Q & A Episode 42 - Preconstruction Power: Preventing Chaos Before You Break Ground
Episode #42 | Q&A with Mark D. Williams | Preconstruction Power: Preventing Chaos Before You Break Ground
Change orders can make or break a build—but they don’t have to break your business. In this episode, Mark welcomes back Brad Robinson and Allyson Case Anderson to unpack the art and science of change order management, from the preconstruction stage to the final walk-through.
Listen to the full episode:
About The Curious Builder
The host of the Curious Builder Posdast is Mark D. Williams, the founder of Mark D. WIlliams Custom Homes Inc. They are an award-winning Twin Cities-based home builder, creating quality custom homes and remodels — one-of-a-kind dream homes of all styles and scopes. Whether you’re looking to reimagine your current space or start fresh with a new construction, we build homes that reflect how you live your everyday life.
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Mark D. Williams 00:00
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Allyson Case Anderson 01:08
cycle. If we're serious, we need you to be serious. And like I said, you know, if it's a voluntary change order, well, if you want it, then then allow us to do it. I mean, I
Mark D. Williams 01:18
think that's smart. One thing that we've told our clients many times, because we use builder trend as well to monitor all our change orders. Is I always say you'll never see me ever sign a change order, ever. Today, on the curious builder podcast, we had Brad and Allison on amazing builders to talk nothing but change orders. Without further ado, let's change your mind with the change order topic. Welcome to curious builder Podcast. Today is Thursday. We have a special Q and A today. It's all gonna be about all change orders. So we have Brad Robinson from Bradford custom homes down in Atlanta on, he was episode 72 if you want his full story. We also have Allison case Anderson on from integral builders in Chicago. Her episode, coincidentally, was episode 73 so we have some returning all stars shock, nothing but change orders. And I'll preface it with this ally, you had a great episode on the building code builder trends podcast maybe a month or two ago, and you're the way you handled change orders is, I mean, not surprising. You're a baller. I would love for you to succinctly say, like, how you handle it. I just thought, as three of us owners, I've I've had a lot of evolution in how I handle change orders. I have some thoughts on it of how I'd like to change the process for our clients. But why don't we start with you and just talk about how you handle change orders.
Allyson Case Anderson 02:36
I think the best way to handle change orders is by not having them. So I really think, like any project, if I in my opinion, like any project that really goes south is always a project that has a lot of change orders. If you've got a project to find you're executing that project, you get the finish line, which is unforeseen conditions throughout where it's the world against you client and not you, against you and your client for any given reason or vice versa. Let's be honest. I those are change orders are they are a fulcrum of projects going south. So for us, historically, we've always had written change orders, meaning like, we have to submit if there's a change order, we have to present the change order. We submit it. You have to review it, and then you approve it. This is also another reason projects go south, is because if people, if clients, take forever to sign that change order, now you've got project delays. And this is where all that nuance comes in where it's like, I don't want it to look like I'm punishing my clients, but I need to adhere to my contract. And now you aren't approving a change order. So now we've got, we've got compound issues that are starting to happen. I do have a provision in my contract that says that is basically, if we have to move forward for extenuating circumstances, for any reason, like with a change order that was presented, like, ultimately, like, that's a contractual approval in some ways. But we've really, really tried to, to really do more pre con, and I've pretty much stopped allowing projects to start and get shovels down until we've got nearly everything specified. I
Mark D. Williams 04:20
think that's really wise. I I think that is the answer to all of it is just, I was just having a conversation with an architect this morning for coffee, and we were just joking about the most common question is, how much does this cost? And the question is, I can't tell you the cost until I tell you what you're going to do. And I get why clients ask that question early on, but you do have to go down that pre construction route to design something you had said something on the building code that really struck with me, which was before the whole point of pre con. Make as many changes as you want. I will not charge you for any change prior to that final contract. But once we have a contract like basically, you said, get out of the way. Let me build your home or apartment or remodel or commercial building or whatever it is that you're. Doing. And I think you had a, was it a $500 minimum per change order, plus the change for two hours of time? Do I have that, right?
Allyson Case Anderson 05:06
Yeah. So I charge pre con 250 an hour, and there's no change order that takes me less than two hours, like, just to write it up, get it organized, get the pricing, talk to everybody, talk everyone off the ledge, and then get the contract, the change order out. It's, it's at least two hours. So yeah, the $500 minimum. Because for me, like business contracts are all about incentives. You can do whatever you want, but if people aren't incentivized to do what they should be doing, they're probably not going to do it. And then you end up enforcing your contract, which is, like the last thing I want to be doing. So what I'm communicating is we don't want change orders. We're not trying to increase your budget. I'm not buying a boat with your change order, and we don't want them. And so if you want a change order, it better be good. There better be a really good reason to do it. And that should keep us all on the same page. If there's really a good reason to do something, then we have no reason to fight about it. How
Mark D. Williams 06:03
do your clients react to that? Or because you spend so much time explaining it to them on the front end, that's probably the magic of this. If you explained it on the front end, it ends up being non issue on the back end.
Allyson Case Anderson 06:12
Is that true? Yeah, yeah. We want paint colors at pre con. Like my philosophy is everything that we can be in control of, we should be in control of before the project starts fighting us, because the project is enough, the project will fight you.
Mark D. Williams 06:27
Like, if you're picking teams, it's us versus the project, and and you have got the builder, the client, the interior designer, the architect, is all in one team, and the project is like the gorilla in the room. So it's four on one. Is that? Yeah? Like that?
06:39
Yeah, yeah. Yeah, Brad, how do you do it
Brad Robinson 06:43
look? We have a robust pre construction process, and we are we have the very same messaging up front is like, this is where. And we even use a graph. I got it from a business coach, and it talks about the impact of change and where you are in the project cycle. And obviously the graph skews very high towards once things are in flight. And so we try to use that in our in our conversation with these folks, so they can understand, hey, look, I'm not trying to stifle innovation up front, right if you need more time to make a decision. Want to try to give you as much time as we can. And that's why our pre construction process is also really built with we move at your pace like I'm not trying to rush people through a pre construction process, like we've got the time, unless there's some kind of economic impact that we're staring in the face of that we need to start the project sooner rather than later. We can assign a pretty decent value, or an allowance per se, which I hate using that word, because if you're paying me for pre con, like, why do we end up with an allowance? But the nature of this game is, sometimes you'll have it, but with all that being said, like, when you get yourself into the project, you are the change order process is real, and we do it just like you. Everything's written, everything's documented. We typically are going to look at this more on a actual impact, as opposed to, like, a minimum of any number. So I have our pre con, our pre con manager, but our project manager is going to look at the impact of that change order, and he's going to draft in whatever number of hours it took him to make this change. And how does that impact the rest of it? Because it's not just the cost of the thing that you're providing to them, it's Are there additional hours that your Pm is going to have to incur in order to execute this? So he's trying to grab all that information, and sometimes it's really hard to do. It's more of an estimate, even at some point, right? Like, we think it's going to take 15 hours of additional project management time, plus the cost of the materials, plus the cost of the labor, plus the cost of the impact to the original schedule, and, oh, by the way, here are those costs. And here's your new finish date, because the project managers went in and spent three hours reconfiguring the entire schedule for the rest of the project, right? Like it's a big piece of it, so it is, and it's hard, and you're trying to provide the best expectations you can. And when you throw change orders in, those expectations have to change with them. Yeah,
Allyson Case Anderson 09:13
and I think it's a domino effect that people don't understand clients. And to be honest, piss poor architects and designers like I once was on a job site meeting three, $3 million project, right? And we're all standing in there and and I was like, Guys, I really need to know what your accessories are. I need to know your towel bars. Like, I need you guys to finalize your towel bars and your toilet roll holders. And the architect, like, was very condescending. It was like, Why do you need to know our toilet roll holder, and looking at this guy, like, if you don't know, then you don't know, then, like, we are not on the same page. You want to know why? Because my client needs to be able to hang his girlfriend on the robe hook. I'm not putting a robe hook in a piece of drywall. I need it in a stud, and I shouldn't have to charge more. To put plywood against all the walls so that I can put the hooks and the accessories wherever they can go. Not that I could anyway, because we have wall hung toilets and we have wall hung vanities, and we have a sunken in tub, like I don't have that much room in your bathroom, where is your toilet roll holder going?
Mark D. Williams 10:19
This is amazing ally. This is why you should be on every podcast of all time. I actually just had a great idea off of your analogy is I have little kids, and I think they all as they come out of the bathtub, I gotta towel each one off and they got their own little thing. I If I could build a new house with my family, I would plywood the walls. It'd be hilarious video to put them all in the ropes and then hang them on the wall, hang my kids on the wall and wait till the next one is done. That would be, that would be like babies. Oh, man, this is amazing. What did the architect say when you told this to him? He
Allyson Case Anderson 10:50
just kept gaslighting me, like making it look like I was needy, or I was nervous, or I was, like, a more qualified contractor wouldn't need to know this so early in the game. And that was a reflection of a bad team. I
Mark D. Williams 11:01
think it is. We have a client right now, and I mean, there are certain personality things that people can't escape from themselves, the designers on board, the architect This is, we don't have a lot. It's mostly just re design. So it's not time architecture on this particular project. But the client is notorious for taking a long period of time, and they keep asking, Why do I have to know the date now when it's not being installed for, let's say, two months? And I've sat down with them at least several times and tried to explain this process is stressful for you. Yes or no? Yes, if you follow our guidelines of when you pick out stuff and when you select it with a designer, then we can relieve that stress, and at the end of the day, I can't make the client do it. It was one of those things. I think this is what complicates all of this, is sometimes, as business owners, we have to navigate some of the personalities, and I think that's fine. We have a process that we try to enforce, and there are consequences to it. And she was like, I just want to pick out every single knob. And I was just like, Oh no, this is not going to go well. And so we give them the schedule. You can see where this is going, so we'll see in 30 days. Last time this happened. They were short, like, 13 knobs, but the client was like, this is on me. It's my fault. And then, and they were willing to pay the consequences, and it's only happened like, twice in my 21 year career.
Allyson Case Anderson 12:09
Yeah, and you don't know, you don't know there's so many moving parts, right? Like, okay, we yeah, we need to know where your knob is going in on your mill work. We need to know exactly where it's going because the trim carpenter is installing the knob at the middle, with the cabinet makers installing the cabinet. The electrician is installing the outlet in the cabinet, and we want the cabinet to close.
Mark D. Williams 12:32
Yeah, a little detail there, back on the change orders. How so, Brad, how do you handle your change orders? So are you have in your contract? There's an hourly fee on top of whatever you're if you're doing cost plus, let's say you have your margin, and then you're saying, hey, in addition to the margin on the set goods, you're also being charged our hourly rate. To figure this out, I know that you're going to give it to them as a lump sum, but are you telling them? Are you showing them how you get there too?
Brad Robinson 12:58
Yeah, because we're billing actuals at the end of every single month for our client to review, right in a cost plus way. We do our change orders through builder trend. So we're going to plug everything into that change order, and we're going to send it to them for acceptance. It'll specify, hey, look, we're anticipating this change is going to result in a number of, maybe it's 10 additional project management hours. We try to get granular with it, if we can, and but we also put at the bottom of it, this is an estimate. This is an estimate of what it's going to cost, right? This is all we can provide at the time. Obviously, we're going to bill actuals when it comes time for the monthly billings, but they're going to sign off and accept it. Now, if we're in a lump sum contract, which we do have, we still do plenty of large scale remodels, where we will be in a lump sum environment, that change order is written to the exact amount that it will be, and then it's accepted, and then it's paid. Immediately it must be paid prior to performing. We have scenarios where we do $0 change orders in our organization, so even if we're just simply documenting a scope change that results in $0 of plus or minus. We're still having those sign because we're deviating away from the existing scope. So we do those from time to
Mark D. Williams 14:09
time. I think doing $0 change orders is something all builders should do for two reasons. One, it shows the client that you are when they look back to only see their pluses and minuses, mostly pluses. Frankly, it sometimes at the end of the project, you want to end it on a high note. And sometimes they get they look back and they think, what have you done for me lately? And I think having a fairly regular Keens of $0 change orders is helpful psychologically to realize, Oh, hey, Brad mark or Ali, they helped us out in the situation. Or they just see some zeros. So that's what. And then the second part is, time of days. A lot of times. I've had so many projects. Have one right now. We'll talk about it in just a minute, where they drag their feet, they drag their feet, they drag their feet. They actually did not approve the change order, but it delayed the project by 45 days. And now they keep saying, Why is this project taking so long? And I don't even you can guys give me your advice on how to. Handle that on a future one in terms of change order. How do you document that
Allyson Case Anderson 15:04
if we're talking about a change order for an unforeseen condition, that's critical path, right? That's inspector has come in and needs us to do something, or we uncovered something during the course of construction that needs to be remedied, and we need additional funding in order to do that thing because it's out of scope. That's something that's you guys don't really have a choice, and we need this change order approved. So I would call that critical pass. They have so many days, we try and give them as much time as we can, but let's say it's usually a week to review everything and approve it. If they don't, then I start issuing per diems, which is the daily rate that's already established in the contract. It's a calculation established in the contract. And I will start charging them per day, because money is the great communicator, right? We can use all the words we want, but the second I start charging them for DMS, it's I'm communicating something as important.
Mark D. Williams 16:02
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Allyson Case Anderson 17:01
If we're talking about an owner requested change order, a voluntary change order, it's really use it or lose it. So I'll set a deadline on the change order, and if I don't have a response from them, then I really just communicate. And usually I try and make that response on a Friday. So normally, on that Friday, I'll say I haven't received an approval on this change order, so we're assuming it's not approved, and then I will manually decline it by on Monday, like, okay, we're not doing it because, look, we're serious. We need you to be serious if, and like I said, if it's a voluntary change order, well, if you want it, then allow us to do it.
Mark D. Williams 17:40
I think that's smart. One thing that we've told our clients many times, because we use builder trend as well to monitor all our change orders is I always say, you'll never see me ever sign a change order, ever I'll communicate that with you. I like your part of deny where you could be the one that denies it so that it moves off of the calendar. Sometimes I've done it where I had my project coordinator draft like 10 change orders and just put them in there. Sometimes people say no to it, and then during the build, they get used to the flow, and they're like, You know what? Maybe this might be a good idea to say, to introduce Hey, that thing you wanted, this is how much it would cost. Would you like to upgrade to that? Do you look at it that way? Or do you ever handle a change order as like a value add, as an opportunity to sell to your client that you already have as a client?
Allyson Case Anderson 18:21
Yeah. I mean, I really, I do have clients that have done that. I would say 100% of them, those projects have gone south at some point during the project, like if people are taking things out during pre con and then adding them back in during the construction process, I tend to find that disingenuous, where it's like we all agreed we were going to do this a certain way, and now we're not doing it a certain way, and then the schedule delays and the price increases. I think the fee on the change order is the kind of ultimate way of communicating what's going on and deterring people from doing that, because it's like, okay, well, the $500 fee applies to a change order regardless of whether or not we're doing the change order. So if you want to give me 10 change orders and pay me five grand to do that, I mean, we'll do it, you know, but I'm really communicating that that I don't want to, because change orders are disruptive to your project and to your interests. Like, the most expensive way to run a project is by defining the scope through change orders.
Mark D. Williams 19:29
I think that's why I wanted to have you on Ali, because I think you have such an interesting take on it. I appreciate how black and white you are on it, and maybe I could benefit from that, I think. And a lot of hopefully, a lot of people out there reconsidering how they do change orders. I I do think you have to weigh the pros and cons of what you want to do. I think there's a lot of benefits to saying, Hey, stay within the lines, and this is where we're going to get you. You change the lines. I can no longer guarantee where you can end up. I feel like that's in a succinct way. That is, you're like a surgeon. I'm not. I don't want the patient to wake up in the middle of open. Heart surgery. You already committed to the surgery. I already talked to the medical team. We're going to do this. So don't wake up. Don't tell me what to do while I'm performing surgery. Go back to sleep. Yeah, and
Allyson Case Anderson 20:10
it's also Yeah. And I think in the in terms of a surgeon, it's I'm here to protect I'm here to protect you from yourself. I want you to have a good experience. I want you to be happy. I don't want you to be stressed. I don't want this to be chaotic for you, because they don't know what they don't know. But like you said, to their points, not that they're bad people, and they're like, oh, things are going okay, budget, we're still within budget, and things are happy, and everybody's getting along. I feel comfortable now doing what I wasn't comfortable doing before, and they consider it like maybe, in their mind, as a tribute to the team, and it's, yeah, but you're gonna decimate your team by
Mark D. Williams 20:44
doing No, I feel like there is a place for change orders. I don't to your point earlier, Ali, like every project, the project's fighting you. So if there are changers are gonna happen. I think what becomes difficult is when the client doesn't direct a change order. How do you handle that? Obviously, like soil conditions happen all the time. In new builds, we put an allowance for what's writing our contract, an act of God or something, under the soil, but it's the first thing that happens on your job. And the problem is, do you rewrite how you handle client situations for your worst experiences, or if 90% of them are great, you just keep going. And where I'm going with this is, we had a client where day one we hit bad soil. It was like 10 grand, 12 grand of bad soil. And I told the homeowner, you know what? I This stinks out of the gate. I'll tell you what. I'll help you out. I'll waive our GC fee, not our pm fees and site manager fees, but just our GC fee on just this one only man, every single change order that happened for the rest of that year and a half. Build they thought I was going to help and finance their job, and I was doing it out of kindness. I was doing it out of a way to say, hey, we're part of the team. We're trying to help you. Because nobody likes that, and they look at as like, wow. Mark is willing to help us. Anytime the things get difficult, Mark is going to be there now. They're the only client I've ever had that's ever happened to do I change my whole protocol of 21 years of building for that one person I see. I see Allie nodding, yes, you should. I see Brad being like. I've seen this before, Brad, how would you handle that?
Brad Robinson 22:12
Think my take on it is, look there. There are circumstances in which you want to try to be helpful. But I think setting that tone that early is challenging, because there are so many things that are unforeseen that you can't I think you just have to stick to it. I think you have to say, look, and then get later on down the line, if something comes up and it's really not something that you could even impact, then maybe you want to give a concession. But I probably wouldn't give a concession that early on, because we've set the table that, look, I didn't buy the land. Maybe in this case, we did all the testing that you can do in order to determine it. But there is a level of risk on both of us, like the risk that the timeline could be extended, the risk that there could be something underneath there that we just don't know, and that it's going to cost you more money, but we're going to partner through it, and we're going to power through it, and but the change is the change is the change, and it has to be that way.
Mark D. Williams 23:13
I just thought of this. And this is where I just need to be a business owner and not be a person who cares as much. And I understand from this standpoint, if my car is broken and the mechanic calls me and said, Hey, your engine's out, it's not like the mechanics can be like, I know you came in here to change your tires, but you need a new engine. Tell you what. I'll do it at half cost. That would never happen, nor would I, frankly, expect him to do that. So why in home building is it the Wild West, in terms of how people handle all this stuff? There's not like, just a status quo of, like, how are you supposed to handle all these handle all these because everyone does handle them differently. I have in my contracts for this, I think it's like a it was a remnant of my dad built 30 years ago. I have it in my in 21 years, I've never enforced it, which it begs the question, why is it in my contract? And it says it's $150 per hour for a change order for us to just do the research and figure it out. I don't charge my pm times the way you guys do, so you guys would be able to do it a little bit differently, but I've never enforced it, mainly because if someone asked me for a change order, I feel like, Hey, we're obviously marking that up. I don't need to also mark up my time to do it. And maybe I'm wrong on that, but where it's come to bite me is, recently, we're on a big remodel where it probably took us a month and a half of going back and forth on this big change order. It was a big change order. Was like residing the whole house. It was big and number of basically a new pre con. It was basically, like a whole nother design thing, this option and that option and this option and that. At the end of all of it, the client said, You know what, we're gonna wait a year and do it later, and then the next day is like, Why aren't the cider starting the next day? I was just, okay, that was rough. At that time. They were a little agitated, obviously. And we're at the end of the project settings, at the very end on this particular remodel, so it's like, I'm not going to go back to them and charge them. I just made the executive decision. I know I could have my contract said, but I hadn't done it at all for seven months. Mm. Have to do it at the end. I can't do it now. So what I'm hearing is like, do it from the beginning and be consistent all the way through there. Don't do it at all. And I chose not to do it at all because they're a good client and they're recommending us to other people. So I made a business decision outside of this one job. I don't know what's your guys' thoughts about that?
Allyson Case Anderson 25:18
I think especially on the residential side, it's such an emotional transaction for our clients, but it's a business transaction for us, and that's always the tension, right? We're having to manage that, and so we want to cradle our clients, we want to protect them, we want them, we want to be good. But I think a lot of it is counterintuitive with the clients, because consistency is kindness. That's how I see it. So I abide my contract and I charge everything I'm going to charge, because otherwise, I've found that my clients start playing the lottery and they're like, maybe Ali won't charge this time, right? If we do this, maybe she won't. And and then when I do and that like they're constantly in this thing, this struggle that they've created for themselves. And so it's better. I've found for projects, even if the clients are paying more, they know that if they ask for a change order, it's going to cost. A equals B, X equals Y, and I think the more we can do that on a project, the better it is for them, even if there's a monetary consequence to it, because you're absolutely right. If you hadn't charged anything like that through the whole project, what you would have communicated at the end it, they would have perceived that as a punishment of some kind. They would have thought you were communicating something else, which is exactly
Mark D. Williams 26:35
why I decided not to it just but so that happened the day before I listened to your episode and why we're having this one now on change orders. One thing I actually had this idea. I was curious if you think this is a decent idea. So if you had people don't like to be dinged for change orders, and unlike you, Allie, I think I'm just gonna always have change orders. And frankly, I'm okay with them. But I was wondering if, I was wondering if I could say, I'll tell you what we're going to charge you. Let's just use your analogy. It's $500 of our time per change order for us to even do the work on it, whatever. And the client said, Okay, that's fine. And I'd say during the build, you're going to have probably between 20 to 30 change orders. I'd say that's average, the first the first five or the first 10. I'm not going to charge you a fee on you can pick when you want to use them, or would do you like? That sort of hybrid approach, where you I don't want to penalize them for doing a change of something that they really like. But I know, what do you think about that
27:33
is, Brad, is that me or
Mark D. Williams 27:34
anybody? Brad? You want to chime in on that one?
Brad Robinson 27:37
Yeah. Sorry. My audio is still messing up a little bit, so I apologize for that. I mean, look, I I look at it this way. I'm hired to be a custom home builder. I am trying to deliver on the vision, and if you want to continue to innovate, it is my responsibility to help you achieve that vision. So I will help provide all the good guidance that I can throughout the course of the build, our project managers are constantly getting fed new updates on projects that are set to start, and so long as we're not putting ourselves in a situation where we can't perform future projects, I'm fine with it, and it may create a need For me to reposition a project with another PM, if it continues to go that direction, if you want to build for an extra year, who am I to say not to this is, this is what your vision is like. I'm happy to go to that length for you. I think what?
Mark D. Williams 28:33
And we'll have to wrap this up here. We'll be on the 20 minutes, and I want to respect your time in the audiences. We could go for a couple hours on this topic. I didn't really. I should have known that this was going to take a lot more. Lot longer. I should have known this is my bad. This is a change order on the podcast, for sure. I actually think it'd be interesting to develop, like, three different recipes for change orders. Go back to your past clients and say, if we built for you again, this is what we did for you. Here's two other options on change orders, like, it'd be interesting to pull our past clients and to see their thoughts on the matter. But anyway, that's for another day.
Allyson Case Anderson 29:04
Yeah, my past clients talk to me. I could do that. Yeah? Ask
Mark D. Williams 29:09
them. Thank you. Well, I'm not sure if we made the world a better place or a more confusing place with three different ways to do change orders on top of the ones that everybody but here's the deal, if you do a change order, get it documented, get it priced out, and get it approved on a fast timeline that we can, all three of us, agree on how you handle it from there, it's a little bit dealer's choice. I think you gotta stay true to your brand, and you gotta at least know what it costs you. I know a lot of people that do changers and don't realize their true cost, either on time or the actual people. So I think if you're capturing that, you're ahead of most. And we all want to build a better mouse trap, and hopefully this episode helps you a little bit. Yeah, this is great. Thanks, Mark, yep. Thanks for tuning into to Thursdays, which is really turning into ADHD Thursdays anyway. Well, thanks again for the audience for tuning in Mondays, full episodes, Thursdays, 20 minute Q and A's, unless it's today it's 30 minutes. Thanks again for tuning in to curious builder pilots. Podcast, thanks for tuning in to curious builder podcast. If you liked this episode, do us a favor. Share it with three other business owners. The best way that we can spread what we're doing is by word of mouth, and with your help, we can continue to help other curious builders expand their business. Please share it with your friends. Like and review online, and thanks again for tuning in. You.
