In the Tuesday morning session “Change Orders Made Simple,” speakers Greg Long, owner of Napa, Calif.-based Long Electric, and Drew DeWalt, co-founder and COO of San Francisco-headquartered Rhumbix, a workflow software company, discussed some of the negative impacts electrical contractors face with the current change order process:
- 88% of contractors wait 30-plus days for payment.
- 46% of contractors are forced to tap a credit line to float payments.
- $40 billion estimated impact on the interest for carrying forward the fees and costs of slow payments.
- 3.3% of total projects costs are finance charges and expenses from floating payments.
“We as an industry have done the change order process the same way for so long that we take for granted that’s just how it is,” said Long. “But it’s broken.”
Next, Long and DeWalt pointed out exactly why the change order process as it exists today is broken.
- Tickets must be handwritten in the field to document the work.
- Supporting narratives and descriptions must be included to explain what work took place, why it was needed, who instructed it, and what resources were involved.
- The ticket must be reviewed and verified in the field.
- The ticket must find its way from the job site to the offices of the subcontractor and contractor.
- The contractor must then confirm the work was not part of the base scope
- Genesis of the work must be understood and explained to the owner to justify added cost.
- Tickets must be priced with all the required back-up documentation provided.
- Data must be digitized, entered into logs, systems, workflows, platforms, spreadsheets, and all manner of “tools” for documenting the work.
- Eventually, the scope is captured in a change order a subcontractor can include in a payment application and receive compensation.
“The problem with this over simplistic representation of the workflow is that current practices for time & material (T&M) tracking are defined by delay, inefficiency, waste, and ultimately the opportunity for subcontractors to not be fairly compensated for work executed,” said DeWalt.
“Subcontractors hate it,” added Long, noting that the unplanned extra work impacts other activities, the bill for the work has to be floated until payment is received, the average time spent waiting for payment is 88 days, and deficient/lost documentation leads to lost revenue.
General contractors dislike the method as well because:
- There is little to no visibility into additional costs.
- It takes considerable time and effort to collect and process.
- Costs can go unchecked.
- Additional costs must be explained to the owner.
- They may mistrust subs, thinking they are trying to make money from extra work.
So how can the change order process by improved? Long and DeWalt offered several suggestions:
1. Gain trust.
- Accomplish this through sharing, being more transparent, and adopting digital technology (software, apps).
2. Get faster approval.
- Accurate documentation completed and approved sooner with T&M tracking software.
3. Receive payment faster.
- Digital field T&M tag records get into change order processing system (like Textura) faster.
Long and DeWalt concluded the session by driving home the fact that equitable and timely compensation is the key to spurring improvements industry-wide. Digitizing T&M tickets from the field using tools and recognizable interfaces related to issues, such as change orders and payment applications, will create a quick and reliable path to increased productivity and cash flow.