Best Practices for Effective Change Order Management
Most architects and engineers go into their respective fields, not for money or fame, but because they love the practice of architecture or engineering. It’s an incredible feat to create a new design from the ground up and to ensure everything works as required. Architects provide us with a beautiful built world and engineers ensure it is safe and functional. These are critical roles in today’s world.
However, whether we like it or not, architecture and engineering (A/E) services aren’t delivered in a vacuum. Services are requested from an owner and a market dictates the price for these services. Today, everyone that procures design services for a major project has an idea for how much design services will cost. Anyone can do a quick internet search on the type of building and, in short order, come up with a relatively accurate estimation of cost as a percentage of overall construction.
Architecture and Engineering (A/E) Firms know these rules of thumb, especially those responsible for marketing and selling the firm’s services. If an RFP is advertised for a major project, most can approximate an acceptable fee. So, the market price is usually very competitive. The winning A/E Team will need a great design proposal, but at a very lean pricing structure.
Align Fee & Scope
As the project moves into production, many times the design professionals responsible for executing the work are not acutely aware of the constraints around their work. Many firms can improve project performance by simply educating the project team on how and why the design services were estimated.
The scope of work articulated in the RFP should be clear. However, there is always an interpretation and creative approaches. Share the RFP with your team. This will help them understand requirements for the project. And allow you to gain consensus before the project begins. It will also help the team recognize when the client is requesting services outside of the defined scope of work. Developing this understanding with your project team will result in both satisfactory work for the client and a profitable result for the firm.
Last Minute Change Orders
Projects change. Schedules shift, surprises come up, and clients ask for out of scope work. It’s part of managing an A/E project. Have you ever been in a meeting where senior management asks a project manager to request a change order at the end of the project? This illustrates project management failures across the board, from start to finish.
At project closeout, it’s too late to get a change order from many clients. There is no remaining budget. Any remaining dollars have been reallocated or paid to other consultants who identified issues much earlier.
This raises very real questions around project management competency. Why weren’t these issues identified earlier in the project? Project managers must always track and proactively manage scope, schedule, and budget.
It’s a lose-lose situation. Even if the client does pay, they will not be happy with the PM or your firm. This puts the potential for future work in jeopardy.
Effective Change Orders
So, how can you generate change orders, get paid for them, and make your client happy?
Manage your team and put tools in place to track out of scope work. That starts with proactively managing and communicating with your project team. Make sure they understand the scope and fee and don’t simply execute on every request. Capture these requests in a log and maintain your records.
No Cost Change Orders
Issue your clients ‘No Cost’ change orders. If it all possible, show them again on invoices. This will help illustrate to the client as a value-adding service provider, that you have been willing to accommodate reasonable change in scope requests. Further, it shows you DO NOT nickel and dime them. However, there is a point at which you must charge for additional services this helps refresh the client’s memory about the changes you were able to accommodate.
Emotional Bank Account
Think of this as investing in an emotional bank account. This builds a strong working relationship between PM and client. This relationship will provide numerous benefits. One of which is an open channel of communication, which you can leverage to manage scope and mention the extra things you’ve done throughout the project. Finally, when the time comes that you need to cash in and issue a change order, you can point back to things you’ve already done to justify the charge for extra work. Clients will see it coming and have budget set aside because of you have clearly communicated the additional work your team has provided.
Summing it Up
Change orders are oftentimes painful and drive wedges between A/E firms and clients. This puts profitability and future work at risk. Invest in an emotional bank account with your clients. This builds a strong relationship, demonstrates effective project management, and delivers additional revenue for your projects. Sound like a good investment?
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