Phipps: Value Pricing
Value Pricing

Step 7: Change Orders

Inform your clients every time a change in price may be required; frequent communication wins their trust and helps you keep your promise.

Last time we discussed the importance of managing your project. But no matter how well you plan, unexpected things happen. Clients change their minds or their specifications change. Sometimes, our work reveals details that necessitate a new course of action.

Our contract (fixed-price agreement) is based on providing carefully planned and implemented services. Won’t a change of plans also mean a change of price? Yes. That is the reason we need change orders.

We all know that a project plan is a rough guide, not unalterable doctrine. As such, we should anticipate adjusting and adapting to circumstances as they arise. The key is keeping your client informed as the project develops. Our profession is full of stories about clients who were given an estimate of $1,000 to $2,000 and received an invoice for $7,500. That is the sort of surprise that, at the very least, leads to a terrible reputation. Much worse, though, are clients who refuse to pay that bill and the lawsuits that follow.1

Change orders fall into two categories. Either the clients changed their minds or the surveyors uncovered data that required a different approach to the project. Either way, we must remember that, right from the start, we promised our clients that they were in charge, that they make the important decisions. If you can recall Step 1:

My purpose is to help you achieve your goals. We can only accomplish that if we work together. You have to first help me understand the current situation so that together we can develop a plan to help you achieve those goals. Only after we have reviewed the plan and agree upon the cost will I agree to take on the project. Is that acceptable?

 

A contract does not change this promise. When something happens to alter the scope of work, and therefore affect the charge, we must talk to the client.

If your clients have made a change to the project, they should not be surprised that their change requires a change order. It is very important to discuss the impact of the requested change on the price. Many decide that maybe they didn’t want that extra work after all.

Occasionally, clients complain that the extra service shouldn’t cost more or they will feign ignorance that this service wasn’t part of the original agreement. This is why any employee who interacts with clients–isn’t that almost everyone?–must have access to a detailed work order.

Personnel must know what work is included in the initial agreement so they can spot new requests. The company needs a predefined procedure on how to handle such requests. Smaller companies may be comfortable letting the field personnel price and sign the change order on the spot. Larger companies may elect to restrict significant client interactions to selected office managers.

 

The key part of this is helping the client understand and authorize the increased cost. However you choose to handle the client interaction, the idea is to not do anything unilaterally for which you would expect the client to pay. If you do that, you have broken the promise.

The second type of change order is much trickier. The nature of land surveying means that the unexpected will happen. Revealing one unsuspected fact can require further digging.

I use the word “require” because state laws and board regulations make certain actions mandatory. We know these things. The problem is, our clients may not. Clients may perceive this type of change order as an example of an unsavory business practice. How can your client tell the difference between a change order you create to generate profit and a true circumstance you could not anticipate?

Ultimately, the answer comes down to one word: trust. We made a promise to work with the client. We promised to communicate throughout the process. When you keep those promises, most clients will understand. If you violate that trust or if the client relationship breaks down, it is time to part ways.2

Now let’s be clear here. We can’t just stick a change order in front of our client and ask them to trust us (sign here). We must be prepared to keep that trust by explaining in detail the cause of the change order.  Be prepared to answer some significant questions as to why this new fact should obligate them to pay for additional services. Also be prepared to stop the project and walk away. There is nothing wrong with that. Stopping in the middle of a project can be completely appropriate.3

 As you can see, change orders have a significant impact. Either way, the key is keeping your client involved in the process. That is part of keeping our promise and insuring that they will be satisfied with the result.  


References

1.        Notice that having proper documentation to justify your invoice does not mean the bill is not inflated. If the client says the price is unfair, it is.

2.         This is why the termination clause in the fixed-price agreement is so important. Without mutual trust, few projects can be satisfactorily completed.

3.         I once surveyed a house for a prospective buyer that had seven significant problems. Any one of these would have been enough to kill any chance the buyer had for a bank loan. As soon as we found the problems, we agreed that the best thing for the buyer to do was to pay a fee for my work to that point and walk away.

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