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    Construction Change Order Phobia Increases Stress Reduces Profits

    Posted by Randal DeHart on Mon, Jun 18, 2012

    Construction Change Order Phobia

    Several Years Ago - A prospect and his office manager / bad bookkeeper / wealth prevention tool came to our office. The contractor appeared to be on the verge of a panic attack because he was experiencing serious financial trouble with his construction business and needed quick relief.

    Oddly Enough - The office manager / bad bookkeeper / wealth prevention tool was not the least bit concerned about anything.

    We Assured The Contractor - That most situations are not as good or as bad as they first appear and that once we understood the problem more than likely a solution could be found.

    He Explained His Situation - For about 90 minutes and it sounded as if he had issues related to Work-In-Progress (WIP) and Earned Value reporting.

    After Reviewing The QuickBooks Reports - We discovered a painful case of the dreaded disease I call "Change-Order-Phobia". This disease appears to be a contagion passed from contractor to contractor at "The Contractor's Round Table".

    This Group Has Several Unwritten Rules - And the one that applies here is: "Never, ever ask for help, admit being lost, confused, wrong about anything no matter what it costs you!"

    Change Order Phobia - Occurs when a contractor discovers defects in the building or structure that were not obvious during the initial walk through and are only uncovered once they are involved in the construction project. The contractor immediately takes full responsibility for the problem rather than breaking an unwritten rule of admitting they were wrong in their original estimate.

    Let The Flogging Begin - Sometimes the contractors will berate themselves for not knowing or at least suspecting the defect in advance. In a heroic attempt to keep their customer or client happy they take it upon themselves to fix the unseen and unknown condition at no additional charge.

    Guardian And Superhero - Are among the labels used to describe the over-protective personality trait of someone who assumes responsibility for someone else's problem and expects only a thank you in return. Very few super heroes appear to have any visible means of support except for a few like Superman and Batman. Contractors with this phobia who are living at least part time in a state of denial will simply believe they can make it up on the next job or work a little harder and faster and everything will somehow work out.

    Customers Are Appreciative - Toward contractors who do this at first. Something most contractors do not realize until it is too late; people will tend to become accustomed to freebies and over time those freebies become an entitlement. And when entitlements are withheld you could find yourself in a tough spot between a rock and a hard place.

    Sometimes The Cure - Is perceived to be worse than the illness. In this case the pain of change in the contractor's mind had to be exceeded by the pain of staying the same.

    He Had A Choice - Stop work immediately and negotiate some change orders on this project or finish it and most likely go bankrupt. It was estimated the cost overruns were already well over $100,000.

    The Solution We Presented - Involved using two invoicing methods, one for small projects and another one for larger projects that used QuickBooks and Excel together to report and track:

    1. Original Contract Amount

    2. Customer Job Deposits

    3. Progress Invoicing

    4. Work in progress

    5. Percentage of Completion

    6. Change Orders (not really a problem since there were none yet)

    7. Customer Payments Received

    8. Balance To Completion

    The Pay Application

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    The Incompetent Bookkeeper - Was fully awake now and made it clear in no uncertain terms that "if the owner knew how to properly bid projects and run the jobs" that QuickBooks was all they needed for any and all of the projects the company did including large residential remodel projects.

    I Waited For The Contractor - To respond to the bad bookkeeper comment: "if the owner knew how to properly bid projects and run the jobs" but he sat there and said nothing.

    Further Inquiry Seemed To Indicate - The office manager / bad bookkeeper / wealth prevention tool had been a contractor at some earlier time and failed miserably. The contractor hired him because he was a referral from someone at one of "The Contractor's Round Table" meetings.

    The Contractor - Did eventually file bankruptcy and lost everything including his home and more than I care to discuss here.

    Hopefully He Will Read - Some of what I have and contact us as we have lost contact with him. Some of the most successful contractors are the ones that have had a failure or more than one failure are the people who are oftentimes the most eager to learn and they can do extremely well the second, third or even more time around. 

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    About The Author:

    Randal DeHart, PMP, QPA The Construction Accountant Randal DeHart, PMP, QPA is the co-founder of Business Consulting And Accounting in Lynnwood Washington. He is the leading expert in outsourced construction bookkeeping and accounting services for small construction companies across the USA. He is experienced as a Contractor, Project Management Professional, Construction Accountant, Intuit ProAdvisor, QuickBooks For Contractors Expert and Xero Accounting Specialist. This combination of experience and skill sets provides a unique perspective which allows him to see the world through the eyes of a contractor, Project Manager, Accountant and construction accountant. This quadruple understanding is what sets him apart from other Intuit ProAdvisors and Xero accountants to the benefit of all of the construction contractors he serves across the USA. Visit http://www.fasteasyaccounting.com/randal-dehart/ to learn more.

    Our Co-Founder Randal DeHart - Is a Certified PMP (Project Management Professional) with several years of construction project management experience. His expertise is construction accounting systems engineering and process development. His exhaustive study of several leading experts including the work of Dr. W. Edward Deming, Michael Gerber, Walter A. Shewhart, James Lewis and dozens of others was the foundation upon which our Construction Bookkeeping System is based and continues to evolve and improve. Check out our Contractor Success Map Podcast on iTunes and Follow Randal on Google+

    Topics: Change Order Phobia

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