A substantial amount of the work many of us do is based on a fixed price quote, taken from a predefined scope of work. Plan-and-spec work has, just as the name implies, a set of plans and specifications that we are bound by contract to follow. But what happens when changes are needed? What steps should we take to ensure we’re paid for any changes that are made, and that the changes have been authorized by the building owner?
Let’s take a look at a few common problems in construction and learn how to protect ourselves from loss on every project.
Engineers Blanket Statements
The first mistake we make is to accept plans with a blanket statement that the “…plans and specifications may contain errors or omissions…The HVAC contractor is responsible to deliver a properly working system at the completion of the project…”
Plans containing such a statement should send up a warning flag. It makes you responsible for design flaws, and that’s not acceptable. Therefore, it’s in your best interest to conduct a thorough review of the plans. Check all engineering carefully, then create a list of any proposed changes. If the design requires changes, or you find a better way to accomplish the job, you should propose it and attach profitable prices on those changes. This form of change order acknowledges problem with the design, and demands a decision form the owner as to what course of action should be taken. A lack of response by the owner or general contractor delays the work, and entitles you to additional money for the delays.
Fixing Designs
The next blunder many of us have made is to alter the plans without written approval from the owner or his agent. Many of us make these changes because we’re confident our changes will make the system work better. The problem is, once you change a plan, you own it. You become completely responsible for the performance of the system and no one is obligated to pay you to correct it, regardless of defects in the original design.
When you discover a defect in a design, or see an improvement to be made in a plan, describe it on a change order form. Quote a price and request a response in writing before proceeding.
Changes During Construction
In any normal construction project, changes invariably need to be addressed. Often, we’ll just hammer it out in the field with the other trades and move forward. But what’s the real cost of these changes? To assume that you’ll win on some and lose on others is a mistake — field changes typically cost you 10% of the gross sales price of the job.
Have you ever run into insufficient room in a chaseway, design flaws, the sprinkler guys in your path, a failure to list fire dampers on a plan, specification of the wrong equipment model number, inadequate fan capacity, clarifications by the designer, or delays in the project? The list of costs to the contractor goes on and on. Only by recognizing and addressing these items daily on a project can you avoid the devouring beast that’s seeking to chew up your profits.
When you encounter situations, such as described above, you not only increase the direct costs of the job by as much as 20%, but also increase the overhead attached to those direct costs by an additional 6 to 10%. These “little changes” can turn a job upside down in no time at all. A 10% net profit job can turn into a 20% loser before you know it. Add that to the cash drain from a large project and you’re in deep trouble.
Many of these changes are no one’s fault. They’re just issues that have to be addressed. A typical new construction project holds a reserve of 10 to 15% of the cost of a project for changes. Those that ask receive. A change order form is how we ask.
Verbal Change Orders
Be very cautious when a job supervisor says, “Go ahead with the change, we’ll take care of the paperwork later.” Protection lies in writing. “The palest ink is brighter than the brightest memory.” Fill out a change order and wait to proceed with that part of the job until the order has been signed and the price has been accepted. The pressure may become intense on a job, but you’re following the law and defending your rights by requesting a signed change order.
Delay of Project
One cost many of us fail to recover is expenses for delays during the project. One method to avoid this cost is to review the overhead daily expense of a project.
This is done by taking the entire overhead incurred by the project and dividing it by the number of days estimated for the job. If a delay extends the length of a job, specify the number of days the delay will extend the job, request that a specific number of dollars per day in overhead expense be added to the cost of the job.
Also, don’t forget to add the days to the length of the project to avoid liquidated damages.
Additional Work
Sometimes owners get ideas of changes they would like to make to their building during construction. These must be priced differently than the original job. The cost to administer these changes may require 3 to 5 times the overhead expense to administer, and you must be paid for that time and expense, which may or may not be posted as a direct cost of the job.
When you find a change order form you’re pleased with, run it by your legal council to be sure it meets your state and local legal requirements. Don’t forget to create a support procedure in the office to assist the installers in pricing change orders. Then get serious about preserving profit on your projects.
