Business of Building e-Source - 04/18/2003 (Plain Text Version)

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Manage Change Orders and Make More Money

Some builders use change orders to cover for poor estimates or to punish clients for late decisions or last-minute modifications. But, if you consider change orders an integral part of estimating and project management and explain to clients how they work, you’ll eliminate confusion, have happier clients, and recognize greater profits.

Successful change order management depends on three key components: setup, prompt notification, and signed acceptance. Here’s how to incorporate them into your systems.

The setup includes these items:

A detailed budget that includes unit prices and quantities
An itemized scope of work
A schedule
A contract

The first two documents are benchmarks for managing your client’s expectations. If you clearly state what you agreed to provide for a certain price, there will be less confusion if the client wants to deviate from it later.

At my company, we put into the schedule all the decisions clients are responsible for. That helps make them accountable for the job’s progress. They are liable for missed or delayed decisions as well as work they add to the schedule.

Your contract should state how you handle changes, mark them up, and bill for them, as well as how you handle delays. Define all the possible unpleasantries that could occur in a project before the job starts.

Notifying clients promptly about additional charges for changes may seem obvious, but builders often wait until monthly bills go out to issue change orders. Instead, issue cost impacts as you go. A cost impact is a written estimate that includes the cost of the change, its impact on the budget, and the client’s signature.

If a client approves a cost impact, do detailed pricing on it and then make it a formal change order. We don’t proceed with the change until the client signs off on the change order.

Signed acceptance demonstrates and documents that the client received the change order and understands it. Builders often try to keep jobs going by starting work on changes without proper pricing and client signatures. You can get away with that in a pinch if you at least get the cost impact signed, but it’s much better to take the time to do the change order properly and have the client sign off on it. Proceeding without the signature could cost you much more than potential lost time.

John Barrows is president of J. Barrows Inc., a Wainscot, NY-based custom home building and remodeling company, and is a longtime contributor to NAHB’s Business Management and Information Technology Committee.

Need help developing change order documents? Pick up a copy of Home Builder Contracts and Management Forms on Disk. The book comes with a CD of electronic forms you can easily adapt for your business. It costs $49.25 for NAHB members and $62.50 for non-members. Call 800-223-2665 or go to BuilderBooks.com to order it online.

States Make Headway Against Construction Defect Suits

Home builders around the country are seeing steady progress in their efforts to be given the chance to repair construction defects instead of getting dragged into court.

Lawmakers in six states — West Virginia, Kentucky, Idaho, Kansas, Indiana, and Montana — have passed “notice and opportunity to repair” bills during this year’s legislative session. The bills are similar to laws already adopted in Arizona, California, Washington, Texas, and Nevada.

Although notice and opportunity to repair legislation varies slightly from state to state, all are based on the idea that it is better fix than sue. The laws help builders in two ways:

They help prevent expensive, time-consuming lawsuits by giving builders a chance to fix defects before being hauled into court by litigious home buyers.
With fewer claims on builder policies, general liability insurance costs may stop going through the roof — and the home building industry will hopefully become more attractive to insurers.

The laws have not been on the books long enough to have a measurable effect on the cost and availability of general liability insurance. However, at least two large insurance carriers in California have indicated that they may reconsider their decision to leave the market because of the new construction defect law in that state (Senate Bill 800) that passed last fall.

Notice and opportunity to repair legislation is pending in 10 other states: Alaska, Arkansas, Colorado, Florida, Illinois, Minnesota, Missouri, Nevada, Oregon, and South Carolina.

Want to learn more about construction defect legislation in your state? Contact your state association’s executive officer or lobbyist. In addition, contact Marie Zenner, assistant director of NAHB’s State & Local Government Affairs Department, at 800-368-5242 x8279 or mzenner@nahb.com.

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Business Opportunities from NAHB’s Councils

2003 Seniors Housing Symposium

Capitalize on the growing active adult and seniors housing market and build your bottom line by attending the 2003 Seniors Housing Symposium. Building for Boomers & Beyond: Emerging Trends, Evolving Markets, an educational and networking conference for industry professionals who serve the 50+ market, will take place April 28-30 at the Renaissance Esmeralda in Indian Wells/Palm Springs, CA. Highlights include a tour of four active adult and seniors communities, an exhibit area with products and services for older consumers, and plan reviews by design experts.

For more information, view a Symposium brochure or call NAHB’s University of Housing at 800-368-5242 x8338. Click here for information about NAHB’s Seniors Housing Council.

Annual Modular Housing Plant Tour

Modular housing is big business in the Mid-Atlantic and Northeast. Modular housing accounts for 6% of Pennsylvania’s new housing, and companies in the Keystone State provide nearly 5% of all new modular units in New York State. Accordingly, NAHB’s Building Systems Council’s Annual Plant Tour, scheduled for May 18-20, takes council members to the Hudson Valley region of New York and the northern Pocono Mountain area of Pennsylvania. Participants will tour modular housing companies’ corporate headquarters and manufacturing plants, and will discuss industry issues and trends.

Click here for more information about the 2003 Plant Tour. Register online, or call the Office of the Registrar at 800-368-5242 x8338. The registration deadline is May 7. Click here for information about NAHB’s Building Systems Council.

May is National Remodeling Month

Proud of the remodeling work you do? Tell others about it and educate consumers at the same time. Throughout the month of May, take advantage of the opportunities surrounding National Remodeling Month to help publicize the industry and emphasize to homeowners the importance of hiring qualified, professional remodelers instead of the fly-by-night guys. Get in touch with your local Remodelors™ Council to find out about plans for the month and to join in this important campaign. Contact the NAHB Remodelors™ Council at 800-368-5242 x8216 for more information. [return to top]

Builder Bright Idea

Try this tip from the 2002 Custom Builder Symposium to boost your business:

By the time warranty service rolls around, builders are tired of the house, tired of the customer, busy with other projects, and loathe to do work that doesn’t bring in money. Yet warranty work is critical, says Chicago-area home builder Tom Stephani, who presented a session titled “Taking the ‘Cuss’ Out of Customer Service.” For one thing, warranty work gives you a chance to fix honest mistakes. That turns a negative into a positive with past clients, who can provide great references to future clients. Stephani recommends offering a two-year limited warranty — it’s a unique marketing tool and service your competitors probably don’t provide. And besides, you’d probably come out and fix the problem anyway. You might as well publicize your commitment to your customers.

Do you have a great builder tip to share? E-mail it to us at jtunick@nahb.com.

The NAHB Custom Builder Symposium is a two-day program full of education and networking opportunities designed exclusively for custom builders by custom builders. The 2003 Symposium will take place November 14-16 at Disney’s Contemporary Resort at Walt Disney World in Orlando, FL. Click here for more information, or call the Office of the Registrar at 800-368-5242 x8338 to register. [return to top]

Member Advantage: Defer Taxes for Retirement with American Buying

NAHB members can substantially enhance their benefit and retirement planning options with tax-saving products at affordable prices from American Buying. Products include 401(k), new comparability profit sharing plans, and other retirement, financial, and estate-planning services with savings that business owners usually cannot get on their own.

For more information, call ABRS at 800-495-4050.

To order online and for details on more than a dozen other money-saving Member Advantage discount programs click here, or send a blank e-mail to membersavings@nahb.com.
Go to www.nahb.org to explore the numerous advantages associated with membership in your local, state, and national home builders association. [return to top]