds familiar, you’ve got to make changes and soon. You can’t survive. And your family will be the ones who suffer the most when the business fails.
If you want to talk about what is going on, give us a call. I don’t mind spending a few minutes on the phone with you to confirm your suspicions about what the problems may be. We’ll lay the cards on the table. It is then up to you to decide what to do.
If you think you may be having a problem but aren’t sure, check your Profit & Loss statement (your P & L). Last page, bottom line, right hand number. If it’s less than 8%, you have a problem. If it’s negative, you have a serious problem. If you don’t have a P & L, it’s beyond serious. Whatever the case, give us a call, let’s see if we can help.