Sometimes your client agrees with you!
Guess what? Not every one of our plays is run by the defense. Our offense also runs plays, and we’ll now see one. This particular play is run once your client agrees with your RFI that, indeed, some sort of out-of-scope work is called for. What makes this an offensive play is that the client has, in effect, handed the ball over to you, and is actually expecting that you are going to score!
How strange is that? Your clients are now expecting to give you additional money? Really? Yes they are. It may be reluctantly, because the client is surprised that the work is not a part of your contract. Or the client may also be happy about the extra work, because maybe the client wants some changes made to the work, or added to the work-something clearly outside of your scope. In any event, the client is acknowledging that you are about to go “above and beyond” the contract.
“Winning tastes good.” Jean Claude Killy
What’s the procedure? Depending upon the sophistication of your client, you might receive a formal “Change Order Request” (COR), or a “Request for Proposal” (RFP). At the other extreme, your client may just ask you something like, “What is this going to cost?” In this scenario, your client may leave everything in your hands, figuring that you are “the professional”–which, of course–you are. This is more likely on projects for homeowners, small businesses and organizations where your client will not have some kind of a “real” PM on board. However, you sometimes even get a note or a letter from a larger client asking you to submit a proposal or a COR. You just never know.
Tell ‘em how much
Which ever way you are notified, the ball is now in your court. It is up to you to provide your client with what has been requested. A practical way to deal with most of these situations is to simply prepare a proposal or quote. What’s the difference between the two? Not much, and they are often used interchangeably. If anything, the term “proposal” tends to be a bit more formal. Having said that, be aware that some agencies may send you a Request for Quote (RFQ), so I’ll leave it to you to decide if there’s much of a difference!
Personally, I like to think of a quote as a bit shorter, briefer, less formal document, but that’s just me. What I have found out over the years is that, all things being equal, clients who just want to know what something costs are sometimes stressed out when you send them a “Change Order Request”! Funny thing about names: quote or proposal seems a lot less demanding than a COR.
Be aware that some people, upon asking you to price out something, become defensive when they see your COR. You’ll get a call saying something like, “Hey, I didn’t tell you that I’d give you a change order-I just asked for a price!” That being the case, take my advice and walk down the lower-stress road. Don’t title something “COR” unless the client has specifically asked you to send a change order request. Trust me on this!
Coach’s Tip: When your client wants to know what your extra work will cost, but leaves the mechanics of it up to you, call it a quote or a proposal, and not a change order request.
Preparing a Proposal
The bad news is that there are several different ways to prepare a proposal. But that’s also good news for you. Let me explain what all is out there.
On the simple end of the extreme, your client may just ask you how much something is going to cost. After you price this out, you can simply phone the client and relay the price. Often, this is all it takes to agree on a price. Let’s say that, in this example, the client hears your price and says “okay”. Then put together a written proposal matching your verbal quote (see Appendix E for samples), listing precisely the scope of this work, and fax or e-mail it to your client. (During any negotiation phase, do not ever send anything via snail mail-use e-mail or fax only. Only send via snail mail final documents requiring wet signatures. And send those by certified mail or, better yet-overnight delivery.) Your proposal should have some kind of an acceptance line on it which your client can sign. Make it easy for the client. That’s pretty much it.
Sometimes your client may say, “Wow-that much? Can you send me a complete breakdown?” Be aware that you may be obligated to provide such a detailed breakdown. Your contract documents may state exactly that. Your docs might also tell you what your markup percentages can be. You need to know all of this before you ever offer any kind of a price to your client.
“Never, never, never give up.” Sir Winston Churchill
Most contract docs require the contractor and the client to come to terms on pricing before proceeding with the extra work. But the docs will often contain some verbiage such as, “In the event that the client and the contractor are not able to agree on a price, then the client can direct the contractor to proceed on a time-and-materials (T&M) basis.” And typically these T&M clauses limit markups to 5%, or 15%, or maybe even “reasonable”. Again, you need to know this before embarking on the original project. Those of us in the industry realize that very small jobs require much greater markups than a larger job, yet you just might find yourself restricted here to a small and “unreasonable” markup!
If I have a choice, and the scope of the extra work is crystal-clear to everyone, I’ll almost always pick a lump sum, agreed-upon price over a T&M job. For one thing, it’s a lot easier to bill for $5,000 of a lump sum item than it is to keep track of $5,000 of T&M work. Your internal billing cost to process T&M work is much, much higher than lump sum work, because you are requiring your foreman to get daily tickets signed by the client and then have them priced out by your office, which often is then required to chase down invoices from suppliers and subs . It’s an extra hassle, but sometimes you just have to do it.
Having said this, realize that one of the objectives in offering your client a lump sum price is to make it attractive enough, and well enough explained, that the price is accepted. Spend a few extra minutes now to list and fully explain everything which is included, as opposed to a few hours later to document all of your T&M costs.
“A particular shot or way of moving the ball can be a player’s personal signature, but efficiency of performance is what wins the game for the team.” Pat Riley
Here’s the Full Contact PM philosophy on the proper way to explain pricing on change orders: “Sure, Ms. Client, it’s a little more than you might have been expecting, but remember all of the things which are required and included.”
“What the customer demands is last year’s model, cheaper. To find out what the customer needs, you have to understand what the customer is doing-as well as he understands it. Then you build what he needs and you educate him to the fact that he needs it.” Nicholas Dewolf
Summary
Because of all of these considerations, here’s the way I often approach the situation of a client asking for a price:
1. Calculate your price. Use a spreadsheet, realizing that you might have to disclose this later.
2. Phone the client with the price, and ask for feedback. It’s effective to say something like, “It looks like it’s going to be about $5,000.00.” You’ll get the feedback almost instantly if you’ll just be quiet once you offer the price. Question: are they happy or upset?
3. If the client says that it sounds okay, send a formal proposal (Appendix D).
4. If the client says that the price seems high, also send a formal proposal! Client will now be able to see why the price is as high as it is.
5. Client will either sign the proposal as is, modify it, or ask you to proceed on a T&M basis.
Coach’s Tip: Some clients are just wired this way-the first thing that they do is to take exception to your price. And with some clients, it doesn’t matter whether your price is way too high or way too low-they’ll let you know that it is out of line. Take no offense. Remember-that’s just the way they are!
At the very least, you are now somewhat certain of being paid for this extra work which your client wants you to perform. And that’s probably way ahead of what you are used to.