Improve Collection Ratio With Field Change Memos

On the jobsite, your crew hits an underground water line not shown on the plans. With water now spraying over excavated and open footings, should you wait for a signed change order to fix the broken line or take immediate steps to mitigate the damages?

Most construction contracts have language allowing contractors to continue working, fix the problem, and keep the job moving. The key is to inform the general contractor or owner as soon as possible. Always call immediately and follow up with a faxed 'Field Change Memo' by the end of the same day. Your contract allows you a specific amount of time to request more money and time for the extra work.

Unacceptable excuses

  • "I'm too busy right now to get the signature." (But never too busy to go to court!)
  • "I trust my customer, he seems fair!" (How much work will you have to do to pay for $10,000 in unpaid change orders?)
  • "Don't worry, I'm friends with my customer." (Friends sign and pay for change orders, enemies don't.)
  • "We've got to keep the job moving, I'll get it later." (When we have no leverage!)
  • "I don't want to rock the boat this early in the job." (Training your customer starts at the beginning of the job!)
  • "My customer told me we'll work out all the extras at the end of the job." (When they're out of money!)

The field memo system is a simple way to get a customer's signature authorizing you to proceed with extra work and acknowledging you'll agree on a price later. The actual change order can involve many parties including the subcontractor, general contractor, construction manager, architect or engineer, project owner and lender. In a typical situation, the subcontractor submits a change order request. The builders' project manager reviews it and submits a change order request to the owner. The owner has the architect or engineer approve it. And then, if it's valid, the bank must approve it so the progress payment cost breakdown can be processed. Those steps can sometimes take three, six or 12 weeks. The final price of owner requested changes is usually approved prior to starting the extra work. On unwanted extras, most change orders are rarely approved prior to the start of the work.

Field Change Memo Example

Date: 3/15/05

Project:The Perfect Project

Re: Broken Water Line

Field Item:

Today, we hit an unidentified underground waterline while excavating footings along column line C. In order to mitigate the damages the gushing water was causing, we immediately shut off the water main, dug out the wet soil, re-compacted the sub-grade, and re-formed the footings.

Additional Cost: Cost Plus Work to be submitted and approved within 5 days.

Additional Time: 2 extra days

Sincerely, Joe Superintendent

Approved: Mr. Customer

Charge the right price

Most contracts delineate how to proceed with change orders. There are three standard ways extra work can be performed by your contracts:

1. Lump sum

In the lump sum method, the owner or contractor can require the subcontractor to perform the work "lump sum" or "fixed price" for extra work agreed on prior to starting the work.

2. Detailed cost breakdown

With a detailed cost breakdown approach, the subcontractor can be required to present their detailed estimate with backup.

3. Cost plus

If the general contractor or owner isn't satisfied with either the lump sum quote or the detailed cost breakdown price, they can usually force the subcontractor to perform the work on a cost-plus basis, which includes actual costs of the work plus markup.

Many contractors only like to work on a lump sum basis. When a lump sum estimate is rejected, negotiating over price ensues using the detailed cost breakdown method. Agreements begin and enemies are made at this level. Charge the right price the first time.

Extra work takes extra time

In every change order request always include additional time required to perform the work - even if it doesn't affect the critical path of the project. No exceptions!

Get paid for what you do by putting it in writing every time. Start using this Field Change Memo system and you'll improve your collection ratio!

George Hedley is a professional business coach, popular speaker and best-selling author of "Get Your Business to Work!" and "The Business Success Blueprint For Contractors" available at his online bookstore. He works with contractors to build profitable growing companies. E-mail: GH@HardhatPresentations.com to request FREE admission to his next webinar, signup for his e-newsletter, be part of a group BIZCOACH program, join a peer mastermind BIZGROUP, take a class at Hardhat BIZSCHOOL online university, or hire George to speak. Visit www.HardhatPresentations.com

 

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