Change orders and overruns

The construction estimate is written before the information exists. A franchisor producing an Item 7 table has no site, no survey, no drawings stamped for the jurisdiction that will review them, no permit comments, and nothing opened up behind a wall. It has a prototype, a set of specifications, and whatever its existing openings cost. Every other row in the table can be specified in advance. A room cannot be specified before it is chosen.

This is not a criticism of the disclosure. It is the reason the construction row behaves differently from its neighbours and the reason it should be the last figure a buyer treats as settled.

The filings admit it in the shape of their bands

Look at which rows a franchisor is willing to state as one number. Mad for Chicken’s 2024 table fixes Grand Opening Advertising at $15,000 and Insurance at $2,500. 375° Chicken ‘n Fries fixes its grand-opening row at $10,000. Great Greek fixes a Design and Project Management Fee at $10,000. Every itemised filing states its initial franchise fee as an amount. Those are costs a franchisor either sets itself or believes it can pin down.

Now the same documents on construction. Great Greek’s 2023 Leasehold Improvements run $250,000–$650,000. German Doner Kebab’s 2024 leasehold row runs $0–$250,000. Mad for Chicken’s Leasehold Improvements, Construction and/or Remodeling runs $75,000–$235,000 and 375°’s $100,000–$200,000. Shah’s single Build-Out/Construction line runs $80,000–$160,000. Döner Haus’s Construction, Remodeling, Leasehold Improvements runs $131,000–$266,000. None of those six narrows.

German Doner Kebab’s table is the most instructive because it separates what the franchisor controls from what it does not. Fit Out Materials & Installation is $175,000–$205,000 and Mechanical, Electrical and Plumbing is $150,000–$175,000 — comparatively tight bands on substantial amounts, which is what a specified package looks like. The leasehold-improvements row beside them starts at zero and reaches $250,000. The franchisor can price its own kit. It cannot price a room it has not seen, and its table says so.

Where changes actually originate

Change orders are not usually a contractor’s opportunism, and they are not usually a single event. They come from a small number of recurring structural gaps between the estimate and the built job.

Concealed conditions. Slope, slab thickness, existing drain locations, structure above the ceiling, prior tenants’ abandoned services, and grease that has migrated into a shaft. Demolition is when the scope becomes known, and by then the lease is signed and the contract is awarded.

Interpretation by the authority having jurisdiction. A change of use can reopen restrooms, accessibility, path of travel, occupancy calculations, and fire protection. A plan reviewer’s comments are not a negotiation, and the redesign they require is a cost the estimate did not include because the estimate did not know which reviewer.

Utility capacity and utility scheduling. An electrical service upgrade, a gas capacity increase, or a water and sewer connection is priced by a monopoly with its own queue. Neither the amount nor the date is in a contractor’s control.

Landlord delivery variance. The delivered-condition exhibit describes what the landlord will provide. What arrives may be late, partial, or different, and each of those becomes tenant work or tenant delay. The second-generation versus shell chapter is the survey that anticipates this, and tenant-improvement allowance is where the money for it is negotiated.

Design development. Between a schematic and a permitted set, decisions get made that a prototype budget assumed away: how the exhaust actually routes, where the make-up air comes from, how much millwork the plan needs to hold the line together.

Long-lead coordination. A discontinued model, a substitution requiring franchisor approval, or a piece of equipment that arrives with different connection requirements changes trades that have already worked.

Market movement. Labour and material pricing between the filing’s estimate and the award of a contract is time-dependent, which is one reason the cost per square foot chapter refuses to treat a divided range as a bid. Great Greek’s table is a 2023 document, four of the others are 2024, and one is 2026.

The expensive overrun is usually time

A project can finish inside its construction estimate and still break the budget, because delay costs money in rows the construction line never touched. Rent may commence on delivery or on a fixed date regardless of whether the restaurant can open. Deposits are already gone. Training travel may already be booked and pre-opening payroll already committed. Equipment deposits were paid at order.

The reserve is what absorbs it, and the reserves in these filings were not sized for it. German Doner Kebab’s Additional Funds (Approx. 3 months) is $15,000–$20,000; an extra quarter of occupancy on a delayed opening is not what that row was estimating. Shah’s is $10,000–$30,000 for three months. Great Greek’s is $35,000–$75,000 for a period its own label describes as zero to six months. The additional-funds line chapter is about what those cells are additional to; the point here is that construction delay reaches them first and reaches them before a single sale has happened.

The contract is where the exposure is priced

Item 7 will not tell you how a change order gets valued. The construction contract will, and that is where a buyer’s attention is worth more than another comparison of filings.

Read the delivery method — a stipulated sum, a guaranteed maximum price, or cost plus a fee, each of which allocates the unknown differently. Read the allowances, which are placeholders for scope not yet designed and are the most common source of an increase that is not technically a change. Read the unit prices for the work that cannot be quantified yet, so the rate is agreed before the quantity is known. Read the exclusions list, which is the contractor’s own statement of what it did not price, and treat it as the shape of the risk. Read the change-order procedure: who may authorise, at what markup, within what time, and whether a disputed item stops the work. Read the schedule, substantial completion, and whatever remedy exists for delay — and check it against rent commencement in the lease, because those two documents are usually drafted by people who never spoke to each other.

Contingency is a line the filing does not have

No Item 7 table here contains a contingency row, and this directory will not supply a percentage for one. A number invented here would be worse than no number, because it would be repeated.

Size it instead from evidence the project already has: the count and value of allowances in the contract, the length of the exclusions list, whether the delivered condition has been surveyed or only photographed, whether the jurisdiction has reviewed a set like this before, and how many long-lead items sit on the critical path. Then carry a second contingency in months rather than dollars, because a schedule contingency and a cost contingency protect against different failures and one does not cover the other.

Recent franchisees are the best available check on both. The FTC’s FDD walkthrough recommends asking them about actual total investment and time to open, and the useful version of that question is specific: what came in as a change order, what the permit review sent back, how late the landlord’s work was, and how many weeks of rent were paid before the first sale.

Carrying instability into the budget

1. Treat the construction cell as the franchisor’s estimate for a class of sites, and replace it entirely, as from Item 7 to a site budget sets out.
2. Get the delivered-condition exhibit and a field survey before the lease is signed, not before the build starts.
3. List the contract’s allowances and exclusions as budget lines with names.
4. Agree unit prices for undefined quantities in advance.
5. Hold a cost contingency sized from those lists, and a schedule contingency held in months of occupancy and payroll.
6. Model a delayed opening as a working-capital event, per working capital.
7. Keep the filing’s figure and your own beside each other on the worksheet, with the reason for the difference written out.

A construction range is the honest part of Item 7 rather than the weak part. It is the row where the franchisor declined to pretend it knew something, and the right response is to treat the width as information about the unknown rather than as a bracket the project is guaranteed to land inside.