‘Change Orders’ is a Dirty Word
It’s common knowledge the change order process is difficult and time-consuming. When asking my dad, a project manager and estimator at Sierra Pacific Constructors, about change orders, he winces and immediately responds, “Change Orders’ is a dirty word. It’s stressful, and it’s always a battle.” A response to which anyone in construction can relate. Change Orders can be that fatal flaw in an otherwise healthy working relationship. Negotiations can turn ugly, and in an instant, a partnership between an owner and general contractor can morph into a warring faction.
So, what are best practices when negotiating change orders on multiple projects with one general contractor? Does it have to be stressful? Each project is different, with different budgets and timelines, and the relationship between you and the general contractor is the common denominator.
“Maintaining your relationship with the General Contractor is the single most important goal within a negotiation.”
Preserving the relationship you have with your general contractor is crucial. Why? A good relationship is the secret sauce to any successful project. Negotiating is easier when you’re negotiating with an extension of your team. It’s easier to achieve goals when they’re shared. And let’s face it, it’s simply easier to work with someone you like. Camaraderie and teamwork can only be cultivated in a healthy working relationship.
The Top Three Ways to Improve Change Orders Negotiations
The standard tactics of negotiating may not necessarily work when priorities shift to relationship maintenance. So let’s rethink negotiating, specifically with change orders in mind. Here are three critical steps to improve negotiations while successfully maintaining your relationship with the general contractor.
#1 Understand the Origin of the Change Order
Before picking up the phone to negotiate, it’s best to prepare. First, you need a better understanding of the change order. Ask questions. Understand the origin of the change order. Having a grasp on who the request came from and what issue the change order is working to solve will help identify the best path forward.
#2 Reference the Prime Contract
Next, look back at the prime contract. This is the first common ground between all project stakeholders. This is what everyone agreed on before the project started. Reference the change order against what was agreed upon. Does it line up with the contract? Is there room for negotiation, or is this a gray area that was not specified within the contract? Having a solid understanding of the prime contract is crucial.
#3 Leverage Industry Experience
With an understanding of the request and prime contract, begin to leverage industry experience and project data. Bring in the construction experts on your team. A construction manager or other expert can provide added value by identifying a standard and additional context for this specific request. Additionally, project data can also help provide perspective. Look back into past projects and similar requests.
The Foundation of Each Negotiation Should be Empathy
Beyond these three major points, always lead with empathy. Each party has its individual goals. As the owner, you want to get the project done on time and on budget; the general contractor, meanwhile, wants to get paid for the work provided. Acknowledging these goals will help you empathize, which is key when negotiating. Give the contractor the benefit of the doubt. Negotiate with fairness and an objective mindset. Leading with data and industry experience is ideal. Let the data negotiate for you. So how do we do this?
This overall strategy does a few things. It provides your general contractor with transparency into your rationale. Bringing the general contractor into the conversation allows them to become an active participant, making them an extension of your team. It also provides consistency. With a repeatable process in place, consistency tends to follow. If a general contractor understands your process, they can actively prepare for it before submitting change orders, streamlining the process. Ultimately, it all allows you to build trust.
“Change Orders don’t have to be a battle if you have the right process in place.”
In fact, conversations around change orders can bring project teams together and strengthen the relationship when executed correctly. Use your resources to gain an understanding of the change order and perspective of the general contractor. When negotiating, reason with them and lead with objective data. At the end of the day, preserving the relationship is crucial, and fairness should play a part in the final decision.
How Procore Helps in Change Order Negotiations
Procore gives users transparency into project data. As an owner, there are lots of opportunities to make use of the data you own inside Procore. Data can make you smarter and provide that additional context needed when negotiating. In September, three new owner’s reports were released in Procore Analytics. These new reports facilitate maintaining a holistic view of portfolio health, project planning, schedule and budget tracking, and management of your portfolio’s performance more effectively.
Pair Project Financials and Procore Analytics to understand key trends, risks, and other insights from your historical work with each contractor. Leverage the data to tell a story and point to objective analysis to support your discussions and negotiations. Let the data do the talking for you.