Remodeler Andy Apter says that many contractors fail to realize just how much change orders add to a project both in time and money. “It seems like small incidentals,” he says, “but it adds up.” Change orders not handled correctly can hurt your business. “If you don’t price them appropriately, it holds you up from finishing your base contract [work],” says the owner of Apter Remodeling/Craftsman, in Annapolis, Md.
Apter’s change order markup is higher than the markup used for the original contract because, he points out, it requires additional administrative work. And he asks homeowners for change order payment at the time they sign the change order. This keeps change order payments separate from the draws for the base contract and ensures prompt payment for the changes so you’re not waiting until the next billing or draw point.
The worst thing a remodeler can do, Apter says, is to base the change order estimate on his own opinion of the value of the detail or feature. For example, say the remodeler thinks the client won’t pay the $2,000 it will cost for a new closet, so he charges $800. “But,” Apter says, “if it costs you $1,200 and two weeks added to the project, that is time and overhead you need to be reimbursed for.”
Apter advises customers at the beginning of the project to not spend their entire budget on the main contract. He recommends clients have 20% in reserve for additional work items, which includes both discretionary work and unforeseen circumstances.
When he presents the contract to clients, Apter points out where it says that his company will be paid at the time the change order is signed. Talking about it at the beginning of the process “takes away any guilt or second thoughts” during the project, Apter says.
—Nina Patel, senior editor, REMODELING.