Masonry Magazine November 2005 Page. 48
Full Contact Project Management
Silence is Not Golden - It's Deadly for Your Change Orders
Gary Micheloni
Listen up team: You really need to pay attention to this one. Some people won't, and it will cost them and their companies tens of thousands of dollars. As contractors, and as full contact project managers, we have one of the best jobs in the world. We get paid for what we used to do for fun as kids-build stuff!
Life is sweet, work is satisfying, and sometimes we don't want it to stop. At least, that's how we pursue our projects. Get 'em started. Get some momentum going. Get finished. Get paid.
Ah, if only every project were simple, the plans were always correct, and the clients or the architects never changed their minds! But if I were in the room with you right now, here is what I'd do: I'd blow my whistle and bring us all back to reality. Why? Because building stuff isn't just about building stuff. In almost every instance, it's also about managing change. If you can't manage change, you can't be a builder (at least not for very long). Changes are inevitable. More importantly, changes represent potential revenue for the contractor who recognizes them and knows what to do with them.
Let me tell you a story. Your company is working on a job site and your foreperson calls. She says, "Such and such just happened. I don't think it's in our contract to do this, is it?" You smile because you have been working with all of your forepersons, training them to recognize potential changes and to call you before they do anything.
As a good full contact PM, you whip out a "winning" RFI and send it to the construction manager. You let the CM know that "such and such" is impacting your work and that it has potential time and money consequences. The impact is that you need to immediately put one extra person on this task.
You call the CM. Yup, he got your RFI, all right. He sees your point. He acknowledges that this task is requiring an extra man and that it is not normal to your operation. He's going to be taking it to the owner of the project.
You tell your foreperson to keep track of your crew's time and you have them
The Fine Art of Pricing Change Orders
It's an unfortunate fact: Contractors have to "sell" change orders, even changes requested by the owner that everyone recognizes as valid. It's part of the normal course of project management and it's frustrating. And even if the scope of work is not in dispute, the price can be a different matter.
Assuming unit prices have not been established for additional work, these tips might help you overcome defenses to your price.
# Provide a Detailed Description of the Additional Work
* Use commonly understood terminology that everyone understands. If your work contains trade-specific technical terminology, explain it in simpler terms.
* Identify exact location of work and be specific to a fault. Use plan page numbers and details, grid lines, phase, building and room numbers, etc.
* State why additional costs are being passed on. Reference the initiating and confirming document or event. What confirmed the owner's acknowledgement of additional costs?
# Provide a Detailed Price Breakdown
* Breaking your price down and showing detail of the work sequentially educates the other side. Also, realize that individual line items now become negotiating points. The estimating fact at play here is that the more detailed the cost estimate, the higher the price. An added bonus is we're forced to consider the cost for every detail of the work when we break it down and are less likely to forget small elements.
Paul Stout
# Show Contract "Approved OH and Profit Amounts
Include the difference between contract "approved" OH and Profit and your real amount for OH&P in your labor and equipment rates. Agreeing upon unit rates for labor and equipment that are higher than those reflected in the project bid is a must if you hope to recover the difference between what the contract allows for OH and what your actual overhead (G/A) costs are.
# Use Real Invoice Pricing for Material Purchased Specifically for This Change Order Work
* You won't need to inflate these prices if you have done what we suggested in the previous section.
* Many contractors pad material costs in an effort to make up their OH costs.
# Use "Retail Shelf Pricing" for Materials Already on Site
* That is for materials taken out of project Inventory.
* You'll have to replace this material at a price greater than your original purchase price (assuming quantity pricing at bid time and increased materials costs during the course of construction).
It's never a perfect art or science, but incorporating the above into your change order processes will give you a better chance at winning in the change order game.
Contact Coach Stout by e-mail at paul@powersummit.com, or visit his website at www.powersummit.com to reach new levels of business success.
Copyright © 2006 Paul Stout Power Summit
46 Masonry
November 2005
www.masoncontractors.org