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Change Orders Are Killing Your Business

The Only Constant In Life

Change is a part of life. Our ability to overcome the unknown and adapt to new circumstances is hardwired into our brain chemistry and physiology. Homeostasis is our bodies' way of making sure we adapt to new stresses in a way that eventually feels normal again.

Even though change is usually uncomfortable (and often painful), we know that it is good for us. We understand that getting out of our comfort zone leads to growth, and growth is often what makes life worth living. We love stories about characters who overcome adversity or even seem to thrive under pressure and chaos.

The Only Constant In Business

Business is no different, of course. Visionary companies are known to adapt readily and thrive in changing circumstances—sometimes, they're the ones who disrupt the status quo in the first place! 

But when it comes to your business's day-to-day operations, changes that affect project quality, scope, costs, timelines, and/or delivery require your attention.

Many businesses—especially in engineering, design, and construction industries—turn to the change order.

The Change Order Conundrum

In its most basic form, a change order is when a business asks for more money for their service because the scope or expectations of the purchaser changed. This presents itself in a variety of ways, but here are some that I've seen:

- The customer keeps asking for more (scope creep)

- The customer didn't know enough about the project to ask for what they needed (changing deliverables)

- The customer needs the project delivered yesterday (expedited timelines)

While all of these situations are valid times to ask for more money, successful businesses handle this communication with grace and sensitivity to the needs of the customer. 

If you eat all the costs of these changes, you'll either go out of business or have to fire lots of customers. If you ask for more money every single time change occurs, you'll lose every customer you work with—for the short period of time before your reputation for "nickel and diming" customers gains momentum.

The Bad Kind Of Change Orders

There's another category of change order that is prevalent in our industry. This type often results from poor decisions made during the bid process. If the list above can be considered "good" (it can't), this next type is extremely bad:

- The contractor didn't understand the type of work they were bidding on (being ignorant)

- The contractor bid at a price they couldn't honor because they knew the customer would rather pay more money than re-bid the project (manipulation)

- The contractor took advantage of the customer's inexperience by interpreting scope documents literally (exploiting ignorance)

- The contractor's pricing didn't give them any margin to adapt to new information (delusional optimism)

These change orders are extremely damaging, and they happen all the time. I've never met someone in our industry who has never come across them. 

I think change orders are bad for everyone.

Why Change Orders Are Killing Your Business

(1) They're stealing from the future. 

Change is constant. When bidders sit on known change instead of communicating it or building it into their proposal, they're stealing (from THEMSELVES) the opportunity to call in a favor that they might desperately need down the road. While sitting on information instead of revealing it can be a strategic advantage, they must weigh it against the cost of that future flexibility they're sacrificing.

(2) They're a reputation destroyer. 

In our industry, reputation and referrals are primary drivers for new opportunities and business growth. In business models where customers are often also contractors, change orders are tanking multiple businesses' reputations simultaneously. I've seen many situations where payment terms and change orders at the top of a prime contractor/subcontractor food chain result in the death of small companies down the line.

(3) They're bad for the people being served. 

In telecommunications and power delivery, change orders represent new costs that are typically absorbed by the end consumer. 

It's easy to forget why we do the work we do. At Katapult, we think about our work as meaningful because it brings reliable utilities to real people in communities across the country.
Change orders are problematic because they result in less reliability, higher costs, and delayed access to utilities for the people we serve.
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