Construction Change Orders: The Change Order Game
All-to-often this is the story: a client contacts a builder asking what their project will cost. The client provides some details, maybe the builder visits the client’s home, and then the builder provides a “quote”. This story ends with the total cost of the project exceeding – sometimes drastically so – the initial quote and also the client’s budget. Without detailed plans and final product selections, a quote is NOT fixed and is NOT what the project will actually cost. And how can it be?
Unfortunately, while our city has many amazing builders, there are unreputable companies who are eager to play the change order game. These companies and individuals will provide you with a “fixed” quote based on whatever information you provide to them, without knowing or asking for the details. What they won’t do is let you know that the details matter. They won’t advise you of areas of risk that may cause cost increases, and after you’ve signed an agreement – and after demolition has begun – the change orders will start. You won’t know that their “quote” isn’t fixed-price until it’s too late. This approach is at the very least negligent, and at worst is dishonest.
It isn’t difficult to provide pricing based on partial information and assumptions. Square foot pricing can be used. Pricing on past similar projects can be used. And there’s nothing wrong with starting the discussion in this way if everyone involved (builder and client) understands that there’s a very likely chance the project budget will change as details become known. In fact, we use some of this data to help our clients come up with their initial budget.
It’s important to note that there are many reputable builders in Winnipeg who will provide a fixed-price quote early on in the process, before many details are known; they will make the necessary assumptions and will provide pricing on incomplete information … but they’ll be honest and will tell you up-front that not all details are known, and they’ll openly communicate throughout your project as decisions are made which affect pricing.
These reputable builders will outline the assumptions that they’ve based their pricing on, will advise you on where the areas of risk are, and will advise you that – on top of their quoted price – you should budget an additional x% for upcoming change orders – not just unforseens, but also changes related to finishes that you’re putting in your home such as flooring, tile, finish carpentry, etc. What is critical to understand is that change orders will likely still apply, and what your project costs at the end, after many decisions are made, may not be what you thought it would cost at the start. This approach is OK, however there is still significant room to experience cost overruns.
We’re a bit different; we don’t play the change order game, even with properly set assumptions. We believe in fixed-price construction after as many aspects as possible about your project are known and planned. Only then can a true fixed-cost quote be provided. And if changes are required to adhere to a firm budget, the time to change is BEFORE construction begins – during design — not halfway through the build or renovation. We do advise our clients to keep a contingency budget for legitimate unforseens … but short of these the price we put forward is what the project will cost. Unless the client changes something.
Do we use change orders? Of course. But because of our detailed planning process, and because we don’t under-bid construction projects and then rely on change orders to make up lower-than-needed profit, we’re not surprising our clients with changes that they weren’t expecting. We don’t deliberately under-bid a project with incomplete designs knowing that there will be an additional five to six figures of changes coming. This is unethical.
Most change orders we do put forward are legitimate changes that the client makes (e.g. changing from carpet to hardwoods). On some occasions we’ve run unto a legitimate unforeseen that requires a change to the project (e.g. a buried cast-in-place concrete storage tank right below where the addition is to be built) … and since we’ve advised the client that these things do happen and recommended keeping a bit of a cushion in their budget, these don’t derail the project.
Don’t play the change order game. A major renovation, home addition, or new custom home is something that you’ll be living in for many years to come. Take the time to properly plan, and don’t risk major pricing surprises when you don’t have to.
Are you considering remodeling and renovating your home, adding a home addition, or building a new custom home? Contact us today. And see how our proprietary process can work for you.