Are You Really Making Money on Change Orders?

In Electrical Contracting Articles, Electrical Estimating Articles, ramblings by David Parden

Are you making money on change orders? Most contractors believe they are but there are statistics to prove otherwise. When you price a change order do you simply price the change like any other estimate and just add what feels like a nice fat percentage since your already working on the project?  If that is the case then there are some things you need to seriously consider!

First of all many contracts define what is acceptable overhead and profit. The contract may also say that your change order request must be accompanied by supporting documentation. That means you “have to show your math” as the teacher would say.

Second never ever start a change order without written approval of the change order request from the person who is authorized by the contract to approve it before you start! Usually that person isn’t the general contractor’s superintendent. Typically it’s the project manager only who has the authority to approve the change order. Regardless of whom it is you better know for sure because if you proceed without proper written approval you can count on settling for pennies on the dollar. Some contracts say that you have to proceed without the change order being priced in order expedite the project but that is rare!

 When pricing change order request you must be careful to capture cost that you would not typically think about such as the items listed below:

  • The job foreman being pulled off his current task to address the change. Resulting in lost productivity.
  • The project manager’s time to price the change.
  • De-mobilization of the current work in progress.
  • Mobilization for the change.
  • Additional safety meetings.
  • Clean up time.
  • Additional time required to update the as-built drawings.
  • Expedited material cost.
  • Overtime incurred.
  • Reduced productivity due to over time.
  • Scheduling conflicts.

 As you can see there are many indirect cost which can potentially go unaccounted for and your additional mark up likely isn’t sufficient to cover. Some of the above items will be hard to justify to the general contractor’s project manager and it is imperative that agreement about what is acceptable be established up front. It is up to you to sell it but all of the cost above and more not mentioned are legitimate and justifiable.

DBP Electrical Consulting does not endorse any particular software however Accubid Change Order Pro is an effective tool for helping you accurately price your change orders and capture lost revenue that is rightfully yours! Regardless of what tool you use to capture these hidden indirect cost it is imperative that you capture them and not just depend on your fatter margins that likely will not be accepted anyway!