A change order is not just a material cost difference. It is a disruption to the critical path. Many contractors lose money on change orders because they only charge for the direct material and labor of the new item, ignoring the "ripple effect" the change has on the rest of the project.
The Direct Costs vs. The Hidden Costs
If an owner decides to move a sink three feet to the left after the plumbing rough-in is complete, the plumber doesn't just charge for three feet of PVC pipe. The true estimate must include:
- Demolition & Rework: Cutting the concrete slab or tearing out the framed wall to access the pipes.
- Loss of Productivity: Stopping the crew's current momentum, moving tools, and addressing the new layout.
- Project Management Time: The hours the PM spent drawing the sketch, writing the RFI, pricing the change, and routing the submittals.
Missed: Schedule Impact & Extended General Conditions
If a major structural change order pushes the project completion date out by 14 days, the GC is forced to pay the superintendent and rent the site fence for two extra weeks. If those 'Extended General Conditions' are not billed in the change order, the GC eats the cost.
Every change order must explicitly state the number of days added to the project schedule. We then calculate the daily burn rate of the GC (superintendent salary, trailer rental, fencing, temp toilets) and add that cost to the change order.
The Cumulative Impact Claim
One change order is an annoyance. Fifty change orders fundamentally alter the nature of the contract. This is known as "Cumulative Impact" or the "Death by a Thousand Cuts." The constant stop-and-start disrupts trade flow, leading to trade stacking (too many workers in one area) and massive productivity losses. Sophisticated estimating requires tracking the volume of changes to justify a broader delay claim if necessary.
Markup vs. Margin on Change Orders
Be aware of contract stipulations regarding fee. Most AIA contracts cap subcontractor and GC markup on change orders (e.g., 10% Overhead, 5% Profit). Because the fee is capped, it is utterly critical that every single direct and indirect cost is captured in the base line items of the change order estimate before the markup is applied.