Change-order pricing · Contractors
Price the delta. Show the math.
Build an auditable change price from the exact scope difference, direct costs, change-specific effects, contract-authorized markup, tax treatment, and credits. The result should explain the number before anyone signs it.
The short answer
A change order prices the difference, not the entire job again.
Start from the signed baseline. Describe what is added, deleted, or revised; measure the resources caused by that difference; and preserve the calculation behind the net addition or credit.
Keep direct cost, change-specific indirect cost, overhead, profit, tax, and credits visible as separate concepts. The agreement and applicable rules decide which items and markups are permitted. A generic percentage does not.
Eight-step pricing ladder
Move from changed scope to one reconcilable total.
- 01
Freeze the original baseline
Identify the signed contract, estimate, drawing, selection, allowance, or prior change being modified. Quote the original inclusion where possible.
- 02
Write the exact delta
Separate added work, deleted work, substitutions, quantity changes, and unchanged work. State assumptions, exclusions, location, quality, and completion condition.
- 03
Build direct labor
Estimate crew classification and hours by task. State whether the rate is a direct-cost rate or an agreed billable rate that already includes burden, overhead, or profit; never layer the same cost twice.
- 04
Price materials and equipment
Show quantities, unit cost, freight, reasonable waste, returns, rental duration, owned-equipment treatment, disposal, permits, and any documented minimum charge.
- 05
Add subcontracted work
Use a current quote and identify its scope, exclusions, bond/insurance treatment if applicable, lead time, and whether any contractor markup is authorized.
- 06
Capture change-specific effects
Price added supervision, protection, engineering, mobilization, remobilization, resequencing, standby, acceleration, or delay only when caused by the change and supported by the agreement and records.
- 07
Apply markup and tax once
Use the contract-defined overhead/profit method and disclose its basis. Treat sales, use, or similar tax according to the transaction, jurisdiction, and professional advice; do not guess from a generic template.
- 08
Reconcile and approve
Subtract credits, show the net contract adjustment, revised contract total, revised payment schedule, time impact, offer expiration, and signature date before changed work begins where required.
Worked example · Fictional numbers
Show additions and credits on the same ledger.
$3,000
Labor $1,200 + materials/freight/waste $900 + equipment/disposal $200 + plumbing subcontract $500 + change-specific remobilization/supervision $200.
+$300
Example agreement allows 10% on this $3,000 basis. Confirm the actual contract basis and exclusions.
+$330
Example agreement allows 10% on the $3,300 cost-plus-overhead subtotal. This is an illustration, not a recommended percentage.
$3,630
Applicable tax is shown separately if required. This fictional calculation uses $0 rather than assuming a jurisdiction or taxable basis.
−$450
Credit for finish work no longer required after reconciling the work and costs actually avoided.
$3,180
$3,630 addition minus $450 credit. Then show the prior contract amount, prior approved changes, and new contract total.
Example only. Percentages, taxable items, cost bases, credits, rounding, and recoverable delay or overhead costs vary by agreement and law. Get project-specific accounting, tax, or legal advice when needed.
Credits and committed costs
A deletion is a reconciliation, not an automatic mirror image.
Identify work truly avoided
Credit labor, materials, equipment, and subcontract costs the contractor no longer must incur under the agreement.
Separate sunk or committed cost
Show performed work, nonreturnable orders, restocking, cancellation, design, mobilization, and other supported cost affected by the deletion.
Follow the agreed markup rule
The treatment of overhead and profit on deletions can differ by contract. Display the method rather than hiding it in a single net number.
Revise the remaining obligation
Clarify the changed finish, warranty boundary, dependencies, schedule, payment milestones, and final contract sum.
When price is unclear
Do not force certainty that the field cannot support.
Known unit, unknown count
Agree what one complete unit includes, the measurement method, estimated range, maximum quantity, and final verification.
Actual resources, complete rules
Define classifications, rates, materials, markup, equipment, minimums, travel, tax, daily records, and review.
Variable work, firm ceiling
Add a warning threshold, running balance, safe stop, and written increase process before the approved maximum is reached.
Investigate, then price
Authorize limited access or diagnosis, document findings, and issue the repair price as a separate approval.
Pricing audit
Catch the expensive errors before signature.
No reference to original scope
The customer cannot see whether the item is truly extra or already included.
Markup applied twice
A billable labor rate may already include burden, overhead, or profit. Label each basis.
Only additions are shown
Reconcile deleted or substituted work and explain supported committed costs.
Time effect is left blank
State added days, a milestone change, no change, or that time remains unresolved under a stated process.
Net change floats outside the contract
Show the revised contract total and when the change becomes billable.
One lump sum has no backup
Keep takeoffs, quotes, time assumptions, receipts, photos, and field records tied to the change ID.
Research basis
Good pricing preserves scope and cost evidence.
Federal Acquisition Regulation 43.203 illustrates why change-order accounting separates nonrecurring work, added work, and recurring labor or material cost. FAR 43.204 calls for resolving all elements of an equitable adjustment and considering segregable costs. These public-procurement rules are useful accounting principles, not residential contract law.
Caltrans force-account guidance requires daily records of labor, equipment, materials, and invoices, showing the value of contemporaneous support when final quantity or cost develops in the field. California CSLB guidance for covered home-improvement contracts says change orders should describe scope, cost added or subtracted, and effect on progress payments, and be signed before changed work. Oregon CCB's sample visibly reconciles original and revised price.
- FAR 43.2: change-order accounting and adjustments ↗
- Caltrans Construction Manual 3-9: payment records ↗
- California CSLB: Contracting for Success ↗
- Oregon CCB: sample change order ↗
Requirements vary by project, contract, jurisdiction, license, and project type. Confirm required wording, permitted charges and markups, tax, notices, timing, signatures, and recordkeeping for the job.
Change-order pricing questions
How do contractors price a change order?
Define the exact scope delta, quantify additions and deletions, account for change-specific effects, apply only authorized markup and tax treatment, and show the net change and revised contract amount.
What markup should a contractor use?
There is no universal percentage. Use the agreement and applicable rules, identify the cost basis, and prevent double counting.
Should deleted work receive a credit?
Yes. Reconcile costs actually avoided against supported work already performed or committed under the agreement.
What if the final cost is unknown?
Use unit pricing, defined T&M, a not-to-exceed ceiling, or limited diagnosis followed by a separate repair approval.
Price, then approve
Put the calculation beside the signature.
Turn a priced scope change into a clear JobSign approval with the net price, payment, schedule, exclusions, and evidence attached.
Create a change approval →