How to Communicate Construction Change Order Markups

You’ve been working on a construction project when your client calls about the last-minute design change for their kitchen remodel.

You’re in a situation to write up a change order based on your client’s request, but these changes will alter the scope of work and the valued cost of the total project.

Lots of contractors hate explaining change order markups to clients. No one likes paying for things, but no one likes paying more than expected.

Plus, change orders are negotiable, and you want to maintain a fair margin to be appropriately compensated. Yet, you also don’t want to lose a client.

How do you effectively communicate the change order markup to a client? There are several ways to make the situation more accessible and not lose a client.

Build Value in Your Work

As a contractor, you have a lot on your plate. Construction projects are only an estimate of how long and how extensive a task will take. If change orders indicate anything, construction is highly unpredictable, with lots of time and money on the line.

When you’re explaining the costs and labor of the project to your client, take the time to explain why certain materials cost so much, why the task is labor-intensive, and why it’s an investment for everyone.

If you’re not in construction or a contractor, your clients might have no concept of the cost and why it’s priced a certain amount. You can reduce a lot of negotiation when you build value in your services.

Remember, we don’t walk into a convenience store, pick up a $2 candy bar and say, “Hey, how about I pay $1 for this?” $2 is what it costs. Materials cost money, subcontractors cost money, and changing a contract is a cost. Changing a contract takes time and money, so instill value in why there’s a markup. Stand by the value of your service.

Always Be Transparent

Honesty is the best policy, especially when dealing with contracts and change orders. Before you sign the contract, make sure you have a clause explaining a change order and why there is a fee.

Construction change order markup is a common practice in the construction industry, and you can explain this to your client. It is a way to ensure that the contractor and the owner are on the same page about how much money will be spent on changes. Your client will appreciate your transparency versus trying to justify expenses later.

The best way to avoid any confusion or misunderstandings is to be transparent about your change order markup from the beginning of the project for clear expectations.
Require an Initial by the Markup Clause

It’s best to explain the change order markup (or fee) from the beginning, but we recommend adding a line to sign or initial that it’s been read.

It’s another way of remaining transparent with your client since you’re highlighting a crucial part of a change order. Especially since it involves cost and potential fees, your client will appreciate it.

Whenever you have a specific clause on a contract that should be read and addressed, have a place for a signature.

If there’s a question later about change order markups, you can refer back if there’s a change order dispute later.

All Change Order Documentation in Writing

Ensuring your change orders are in writing helps solidify the agreement. Just like gathering signatures, having documentation in writing helps agree to all the terms.

The document should include all of the information about what was changed and why it was changed, as well as who authorized it and when it was authorized.

Also, for legal purposes, the document holds more weight in court (if, unfortunately, it comes to that) if it’s in writing. Having your change orders in writing will help prevent disputes and ensure you get paid for the job you’ve done.

Use Percentage or Fixed Rate

To keep all monetary changes transparent, use a set percentage or fixed-rate fee if a change order should occur. You don’t want to use a randomized amount that your client can’t understand.

Even if you explain the contract and the possible change order markup fee, you want your client to know what to expect before signing. Otherwise, they might have an issue later, dispute the fees or say that they don’t have enough to cover the cost.

Knowing the markup fee upfront allows the client to make sure they understand what the potential fee could be and ensure they have enough to cover those costs. As a contractor, you don’t want a situation where the client is out-of-pocket to cover fees.

Lastly, using a fixed amount or percentage is a clear-cut way to understand total costs and values. It’s easy math for everyone.

Software Can Simplify Your Process

Software for construction change orders is a great way to simplify this process and keep information organized.

It can generate reports that detail changes that have been made and when they were made, which helps keep track of what has been done. Know what the status is for any change order. Software can transform how you manage your change orders and keep everything organized.

Trak Changes is your simple solution for improving your change order management process in 3 easy steps. Start your free trial today