How to Price a Construction Change Order

A change order looks like a simple document, a description of new or modified work and a price attached to it. In practice, it is one of the most common sources of dispute on a construction project, usually because the price only accounts for the visible cost of the new work and ignores everything the change disrupts around it.

What Is a Change Order?

A change order is a formal, written amendment to an existing construction contract that modifies the scope of work, the contract price, the schedule, or some combination of the three. It can originate from an owner requesting additional work, a design change issued by the architect or engineer, or a contractor identifying an unforeseen site condition that was not part of the original scope.

Regardless of who initiates it, a change order is not valid, and should not be acted on, until it is priced, reviewed, and signed by both parties. Starting the added work before written approval is one of the single biggest sources of payment disputes in the industry.

The Four Pricing Methods

Most change orders get priced using one of four methods, and the right choice depends heavily on how well the added work can be defined before it starts.

Lump Sum

A single fixed price for the entire scope of the change, agreed to before work begins. This works well when the added scope is clearly defined and can be estimated accurately, and it gives both parties price certainty upfront.

Unit Price

Pricing based on a rate per unit of work, per square foot, per linear foot, per cubic yard, multiplied by the actual quantity once it is measured. This method suits changes where the quantity is uncertain at the time of pricing but the unit rate can be agreed on in advance.

Time and Materials (T&M)

Actual labour hours at an agreed rate, plus the actual cost of materials, typically with a markup percentage added on top. This is used when the scope cannot be well defined in advance, though it shifts more cost risk onto the owner since the final number is not known until the work is done.

Cost-Plus (Force Account)

Similar to time and materials but typically applied to larger or more complex changes, reimbursing actual documented cost plus an agreed overhead and profit percentage. This method requires careful cost tracking and documentation to avoid disputes over what counts as a reimbursable cost.

What Belongs in the Price

A change order price built only from the direct labour and materials of the new work is almost always incomplete. A defensible price accounts for several layers of cost.

Direct cost. The labour, materials, and equipment needed to perform the added work itself, the same as pricing any other piece of scope.

Overhead and profit. Job and general overhead allocated to the change, plus the contractor's standard profit margin, consistent with how the rest of the contract was priced.

Schedule impact. If the change extends the project timeline, added general conditions, site supervision, equipment rental, and overhead for the extended duration belong in the price.

Impact and inefficiency costs. A change rarely happens in isolation. It can force other trades to work out of sequence, re-mobilize after being delayed, or work in a more congested or disrupted site condition, all of which reduce productivity below what was originally planned and priced. These consequential costs are the most commonly underpriced or entirely omitted piece of a change order.

Why Markup Runs Higher on Change Orders

It is common, and generally reasonable, for a contractor to apply a higher markup percentage on change order work than on the original contract scope. Added work is typically less efficient than planned work: it was not sequenced into the original schedule, it may require remobilizing crews or equipment that had already moved on, and it carries more administrative overhead per dollar of work performed, tracking, documentation, and approval, than a large planned scope of the same value. A markup in the range of 15% to 25% on change order work is common, compared to a typical 10% to 15% on the base contract, though this varies by contract terms and jurisdiction.

The Approval Process

A defensible change order follows a consistent process. First, the change is identified and documented, ideally with photos, drawings, or a written directive showing why it is needed and that it falls outside the original scope. Second, the contractor prepares a detailed, itemized price rather than a single lump figure, showing labour, materials, equipment, overhead, and any schedule impact separately. Third, the owner or their representative reviews the pricing and either approves it, requests revisions, or disputes specific line items. Finally, both parties sign the change order before the added work begins, and the contract's total value is formally updated to reflect it.

Contracts typically specify a notice period, often 5 to 10 business days, within which a change must be reported after the triggering condition is discovered. Missing that window can jeopardize a contractor's ability to recover payment for the work at all.

Common Disputes and How to Avoid Them

A handful of recurring problems account for most change order disputes. Work performed before written approval leaves a contractor exposed if the owner later disputes the scope or the price. A lump-sum price with no itemized backup gives the owner little to evaluate and often triggers pushback purely because the number cannot be verified. Failing to notify within the contract's required window can void the right to payment even for legitimate added work. And omitting schedule and productivity impact from the price means a contractor absorbs real costs that were never actually priced into the change.

The pattern behind nearly every one of these disputes is the same: treating a change order as an informal add-on rather than a fully priced, fully documented amendment to the contract. Handled with the same discipline as the original estimate, a change order protects both the owner's budget and the contractor's margin.