NAHB 2018 - · PDF fileLearn Professional CO & Allowance Policies & Procedures. ......
Transcript of NAHB 2018 - · PDF fileLearn Professional CO & Allowance Policies & Procedures. ......
Making Money $$$ With Change Orders & Allowances 2018 ©
Dennis A. DixonJanuary 9, 2018 Room West 304-A
(11:00 am to 12:00 pm
NAHB 2018 – Orlando FL
The material in this education session has not been reviewed, approved, or endorsed by the National Association of Home Builders (NAHB). The topics discussed and the materials provided herein are for informational purposes only, are not intended to be an exhaustive presentation of information on a particular subject, and should not be treated as such. The speaker or speakers are not acting on behalf of or at the direction of NAHB.
NAHB specifically disclaims any liability, loss or risk, personal or otherwise, which may be incurred as a consequence, directly or indirectly, in the use or application of any of the materials presented in this or any other education session presented as part of the International Builders Show®.
NAHB Disclosure
Continuing Education CreditsInforma Exhibitions is a registered and/or recognized education provider with TheAmerican Institute of Architects Continuing Education Systems, Mason ContractorsAssociation of America (MCAA) and the American Concrete Institute (ACI). Attendeescan earn credit on completion of this program provided you sign in with appropriatelicense and/or member number on forms provided at the seminar room check-in tables.Electronic Certificates of Completion for all attendees will be available 7-8 weeks postshow.
This program has been approved for continuing professional education. As such, it doesnot include content that may be deemed or construed to be an approval orendorsement of any material of construction or any method or manner of handling,using or distributing or dealing in any material or product by the AIA/CES, MCAA orACI/TCA.
Questions related to specific materials, methods and services will be addressed at the conclusion of this presentation.
• 1. Learn How To Price Out, Profit, Schedule & Boost Efficiencies
with Change Orders & Allowances.
• 2. Learn How To Profit From & Detail “Calculated Allowances”.
• 3. Learn Professional CO & Allowance Policies & Procedures.
• 4. Review, Learn & Witness 10 EXAMPLES of CO’s & Allowances.
Session Learning Outcomes
Copyright Materials
This presentation is protected by US and International copyright laws. Reproduction, distribution, display and use of the presentation without permission of the speaker is prohibited.
© Dixon Ventures, Inc., 2018
Educational Use Only: Not For Resale or Rebroadcast
Dennis A. Dixon3111 N. Caden Court, Suite 205, Flagstaff, AZ 86004
(928) 699-1070
Email: [email protected]
Website: www.DadtheBuilder.com
Twitter: @DixVen
Speaker Contact Information
… Dixon Has Been Building & Remodeling Since 1984
Unlocking Your Profit Potential Is Linked To…Knowing What Your Clients Expect
Defining What They’re Getting… & NOT Getting
Having Paperwork That Defines The Work, Details,Products, Procedures, 99% of Questions
or Inquiries That Will Come Up = CONTRACT
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Management of CO’s & Allowances BaresFruit …PROFITS
Change Orders Are VALID When Written, Dated & Signed
Contract Boilerplate: Policies & Standards1. Date of Contract 2. Project Start Date
3. Name of Contractor 4. Name of Land Owner (TITLE)
5. Architect or Designer 6. Other Professionals
7. Project Address (Legal & Assessor)
8. Project Address (Street & Subxn)
9. Plans' Description (Date & Blueprint Pages)
10. Scope of Work
11. Contract Price
12. Administration Expense (Add’l)
13. Allowance Procedures & Conditions
14. Assignment of the Contract
15. Building Permit
16. Change Order Policies & Procedures
17. Client (Owner) Duties & Responsibilities
18. Completion Date & Definitions
19. Conditions Needed To Begin Project
20. Contract Addenda (A, D, S & O)
21. Contractor Duties & Responsibilities
22. Dispute Resolution (LEGAL)
23. Financing Information
24. Inspections
25. Insurances
26. Intended Use of the Project
27. Lien Waiver Procedures & Limitations
28. Lot Condition & Disclaimer
29. Lot Title, Plot Map, Description & Zoning
30. Notices, Communications & E-mail
31. Payment Conditions (Draws)
32. Plan Problems & Resolution
33. Pre-Existing Conditions
34. Project Completion Procedures
35. Punch List Policies & Procedures
36. Representative – Contractor
37. Representative – Owner
38. RFI’s: Requests For Information
39. Specifications & Details
40. Sales Tax
41. Subdivision Administration & Procedures
42. Submittals & Samples
43. Supervision & Management
44. Termination of Contract
45. Warranties (Implied & Written)
46. Work By Others or Owner
47. Work Hours, Weather Issues & Holidays
48. Work Stoppage
49. Zoning, Subdivision & Govt Compliances12
Purpose of a Construction Contract1. Clarifies the Work to be done.
2. Identifies the Contract Parties (Business Legalities).
3. Answers Any & All Ambiguities.
4. Source to Clarify All Agreements & Future Questions.
5. Clarification Tool for Any (Gray Matter) Disagreements.
6. Helpful in resolving CONFLICT!Copyright Dixon 2018 13
How Much Are You Worth?Theory Income = $160,000 / Year
256 Working Days / Yr. $160,000 / 256 days = $625 / Day
2,304 Work Hrs. / Yr. @ 9 hrs. per day $160,000 / 2,304 hrs. = $70 / Hr.
# Projects / Yr.$160,000 / 4 New Homes = $40,000 per Home
# Remodels / Yr.$160,000 / 10 Remodels = $16,000 per Remodel
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Calculating Office OVH Costs: Change Orders
Office Equipment: $600. per yearOffice Insurance: $1,500.Liability Insurance: $5,000.Office Labor: $28,000.Office Labor Benefits: $2,500.Office Lease: $13,800. No Owner Salary Listed as OVHOffice Misc. $700.Office Supplies: $1,500.Office Telephones (all): $3,600.Office Utilities: $950.Office Vehicles: $12,600.Work Comp Costs: $4,800.Cash Costs to Operate the Office Per Year = $75,550$75,550 Per Year / 256 Work Days Per Year = $295 Per Day$295 Per Day / 8 Work Hours Per Day = $37 Per Hour
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Change Order Costs Field SupervisionSupt. Salary: $65,000. per yearSupt. Labor Overhead: $9,912.Cell Phone Expense: $1,200.Vehicle Expense: $5,000.
Cash Costs To Maintain Site Management Per Year: $81,112
$81,112 Per Year / 256 Work Days Per Year = $317 Per Day
$317 Per Day / 9 Work Hrs. Per Day = $35 Per HourOr
$317 Per Day / 8 Work Hrs. Per Day = $40 Per Hour
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Admin Costs of Generating, Administering & ManagingChange Orders & Allowances
Client call Monday morning: 20 mins.GC call to Supt. On-Site: 15 mins.Supt. calls back about delay: 15 mins.GC calls 3 Subs to postpone work: 25 minOffice Time to clarify RO’s, costs: 2 hrs.Office Time to Process CO: 1 hr.Client signs, pays, filing: 1 hr.
Total Time: 5.25 hrs. + Job Work How Much Has This Already Cost Your Co.?
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Office Overhead Costs For a Change Order?
Your Office Time: 3 hrs.Your Field Supt. Time: 2.5 hrs.Contractor Time: 1.25 hrs. What do you charge just to break-even?
Office Time @ $37 x 3 hrs. = $111Supt. Time @ $30 x 2.5 hrs. = $75Your Time @ $125 x 1.25 hrs. = $157
Total Break-Even Expense: $343 (No Job Work!)
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Contract Sections, Subjects, Paragraphs & Wording
13. Allowance Policies & Procedures
16. Change Order Policies & Procedures
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Change Orders & Allowances are KEYED to theCaliber of the Plans & Specifications (Facts & Figures)
What is an Allowance? An Assigned “Credit” Amount Listed For a Future Job Purchase.
What Is a Change Order?
“Documentation to adjust, change, clarify, modify, solve, re-design and / ordefine any Project Contract Detail to keep a construction job moving forward to completion”.
Proper Use of the Change Order?
“To document any alteration to the Contract, Plans or Specifications”.
Suggested Uses of Change Orders
“As a Management Tool to document ALL Project communications & directives”.
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How Should Builders & Remodelers View CO’s & Allowances?
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13. Allowance Policies & Procedures (Contract Wording)A. Allowance amounts were pre-determined based upon Owner directives, tastes and selections prior to start of the Project.
B. Contractor will encourage owners to finalize all decisions prior to commencement of Work, but will allow 5 Allowances.
C. “Calculated” Allowances details, circumstances and formulas are noted in the Specifications.
D. Allowance Selections are to be purchased through, and installed by, Contractor and / or approved vendors / subs / suppliers only.
E. No Owner supplied materials or labor are allowed.
F. Warranty may vary with Allowance Selections.
G. Contractor will charge a 28% administrative fee on any and all allowance overages.
H. Allowance Credits will be calculated as a direct, simple arithmetic CREDIT:Example – Allowance = $1,000 (Door Hardware) less $850 (Hardware + Install Labor) = $150 CREDIT.
I. Allowance CREDITS will be applied to the Final Payment.Copyright Dixon 2018 23
Use “Calculated” AllowancesAllowance Amount is Based on Fact
Client Understands the Logic
Eliminates 3rd Party Guesswork!
Minimal …or No Arguing Over Allowance $$ Amounts
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Calculated Allowance Example 1
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12. Floor Coverings: $13,396.50
Carpet specified as a cost standard is American Carpet Co. “Stellar Galaxy”, Grade II, installed over a 9/16” rebond foam pad, 0.43 density. Supplied and installed by Bing Brothers Carpet Co.
Carpeted Areas: Great Room, Family Room, All Bedrooms, Closets, Powder Bath, Bath 3, Basement Area. Quantity: 390 Sq Yds. (per Allowance).
Carpet Allowance Calculation:3219 Sq Ft Carpet Area x 9% Waste / 9 Sq Ft per Sq Yard = 389.8 Sq Yards Carpet390 Sq Yards x $34.35 per Yard Carpet = $13,396.50
- Price includes install, edging, freight & tax.- Carpet Selection must be completed and submitted to Contractor by 8-30-2018.- Note: Some selections could take 10+ weeks to arrive at the jobsite. - Client may pick a Berber or Plush.
Calculated Allowance Example 210. Electrical Fixtures: $6,210. Allowance- Dining Fixture: $1,500.- Breakfast Nook Fixture: $300. Under Cabinet Lighting: $200.- Entry Fixtures (4): $500. Interior Recessed Cans (33): $660- Powder Vanity Lights (2): $750. Other Bath Fixtures (8): $800.- Ceiling Fans (5): $1,000. Exterior Fixtures (5): $500.- Closet Fixtures: Not part of Allowance- Landscape Lighting: Not part of Allowance
*Any other fixtures selected will be an extra cost to this Allowance Estimate: Fixtures are to beselected and provided by The Lite Co., Flagstaff, Az.
*Final Fixture Selection Pricing will include: fixture, bulbs, shipping, install & sales tax.
*This Allowance is a suggested cost guideline for the Owner. Final pricing may vary.
*Selections must be completed by 7-15-2018 and delivered to Contractor.
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Addendum A: Allowance SummarySmith Residence: Lot 57 Aspen Shadows Subdivision: 3459 Winding Path Drive, Flagstaff, Az 86004
Plans: Jamison Architects: 3-1-2018, 12 pages
CATEGORY AMOUNT DECISION DUE DATE1. Hardware-Doors: $866.00 4-25-20182. Stone Veneer: $37,233.00 5-13-20183. Elec Fixtures: $6,210.00 6-15-20184. Tile-MBR Shower: $1,200.00 7-10-20185. Carpeting: $13,396.50 8-30-2018
- Materials supplied & installed by approved vendors & subcontractors.- Decisions must be made by the due date.- Selections completed after the due date will result in a project completion delay.- Selections to be confirmed, priced and authorized with a written, signed Change Order.- Allowance amounts were calculated based upon Client Opinions at time of contract preparation.- Details/Calculations are noted in the Specifications.
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16. Change Order Procedure (Contract Wording)
A. Changes to the Work as defined in the original Contract ConstructionAgreement for the Project are additional work and will cost additional monies.
B. Change Orders have a minimum fee of $175.
C. Change Orders requested, but not carried out will be charged to the client at minimum fee, $175, plus an hourly fee ($65/hr.) to cover administration / estimation / management expenditures.
D. All Change Orders will be written up, signed and funded prior to commencement of Work.
E. Change Orders will be considered authorized when signed by the Owner Representative &Contractor Representative.
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CO Policies & Procedures (Cont’d)
F. Allowance selections, choices, directives and limitations will be documented with a Change Order.
G. A Change Order Summary with the Revised Contract Amount and Updated Completion Date will be supplied with each new change order.
H. Change Orders Unexecuted by the Cancellation Date will be considered null and void.
I. Change order work will alter the original scope of work and may also alter the warranty and liability coverages provided by the contractor. Such changes or limitations to those coverages will be noted on individual change orders.
J. Verbal discussions are unbinding.
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Sample Field CO Form(5” wide by 8.5” tall - Carbonless Paper)
Dixon Ventures, Inc.3111 N. Caden Ct. Street Flagstaff, AZ 86004
(928) 699-1070 [email protected]
Jobsite Action FormProject:_____________________________________Customer:___________________________________Work:_______________________________________Change Order:________________________________Comments:___________________________________Invoice Amount:_______________________________Signature:___________________________________
(authorization)DixVen Rep:_____________ Date/Time:___________
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This FORM Will Make You MONEY & More Efficient
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CO Example 1 “Allowance Selection” No Price ChangeABC Contracting, Inc. 32323232 Change Order Number: 11500 Johnson Ave. Subject: Carpet SelectionDallas, Texas 77093
Project: Smith Residence Location: Lot 7, Rolling Hills, Irving, TX 77092
Date Requested: 9-25-2018 Expiration Date: 9-28-2018
Details: Carpet Allowance is specified in Contract Specs as: Franklin Carpet Co., #395, Whispering Galaxy, plush carpet with a 9/16” rebond pad (density 0.43).
Quantity: 390 sq. yards.Vendor: Bingham Bros Carpet Co. (Dallas, Texas)Selection: #395 “Whispering Galaxy”. Color: Saturn Tan (plush).Carpet to be installed in all rooms as per Plans. Same areas as per Allowance.
NO PRICE CHANGE: -0- Project Completion Date: No Change
Contractor: ____________ Owner:_____________Date:_________________ Date:______________32P id (D t ) Ch k N b
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CO Example 2 “Real Change”Change Order Number: 2 Kitchen Ceiling Crown MoldingDate Requested: 11-25-2018 Expiration Date: 11-26-2018
Details: Change size of Kitchen Crown Molding @ all ceiling areas (approx. 46 lineal ft.). Profile will be Millwork Express #5996, Red Oak (clear) 6.5” width x 0.75” thickness as per sample approved and selected by Owner, on-site, 3-22-02. Sample was signed by Owner and is @ Smith’s Office.Crown will be caulked to the walls and ceilings to accommodate variations due to framing / drywall.
- Credit 3.25” Colonial Crown Mold- #5996 6.5” Oak Crown Mold + Labor to Install +Staining, Lacquering, FinishingThis Change Order Cost: $1,698.27
Sales Tax: $104.15Net CO 6 Cost: $1,802.42 Project Completion Date: Adds 5 days
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CO Example 3 “Allowance Add’l Cost”Date Requested: 8-5-2018 Expiration Date: 8-8-2018
Details: Customer finalized electrical fixture selections 8-1-2018. Selections: Fixtures are detailed in the attached list. Owner (Cheryl Jones) worked
with Mike Holson to pick and finalize fixtures.
Write-Up Option 1 Write-Up Option 2Electrical Fixture Package: $8,937.57 Elec Fixture Pack: $9,802.06Freight / Shipping: $133.21Bulbs: $731.28This Change Order: $9,802.06Allowance Credit: (8,216.00) Contractor Fees: 444.09 (28% x $1,586.06 = $444.09) Sales Tax: 138.26 Net CO #13 Cost: $2,168.41 Project Completion Date: No change.Note: Dining Fixture is special order & will take 10-12 weeks.
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CO Example 4 “Allowance Add’l Cost”Details: Customer selected appliances at A-1 Appliances, Dallas, Texas.
Compactor: Kitchen Aid 45729 with Stainless Panel.Cooktop: General Electric 4555-X Halogen, 4 burner.Disposal: Insinkerator 333 (3/4 hp).
Dishwasher: Asko 225777-B with Stainless Panel.Microwave: Maytag 229-UC (black with rotisserie).
Oven: General Electric 429-30 (black, elec, 1 oven).Refrigerator: SubZero 337 48” side by side, icemaker, stainless panels.
Washer: Maytag 123-W (white).Dryer: Maytag 123-D (white), electric.
Icemaker: NoneStructural Changes: N-gas connections and electrical hookups@ Kitchen & Laundry.This Change Order: $33,972.48
Allowance Credit: (17,358.00)Sales Tax: $741.23
Net CO #13 Cost: $17,355.71 Project Completion Date: Adds 6 days
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CO Example 5 “Documentation” Date Requested:12-15-18 Expiration Date: 12-16-18
Details: The Sanderson Project Contract has a list of Pre-Priced Options.
Option #3 was substituting Wood Carriage House Doors for all three 9x8 aluminum roll-up garage doors.
Owner has elected to keep the standard garage doors & color, effective 12-15-2019, per Bill Sanderson.
NO FEES. No price change. No Project Completion date Change.
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CO Example 6 “Project Delay”Details: Special Order MBR Spa Tub was ordered 7-12-2018; It
was to be shipped no later than 9-5-2018.
Dixon Ventures was notified yesterday that the product will not ship until Nov. 20th.
This will cause a completion delay of 3 weeks.The new completion date is: Dec 15th, 2018.OPTION: Select 1 of 3 Spa Tubs In-Stock
Change Order Cost: -0- Project Completion Date: Adds 21 days
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CO Example 7 “Credit”Change Order Number 6: Delete Warming Drawer @ KitchenDate Requested: 5-8-18 Expiration Date: 5-10-18
Details: Delete the Dacor brand, stainless warming drawer from the Kitchen Island Area. Replace with a pull out cabinet drawer that matches other cabinetry.
This Change Order CREDIT: $542.27Sales Tax CREDIT: $29.82 Net CO 10 CREDIT: $572.09 CREDIT
Project Completion Date: Adds 2 daysCredit amount will be applied to the FINAL DRAW PAYMENT
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CO Example 8 “Handyman” Time & Materials Change Order Number: 8 – Handyman Misc. Work ItemsDate Requested: 12-5-18 Expiration Date: Complete By 12-24-18
Details: Install Owners Bike Racks.Hang Mini-Blinds (7 windows) & Assemble Furniture (Desk / Buffet / Dining Table)
- Work will be invoiced @ $68 per man-hr. plus materials.- Supervision will be invoiced @ $78 per man-hr.- Change Order Fee: $175 - Administration Time: $76 / hr.
Net CO #8 Cost:__________ Project Completion Date: No change.
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CO Example 9 “Disputable” Non-Detailed SpecsBackground Note - Specs Call Out… Hardware (Baths) Satin Nickel FINISH
Change Hardware-Baths: Satin Nickel from Polished Brass
Brand? Cost? Allowance Amount?
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CO Example 9 “Disputable” Non-Detailed SpecsProject Completion Date Change: Adds 39 days (8-10 week order lead-time)Owner selected new bath hardware 3-21-2018 as detailed below:
Brand: Pioneer Forged Hardware Color: Cinnamon Rust
Towel Bars TP 472: 7 @ $235 = $1,645Towel Rings TR 482: 9 @ $137 = $1,233TP Holders TP 492: 5 @ $94 = $470Robe Hooks RH 462: 14 @ $59 = $826Installation Labor: $55 per hr. (estimated time 16 hrs. = $880)
Plus Total Cost x 1.25 & Sales Tax @ 6.8% Total CO Invoice Amount = $6,747.19
Note: The Specifications are nebulous & incomplete. Owner can rightfully argue this CO whether they changed things or not. It was never spelled out what was included.
Copyright Dixon 2018 41
CO Example 10 “Cancellation Costs” Change Order Number: 10 – MBR Fireplace Addition
Date Requested: 4-5-18 Expiration Date: 4-8-18
Details: Change Order #7 originally was to “Add a Masonry Fireplace to the NE Corner of the MBR. Client decided against pursuing this after the Change Order was prepared. Admin Costs are invoiced as detailed below.
Owner cancelled this CO: 4-8-2007Change Order Fee: $175.00Administration Time: 2.5 hrs. @ $65 / hr. = $162.50This Change Order: $337.50 + Sales Tax (N/A)
Net CO #7 Cost: $337.50 Project Completion Date: No change.
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CO Example 11 “Courtesy No Charge”
Change Order Number: 11
Date Requested: 11-29-2018 Expiration Date: 11-29-2018
Details: Add 2 Leviton “Decora” Lighted Dimmers (white) Model 5937-6 @ Dining Room. One controls the chandelier; Other controls the 3 mini cans @ the Dining Room Soffit.
This Change Order Cost: -0- (Courtesy of Contractor)Sales Tax: N/A
Net CO 14 Cost: -0- Project Completion Date: No change
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CO Example 12 “Options” Catalyze a Decision
Owner is considering Floor Covering Options for the Family Room.
Option A: Wide Plank ¾” x 18” Antique Pine Flooring= $19,340.00 + Tax (Adds 20 days)
Option B: Bruce Hardwood, 3/5/7 Antique Oak Flooring= $9,628.00 + Tax (No completion extension)
Option C: Saltillo Tile 16” x 16” (stained / whitewashed / sealed)= $12,567.00 + Tax (Adds 18 days)
Owner to finalize their selection by July 24th, 2018.
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Change Order Summary ExampleCO # Description Date Cost1 Alter Driveway 4-27-18 $125.002 Add Skylights (MBR) 5-22-18 $857.003 Add Elec. Misc. 5-29-18 $304.00 4 Carpet Selection 6-26-18 -0-5 Roof Color Selection 6-26-18 -0-6 MBR Casework 7-25-18 $2,108.427 Add MBR Fireplace VOID $345.008… 9, 10, 11, 12, etc.13 Appliance Selections 8-5-18 $6,690.9514 Add Dining Dimmers 9-8-18 $175.00
Base Contract: $598,345.00CO Adds (through 9-8-2007): $10,430.37
New Contract Amount: $608,775.37 Revised Completion Date: 10-18-2018
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ConclusionsHave a Thorough CONTRACT
Each CO is a Mini-ContractDocument Everything In Writing …Especially Client Directives
Minimize AllowancesDon’t Negotiate!
Mark-Up Changes 50-100%CO Signed & Paid BEFORE Proceeding
Specifications Are DETAILED!Spell Out Warranty Limitations
Control the Train From the Locomotive …Not the Caboose!Copyright Dixon 2018 46
Contact Information
Dennis A. Dixon
Dixon Ventures, Inc.3111 N. Caden Court, #205, Flagstaff, AZ 86004
928-699-1070 www.DadtheBuilder.com
E-mail: [email protected]
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