Our latest product update gives you a faster and easier way to work with change-order requests. You can create them in ProNovos Operations Manager, include cost line item breakdowns, apply the appropriate markup, and email them directly to the client.
But before we describe our new Change Order Request Module in greater detail, let’s take a step back and look at four risk areas associated with inefficient approaches to this process.
Incremental losses add up quickly on construction projects. But not all field personnel are attuned to this reality. The tendency of some tradespeople to perform extra work, often as a favor to someone else, without ever submitting a change-order request is a particular area of concern. Best known as “scope creep,” this could also be thought of as the “Sure, I can do that for you” phenomenon.
Performing work before receiving the approved change order is another area of potential risk. Understandably, nobody wants to feel that their yet-to-be-completed task is stalling the project. Under these circumstances, field personnel may just knock out the work, assuming the change order will get approved. But change orders are legally binding, contractual documents. Do the work before receiving the approval and, technically, the client is not obligated to pay for it. This can be a big problem if any kind of dispute emerges over the prematurely completed work, such as a disagreement over the labor and materials costs.
How contractors approach CO requests can also affect one of the most critical KPIs of all —profit margins. Seeking to limit risk, clients impose contractual limits on the percentage of markup that contractors can charge when performing change-order work. On a job bid at a 20 percent markup, the contractual profit limit for COs could be something like 15 percent. In that situation, the more change-order work the contractor performs, the greater the profit erosion.
The last risk area centers on a basic, but important, question: How long do your CO requests sit before being approved? A sluggish process can increase the risk that tradespeople, frustrated with the delays, will jump the gun and do the work anyway. And of course, an overly protracted approvals process can lead to costly delays.
Our new CO Request Module encourages field personnel to submit CO requests now as opposed to saying to themselves, “I’ll handle that later.” It also functions as a communications tool that speeds up the approvals process, which can reduce the chances of field personnel jumping the gun on CO work.
To file a change order request, users call up the module, select the project and then use settings menus to set labor rates for the superintendent, foremen, journeymen, apprentices or additional role-players.
The next step is to input the profit and overhead percentages for self-performed and/or subcontracted work.
You can assign profit percentages to materials, labor and equipment and input the tax and bond rates—settings that will be applied elsewhere throughout the module.
After you name the change-order request—for example, Bulletin No. 57—it will be stored in the system along with all subsequent revisions.
The additional schedule field tracks the potential effects of CO requests on the overall schedule. People often focus on dollar amounts in discussions about COs, but their timing impacts are critical, too.
Further down in the report, the line-item field is the place for breakdowns of more granular details. Here you can input the hours required for the CO request based on different labor roles. ProNovos will use the already established settings for the CO request to calculate the labor rate, bond rate, subtotal cost and profit and overhead to give the subtotal contract amount.
The materials section of this page allows users to describe materials needed for the CO, along with quantities and costs. Again, the system calculates totals automatically. Users can even attach vendor quotes with the click of a button. They can add other details related to equipment and subcontractors in the line-item section as well. Clicking a plus sign allows you to add other line items as needed.
Total cost and profit are easy to see within the CO request.
The final section of the report—comments and qualifications—is the place for any contractual language that needs to be inserted as part of the request. For example, “Both parties agree that ACME Contracting will move the toilet and is not responsible for the seal between the toilet and the tile.”
Once the CO request is finished, users can click a button to email it to the client or GC. The system will log the CO request and track its status. If requests are rejected, any subsequent revisions and their impacts will be stored as well.
When our CO Request Module ties into our Issue Tracking module (a planned update), field personnel will be able to use ProNovos to notify the PM of an issue, at which point the PM can then authorize the submission of a formal CO request, all within ProNovos.
We’re also working on an analytics dashboard geared specifically toward identifying company and project trends on CO requests. It will function much like our analytics dashboard for approved change orders.
The goal is to give immediate insights into how the CO process impacts financials. Analytics also allows contractors to track the aging of CO requests and follow up to keep them from getting too stale. (Once CO requests reach a certain vintage, so to speak, they are unlikely to ever be approved.)
Getting more efficient with this basic process may not be on every contractor’s radar screen, but at ProNovos, we wholeheartedly agree with the view of Ken Hedlund (CPA, CGMA), Principal of Somerset CPAs and Advisors and head of the Top 100 CPA firm’s dedicated Construction practice: “Our view is that no matter how good you are right now, you can always get better.”
