Change orders have always been a hub of disputes and delays for subcontractors. At any given moment, subs can have hundreds of thousands of dollars in unpaid change orders hanging in the balance. Sharpening your negotiation skills can help address these tricky situations and achieve better outcomes. That’s why Billd gathered a panel of construction dispute and negotiation experts for a roundtable discussion. They gave their best advice on how subs can refine their approach to change order negotation and secure faster, fair payments.
Although changes can be requested by owners, for the purpose of this article, we’ll exclusively focus on changes that originate from the GC.
3 Change Order Negotiation Best Practices for Subcontractors:
- Adopt the “Panda” Mindset – And no, panda isn’t an acronym. One of our panelists, Shane Ray Martin, talked about the “panda” approach, here’s what he had to say: On the outside, pandas appear cute and harmless. In negotiations, it will benefit you to be externally pleasant, amiable and accommodating. This approach builds trust and strengthens your relationship with the GC. However, pandas are also said to be able to bite through steel, meaning that they’re not to be messed with. Show your GC that you have teeth. By having a friendly outer shell, but being able to be strong and formidable when you need to be, you’ll be a force in your negotiations. The main takeaway here is not to start off hardball. Start with a “good cop” demeanor, win the other party over, and escalate if you need to. When you need to get serious, Martin insists that you should be “hard on the problem, but soft on the person.” Treat the problem like the common enemy you and the GC are teaming up to solve.
- Ask No-Oriented Questions – This means asking your questions in a specific way, like “Would you be opposed to X?” or “Would you be against Y?” By framing a question around their option to say no, you can make them feel safe and in control. This is the least confrontational way to ask questions and get the info you want. Martin believes you can arrive at an agreement easier when you cultivate the impression that they’re in control.
- Hold the Line – Holding the line means that you should keep going, against all odds. Advocate for the terms you want until the last second of the negotiation. Figure out your negotiation “must-haves,” the terms you just can’t budge on. Then, decide your “nice-to-have’s,” which you can push for without fighting tooth and nail. Hold the line on your must-haves. If you have to give up one of your “nice-to-have’s,” you can use that as a bargaining chip to show that you’re a flexible partner.
Where Subcontractors Usually Slip Up in Change Order Negotiation
According to Ross Feinberg, a construction mediator of 16 years, the biggest mistakes subs make around change orders are:
- Letting the GC get away with not being extremely specific about what needs to be done – A lack of specificity leaves room for all kinds of misinterpretation. Feinberg has seen subs go overboard so many times, taking on more work than they’re contractually obligated to, in part because of a lack of specificity.
- Agreeing to change orders over phone, email, text or even written on a stray piece of paper – Don’t accept anything less than a formal, contractually binding change order agreement, no matter how much you’re pressured to adopt an informal procedure. Feinberg has seen plenty of subs get stiffed for lack of an enforceable change order document.
- Accepting change orders that aren’t signed by the same parties as the original contract – The enforceability of a change order will hinge on having the right person’s name on the signature line. Don’t accept just anyone’s.
You want to seem agreeable to the GC, but if you’re so agreeable that you waive your own rights, you’re not protecting your best interest as a sub. Andee Hidalgo, owner of Spearhead Construction, says that like most subs she always tries to give GCs a bit of latitude in the field, doing favors if it seems appropriate and builds their relationship. However, she acknowledges that this can get sticky, and GCs will often cross boundaries. So she asked our panelists how to toe the line between being agreeable and asserting boundaries.
Preparing for Your Change Order Negotiation
To have the balanced negotiation outcome you’re looking for, you have to have a good input. In other words, the more work you put in upfront, the more the outcome will be swayed in your favor.
Come with Specific Goals in Mind – It pays to have a specific outcome in mind when you approach a change order negotiation with the GC. If you’re willing to do the change order but only for a specific price, set that price ahead of time and discuss what terms to include with your team.
Keep Their Goals in Mind – Before they even have a chance to communicate their goals or preferences to you, think through what you expect the GC will want and what you’re willing to give them. Keep in mind that there may be aspects of their situation, or things that are forcing their hand, that you may not be aware of. Always be empathetic to their situation, the same way you want them to be empathetic to yours.
Write Out How You Will Decline Certain Requests, If Necessary – Saying no to something your customer wants can be awkward and uncomfortable, so it pays to articulate your refusal ahead of time to ensure that it’s both firm and tactful. This way, you don’t have to think about how to word it on the spot during an in-person meeting. This is particularly important if you already know they will come at you with requests you’re not willing to do.
Feinberg suggests the “3 to 1 rule,” which says you should spend 3 times the amount of time preparing for the negotiation as you spend in the actual conversation.
6 Things to Keep in Mind As Your Negotiate
Taoufik Lachheb, our third panelist and construction consultant, had an additional set of tips for subs to consider.
- Don’t Oversimplify Your “Opponent” – Subs often oversimplify the GC perspective, assuming GCs only want to cut costs, but that’s not true. There are other considerations and nuances that the sub should seek to understand as they evaluate the GC perspective.
- Use Your Value and the Difficulty of Their Request as a Bargaining Chip – Although you should 100% refer to the contract when confronted with a dicey change order, Lachheb wants subs to also support their argument/cost quote with qualitative factors, like:
- How good you are at what you do
- The time impact of the change order request
- The cost impact of the change order request
Remember, it is incredibly costly for the GC to go out and find another sub to do change order work. You do have leverage, and you were hired for a reason.
- Leave Emotions at the Door – Don’t become heated, openly overwhelmed, or let your emotions get the better of you. It just makes you look unprepared, and like your underlying rationale isn’t strong enough. Listen and ask questions to the GC. Aim to understand their perspective inside and out. The more data you have, the more you can remove emotions from the equation.
- Arm Yourself with Solutions to Their Problems – Come prepared to any change order negotiation with information and solutions that resolve the problems the GC is facing.
- Bring in Decision Makers – Do your best to find out who the key decision makers are, and if the decision maker is not part of the conversation, try to fix that.
- Don’t Clean Up Someone Else’s Mess – Remember, you don’t have to take on a change order to fix another trade’s mistake. There are limits to agreeability, and you should feel comfortable asserting those boundaries with the GC.
The tactics above can serve as a jumping off point for you and your team as you work to build an approach that works for your business and trade. Ultimately, a well-thought-out negotiation approach will be your best asset in securing fast, fair change order payments.