No purchase order, no work? 

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Should you do that change, your client wants you to do?

Anyone who has worked in construction or for a service company can tell you that at some point, the client will ask you to do work that isn’t on their purchase order. A purchase order (PO) is a legally binding document from a buyer to a seller for goods or services (when accepted by the seller). The question then becomes, should you do what the customer wants? Will the customer honour the additional charges if they aren’t listed on the PO? The PO will typically state what goods or services are to being provided, the timeline for their delivery and any additional requirements.

If the request is for a small change that you can easily accommodate without spending much money or time, then it makes sense to accept the request. In this case, you build goodwill with the customer for minimal cost. However, if the client wants a significant change that is going to impact the time or cost of the project, then you should carefully consider whether to do the change or not. If you proceed with the change without a new PO or change order (CO), the client may not pay you for your work. The customer may not be legally obligated to pay you if you do the work without proper authorization (a PO or CO).

I’ve encountered this problem many times over my career. For a small contractor or service provider, it can be confronting to tell your customer that you can’t do something. The customer might not hire you again if you don’t do what they want. If this is the case, you have to ask yourself if the risk of not getting paid for a project is more than the possible loss of future income from that customer.

One example I know of; a small construction company was working as a sub-contractor on a large project in Calgary. They were asked to do approximately $50,000 worth of work not covered by their PO. The company decided to go ahead based on the verbal assurance from the site manager. When the customer received the invoice, it was rejected by the same site manager because there wasn’t a PO or CO to cover the work. For the customer, the $50,000 was an insignificant amount compared to the total budget for the project, but for the small construction company, this was equal to their payroll for two months.  Even though this story had a happy ending with the small construction company eventually getting paid, they incurred additional costs, including legal fees and interest expense. They also lost a customer.

The bottom line is that you need to weigh the risk and rewards of doing work outside of what you and your client have agreed on in the PO.

Contact Arbutus Management Consulting to help you manage your project risks. 

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