How to Price a Change Order So You Actually Get Paid for It

Most change orders do not lose money because the contractor was careless. They lose money because the price was a number said out loud on site, "call it five grand," and the real cost showed up three weeks later. A change order is a small contract amendment, and it deserves the same build-up as a small bid.

Here is a simple way to price one, with an example. The rates and percentages are made up for illustration. Use your own, and use what your contract allows.

Step 1: Price each piece of the change separately

Break the change into the same four buckets every time, so nothing gets left out.

• Labor: the hours, times your fully burdened hourly cost, not the wage the worker sees on a paycheck. Burden means payroll taxes, insurance, and the benefits you pay on top.
• Material: what you will actually buy, including waste, freight, and sales tax where it applies.
• Equipment: lifts, rentals, and tools you charge for, for the days they are actually needed.
• Subcontractors: what your subs quote you for their part of the change. Get it in writing before you send your own price.

Step 2: Add overhead and profit

Direct costs are not the price. Your office, insurance, and the cost of carrying the job all still exist while you do the extra work, and the change should earn a profit like any other work. Many contracts say how much markup is allowed on changes and on subcontractor work. Check yours, because the allowed percentage can be different for self-performed work and for subs.

Step 3: Count the time

A change can push the schedule even when the dollar amount looks small. If it adds days, or holds up the next trade, say so on the change order as a number of days, not as a note. A change order that settles the price but not the time leaves the argument about time for later.

A worked example

An owner asks for extra work during rough-in. The contractor builds it up like this.

• Labor: 30 hours at a $55 burdened rate = $1,650.00
• Material, including waste and tax = $1,240.00
• Equipment: lift for two days = $180.00
• Subcontractor: core drilling = $600.00
• Direct cost: $3,670.00
• Overhead and profit at 15 percent of direct cost = $550.50
• Change order price: $4,220.50

If the extra work also pushes the next trade back two days, that goes on the change order as two days.

Step 4: Get it approved before the work starts

The price is only half of it. The change needs a real approval from someone with the authority to give it, in writing, before the work is done. A verbal "go ahead" on site is exactly the kind of thing that gets disputed later, because each side remembers a different number.

If the owner needs the work started right away, many contracts allow a written direction to proceed while the price is settled. That is a contract question, so check yours, and write down what was agreed.

Step 5: Make the budget follow the approval

When a change is approved, the job's budget and billing should change with it. If they do not, the job is being tracked against numbers that no longer match the contract, and the extra revenue never shows up on the next pay application.

In PoPs Suite, a possible change order is logged first, with the labor, material, equipment, and subcontractor lines and the markup stacked on top, in PoPs APM. When it is approved in PoPs Project Tracker, the job's budget updates automatically, so there is no second place to re-enter it. If the job uses the Client Portal, the client can review and approve the change order there.

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Related reading: Change order, defined · RFI vs. submittal · PoPs Suite for Estimators & Subs