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Construction Change Orders: How Much is the Status Quo Costing You?

By: Cameron Page  |  October 10, 2022

 

We know change is hard , but it’s time your company updates how you manage and track change orders. The current workflows waste serious time and cost too much money. Paper. Spreadsheets. Emails. Disputes. Sound familiar?

Most contractors process thousands of change orders annually, but still rely on outdated, frustrating, and inefficient methods to get change orders processed and closed. While these manual methods technically "work" to manage change orders, it's important to examine exactly how much sticking with the status quo is costing your business. 

Like we said, change might be hard, but the cost of complacency is too great to ignore. In this article, you’ll learn how old-school change order processes impact the bottom lines of both Specialty Contractors and General Contractors and explore the modern solution to replace the status quo.

“The Way We’ve Always Done It”

Let’s start by looking at how extra work is tracked between all parties. For Specialty Contractors, Change Order Requests (CORs) represent direct costs for work they will perform (forward-priced or lump sum) or costs they’re tracking for Labor, Material, and Equipment (T&M) spent on a project. Historically, this has been done using carbon paper T&M Tags that are filled out in the field and hopefully brought back to the office, where they are scanned and manually inputted into an Excel log. This Excel log contains all T&M and lump sum costs and is where all of a contractor’s risk lives. 

GCs and their trade partners keep separate records that are bounced back and forth via email for comparison and reconciliation. If all goes according to plan, which, of course, it does not, it can take months for GCs to review and approve Change Order Requests.

It takes an average of 60 days for work performed on T&M to get approved by the GC.

Project teams painstakingly solicit each other to send updated COR Log spreadsheets and manually input change order costs in their project management or financial software. For most commercial projects, there are hundreds, if not thousands of change orders, which require unnecessary hours of email, spreadsheets, and file management. By the time the GC meets with the Owner, they are reporting out-of-date project costs, and the story continues the following week or month. 

Nowhere in the process is communication done in real-time, in a centralized solution, or is anyone regularly kept up-to-date with accurate data. Because everyone’s financial and project management tools are internal by design, the only way to communicate and share information is by email, spreadsheets, and PDFs.

Old Way

OldWayWorkflow_Blog

High costs of the status quo 

The change order process touches every stakeholder and occurs several times during a project, yet its potential for improvement is often ignored. Due to the number of people involved in the process, the cost of inefficiency impacts everyone and is extraordinarily high. In addition to wasting the valuable time of your project teams and office staff, there are several key risks with the status quo. 

Specialty Contractors that perform the work and document everything on paper Tags lose up to 15% of those Tags. For every $1 million of extra work, that's $150,000 that may never get reimbursed. The Tags that make it to the office, Labor, Material, and Equipment rates are difficult to keep current when pricing out CORs, resulting in costly mistakes when using the wrong rates. Also, let’s not forget the Tags that simply get rejected, adding to the total revenue at risk for every project.

For GCs, paper Tags and static Excel COR Logs leave major financial blind spots and place the project budget at risk of cost overruns. This can be hard to correct as the project progresses, the backlog of hundreds or thousands of change orders starts to grow, and risk accumulates. The profit margin of a change order for a GC is very small, yet they carry the risk for the entire cost until they receive Owner approval. The amount of margin on a $10,000 change order might be $800, but there’s also a chance that $10,000 never gets reimbursed. 

Finally, let’s take a look at simple administrative costs. For both GCs and SCs, the overhead cost of using paper, spreadsheets, and email gets included in the work, but the actual numbers are staggering. At a minimum, project teams spend 8 hours per week managing change orders. Using a blended rate of $100/hour for Admins, PEs, PMs, and Supers, that adds up to $41,600/year on change order busywork. Large contractors with a portfolio of ongoing projects easily see that number skyrocket into hundreds of thousands or millions of dollars. That’s some serious money wasted on pushing paper and sending emails.

Contractors spend at least $41,600 per year processing change orders the old fashioned way.

By sticking with the status quo, GCs and Specialty Contractors are exposing themselves to high project cost risks and overspending on manual, error-prone tasks that your teams dread, anyhow.

A game-changing solution

Paper, spreadsheets, email. Tracking extra work doesn't have to be so wasteful. There's a better way to process change orders, and it starts with using Clearstory as your change order communication platform. In a single tool, Owners, GCs, and SCs communicate cost information transparently using a cloud-based tool that protects revenue, saves

  • Digital Time & Material Tags: Ditch the carbon copy and track field-directed extra work with the Clearstory field app keeping all parties updated in real time
  • Change Order Rates and Templates: Create clean and instant Change Order Requests for Lump Sum and T&M extra work with saving rates and standardized templates, ensuring consistency across your company and among your trade partners
  • Collaborative Change Order Log: Track, review, markup, and version control directly in Clearstory for real-time communication with all project stakeholders
  • Change Notifications: Distribute design or scope changes, set pricing deadlines, and track review and correspondence among all stakeholders, right in one spot.

New Way

NewWayWorkflow_Blog

Get paid faster

Old-school change order processing times is notoriously slow and can take weeks or months between when the work is performed and paid, which leaves Specialty Contractors at risk of cash flow problems. Clearstory's real-time T&M Tag and Change Order tools not only help reduce risk and save admin time, it substantially improves cash flow by reducing overall processing time from over three weeks to only a day or two. That’s over 90% faster processing time on EVERY change order. For SCs especially, faster processing time means getting paid faster and ensures that ZERO change orders fall through the cracks. 

For example, Raymond Group, a specialty drywall and framing contractor, suffered from inefficiency in tracking extra work costs. VP and Area Manager Ray Gilbert recalled, "before Clearstory, tickets were falling through the cracks because of the time it took to process them." This negatively impacted their cash flow as they were unable to bill customers for completed extra work until the CORs were approved. “Now, Clearstory allows us to get our change orders processed and billed the same month the work is performed.”

Better trade relationships

Not every benefit of a new solution has a clear dollar value associated with it, but one of the most important is the transparency gained by collaborating with your customers in real time. Building together requires trust and accountability, which is easier when everything is tracked in one place and automatically kept up-to-date. Contractors using Clearstory strengthen relationships with their best customers for better project outcomes and fewer disputes at the end of projects. Accurate Firestop’s Gabrielle Lucatero states, “I’m seeing a lot fewer comments and revisions in our change orders, which makes them easier for GCs to approve.” Because of Clearstory, Accurate Firestop is seeing a 30% reduction in days aging.

“I’m seeing a lot fewer comments and revisions in our change orders, which makes them easier for GCs to approve.”

Gabrielle-Lucatero_Accurate-Firestop

Gabrielle Lucatero
Accurate Firestop

Ready to ditch your status quo?

It can be challenging to change the status quo and embrace new methods for an age-old process, but getting up and running with Clearstory is painless for both field and office workers. Many of America's top contractors have already improved productivity, captured additional revenue, and reduced risk by taking control of their change order process with our Change Order communication tool.

 See how much your company can save, and how quickly and easy it is to get started, by scheduling a live demo.


Cameron Page
Cameron Page

Cameron leads Clearstory as the founder and CEO. After 10 years as a Project Manager at Devcon, a leading design-build GC, he knew there should be a better way to track and communicate on Change Orders. He started Clearstory with a mission to help the entire construction industry get extra work processed and closed faster in order to reduce risk, waste less time, and strengthen relationships.

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