Try as we might to eliminate them, change orders are part of the business of remodeling. Despite their reputation for robbing profits and throwing schedules out of whack, change orders are not necessarily a bad thing. While change order costs are sometimes higher than the 10% proposed here, they are rarely lower. The trick is to manage customer expectations and prepare them -- and yourself -- for the inevitable.
Almost every job of any size and complexity generates changes due to concealed conditions -- pipes or wires in the wall, for example -- that no one could have anticipated and that are not uncovered until work is under way. It's hard to get into trouble here unless you had an opportunity to inspect the area in question beforehand and chose not to. Most homeowners would rather pay extra for problems you uncover than agree to a price that's padded with contingency money. Make sure your contract includes a clear scope-of-work description and language that specifically addresses hidden conditions.
Most other changes start with the homeowner, although remodelers often share responsibility. Product swaps are common -- this sink instead of that one -- and can originate on either side of the table. Allowances are even more common, and here remodelers share in the blame. Allowances are essentially delayed specifications for products, materials, or details that should have been selected or resolved before work began. Homeowners who miss product selection deadlines generally do so because they are given too many choices and not enough deadlines. Some remodelers report success with incentive systems that either refund money when choices are made on time or delay the start of the job until all selections have been made.
The costliest changes result from the homeowners' inability to visualize the project from a two-dimensional set of plans, a malady that is fairly common in the typical population. Solutions include a CAD "walk-through," a scale model, and on-site mock-ups, but nothing is foolproof. That's where the 10% buffer saves the day. If homeowners understand how and why change orders arise, and if they also budget an additional 10% to cover the costs, the inevitable will be a lot easier to swallow. However, paying extra for changes is palatable only if the charges are presented in a timely fashion. Remodelers who wait until the end of the job to ask for additional money will have a hard time collecting 1%, let alone 10%. And without proper documentation, the chances of collecting are practically nil.
Change Order Checklist
Write it down. Memory has been proven inadequate to the task of keeping track of who said what. All changes should be described in writing and signed by all parties. Even a change with no cost attached (such as a tile color change) should be recorded to prevent misunderstandings later.
Extend the schedule. Time is one of the hidden costs of change orders. Standardize your change order form to include an automatic extension of the project completion date.
Increase your markup. It's difficult to anticipate all the ways a change order will disrupt the job. Increasing your markup will help ease the burden of underestimating the actual cost.
Pay to play. To prevent customers from using you as an estimating service for change orders they never approve, try charging an administrative fee. A non-refundable $50 up front is usually enough to discourage frivolous requests. You can always make exceptions, waive the charge, and be a hero.
Pay as you go. Don't let change orders accumulate until the end of the job. Charges for changes should be included with the next scheduled invoice. Some remodelers have gone one step further and get paid for changes in advance.