It hasn't been difficult for me to sell fixed price to our clients because I'm the one who takes all the risks. But if I'm going to take those risks, I'm going to be adequately compensated for them.
And there's no more appropriate time to ask for that money than on a change order. That's when I have the client most under my control. I'm already “in” with them; they've signed a contract, they're happy with us as a company, and they want additional work done. They certainly aren't going to shop it around to other contractors. So it's a great opportunity to charge our full fee — or more. I use change orders in something of a unique way; to reward good clients and to penalize bad ones. If a job is on schedule to be a bit under budget and the clients have been particularly great, I might give them a discount on the change order. If, however, I've lost some profit because of client indecision, say, or if the homeowner has been a particularly difficult one to work with, I'll charge them more for a change order. I couldn't do that if we worked on time and materials; I'm not going to lie about what something costs. But I can easily justify charging a little bit extra if the situation warrants it.
Alan Hanbury Jr., CGR, CAPSAll Set
House of Hanbury Builders
When I write a change order (we called them “additional work authorizations” in my company because it's a bit more descriptive and it reassures the client that they're getting something for their money), it's just an adjustment to the budget. We're saying, “This is what we would've budgeted, had we known you wanted this done from the beginning.”
When I was running all of the jobs myself, I could, if I wanted to, quickly estimate a fixed price for a specific change order. Now that I'm out of the field and using the lead carpenter system, I can't do that on site anymore. Using a time-and-materials pricing system makes it easy for everyone to estimate what a change order is going to cost. My labor rate is set, my markup is set, the cost of the material is easy to find, and my guys know about how much time the change order will take. It eliminates surprises.
It also saves time. I don't need to sit in the office and labor over how much to charge based on how long I think the work will take to complete. And it eliminates some of the risk I face if there's more to the change order than appears at first glance.