How to price a construction change order

Start with the original contract

Before calculating a price, check how the signed agreement handles changes. It may define permitted markup, labor rates, payment timing, documentation, or approval requirements. Use that method when it applies and make the calculation easy for the customer to follow.

Build the price in seven parts

1. Labor. Include field hours, supervision, preparation, cleanup, and any return trip created by the change. Use your real billable labor rate rather than wage alone.
2. Materials. Include purchase price, delivery, waste, small consumables, and reasonable price changes. List credits for material removed from the original scope.
3. Equipment and subcontractors. Add rentals, disposal, permits, specialty trades, and other direct outside costs connected to the change.
4. Disruption. Account for remobilization, schedule changes, restocking, expedited delivery, or work that must be reopened and completed again.
5. Overhead. Recover the office, insurance, vehicle, software, and operating expenses required to deliver the additional work.
6. Profit or markup. Apply the pricing method allowed by the agreement and used by your business. Remember that margin and markup are different calculations.
7. Tax. Apply sales tax only where it is required and to the taxable portion of the work. Requirements vary by location and type of work.

A simple pricing example

From there, apply the overhead and profit method permitted by the contract, subtract any credits, and calculate applicable tax. Show enough detail that the customer can understand what changed.

Do not forget negative change orders

If work or material is removed from the original scope, document the credit with the same care as an added charge. State what is being removed, the value of the credit, and whether the change affects other work. A signed credit change order keeps the contract total accurate.

Pricing checklist before you send

• The added and removed scope is specific
• Labor includes preparation, supervision, and cleanup
• Materials include delivery, waste, and credits
• Equipment, permits, disposal, and subcontractors are included
• Overhead and profit follow the original agreement
• Tax is shown separately when applicable
• The final total matches every line item