If you are a contractor who wants to maintain a positive cash flow in your construction business, don’t forget your Change Work Orders. When a client requests a CWO, you need to make sure the paperwork includes a payment schedule that keeps your cash flow positive.
To begin, your contract needs a clear description of how change work orders will be handled by you and your company. Included in that description should be the payment schedule you will use for Change Work Orders (or Additional Work Orders if you prefer).
Change work order requests should be handled as follows:
- The client requests a change.
- You estimate the cost of the change. Follow proper estimating procedures; this is no place to get in a hurry or take short cuts.
- Compile your estimate, write out the change work order and present it to the client for signature and payment.
- They sign the CWO or AWO.
The payment schedule on the CWO or AWO should be:
- If the change is less than $2,500, it is paid 100% up front.
- If the change is over $2,500, half is paid up front and the balance at the next progress payment due as stated in the original contract.
- If the change happens between the last progress payment and the final day of the job, the change, regardless of the size, is paid 100% up front.
Never make changes to any job without having a signed Change Work Order first. If it means delaying the job, delay the job – once the work has started, if your client decides they don’t want to pay, it can be money out of your pocket. If your client doesn’t like the payment terms, don’t make the change. You are not obligated to make changes to the original contract. And you certainly don’t want to be financing the change work orders any more than you want to be financing the rest of the job.
If your client delays signing the change order, then caution them that you will either need to stop the job, or the cost of the change will increase. If the job continues while they consider a CWO, additional work being done might need to be torn out to accomplish the change. In short, if they wait, it will cost them more money.
Change orders, hopefully, are few and far between on your jobs. You want to make sure the job is as clearly defined as possible before the job begins, so your clients know what the cost of the project will be, and so you can build the job as efficiently as possible. But change work orders will happen. Using a proper payment schedule can keep them from threatening your cash flow.