How to Price a Change Order: Labor, Material, Equipment, and Markup

Price a change order by building the direct cost in four categories: labor at your fully burdened rate, materials from a written quote, equipment, and subcontractor costs. Then apply your overhead and profit markup to the direct cost subtotal, using the rate your contract states if it states one. Show the math on every line and document any time extension before you submit.

Price Every Change Order the Same Way, Every Time

Inconsistent change order pricing is one of the fastest ways to erode job margin. One PM adds 15% overhead and profit. Another adds 10%. A third forgets equipment standby time entirely. By the end of a project you have left real money on the table and cannot explain the variances.

Most change order disputes do not start with a disagreement over whether the work happened. They start because the GC submitted a number without showing the math. The owner or architect pushes back, the GC scrambles to reconstruct the cost, and time turns a fair markup into a negotiated loss.

The fix is one formula, worked in the same order on every change, whether the number is $800 or $80,000. Think through every cost category, even on changes that will not use them all. Missing one on a $40,000 change order is how you leave $6,000 on the table. Build each category as its own line item so both you and the owner can see where the number came from.

Step 1: Identify the Scope Before You Price Anything

Write down exactly what changed. Reference the RFI, ASI, or owner directive that triggered the work. If it came in verbally, send a written confirmation by email before you build the number. Pricing a vague scope creates disputes at approval time.

Tie the change to the CSI MasterFormat division it affects. Concrete work is Division 03. Mechanical is Division 23. This matters for your cost code tracking and makes the backup cleaner for the architect reviewing the G702/G703.

Steps 2 Through 5: Build the Direct Cost

Step 2: Price Direct Labor at the Burdened Rate

Labor is where GCs most often under-price change orders. The mistake is pricing only the base wage. For each trade or classification, document the worker classification, the estimated hours per worker, the base wage rate from your payroll records or the applicable prevailing wage determination, and the labor burden. Burden is every dollar the employer spends per hour of work beyond the wage:

• FICA (Social Security and Medicare, currently 7.65% of gross wages up to applicable wage bases)
• Federal and state unemployment insurance (FUTA and SUTA)
• Workers compensation insurance, which varies dramatically by trade and state (15% to 35% of payroll is common in high-hazard classifications)
• General liability insurance allocated to labor
• Fringe benefits: health insurance, paid leave, retirement contributions
• Union fringes, if applicable: health and welfare, pension, annuity, training fund

Labor burden typically runs 30% to 45% of base wages depending on your state, trade classifications, and insurance rates. Use your actual burden rate, not a guess. If your foreman earns $42.00 per hour base and your burden is 38%, your fully loaded cost is $57.96 per hour. Sixteen hours of Carpenter Foreman time at $57.96 is $927.36 in direct labor cost.

Union work runs higher. On a union carpenter earning $45.00 per hour base in many metro markets, the fully burdened cost routinely runs $75 to $90 per hour once you add fringes and payroll burden. Price the change order at $45 and you are paying the owner to do his extra work. Our guide to labor burden calculation and what belongs in job cost beyond wages covers the rate itself.

Two labor items get missed. Supervisor time is a real cost: if a foreman spends two hours pricing the change, managing the crew, and coordinating material delivery, include it at the foreman's burdened rate. Many contracts allow this, so check your subcontract and prime contract language before submitting. Equipment operator time also belongs under labor. Equipment pricing in Step 4 covers the machine only.

Step 3: Price Materials

Get a written quote from your supplier or pull the price from a recent purchase order or invoice for the same material. For smaller or faster changes, use current price book rates. Do not price from memory, and document the source either way. An owner questioning a $1,800 material line will back off immediately when you attach the distributor quote.

Document the material description, quantity, unit price, and extended total. Then add the costs that are easy to forget:

• Sales tax. If it applies in your state, it adds 6% to 10%. On $20,000 of materials, that is $1,200 to $2,000. Price it in.
• Delivery and freight. A supplier delivery fee that is separate from the quote, or a driver you pay to pick up materials, is a cost of the change.
• Consumables. Wire nuts, screws, fasteners, saw blades, drill bits, tape, backing material. These rarely show up on a quote. Build in a reasonable allowance, typically 2% to 5% of direct material cost depending on trade.
• Waste and cut-off. Structural steel gets cut. Drywall gets notched. Pipe gets trimmed. A concrete pour does not use material at perfect efficiency. Apply the same waste allowance you would use in your original estimate, and price for the material you order, not just what you install.

Step 4: Price Equipment

This is the step most PMs skip or undercharge. If you mobilize a piece of equipment specifically for the change order work, price it. If existing site equipment is redirected from other productive work, price standby or idle time accordingly.

Rented equipment. Use the actual rental invoice or the local rental market rate from a yard like Sunbelt or United Rentals. Include fuel, delivery charges, and any environmental or damage waiver fees the rental company charges. A 40-ft boom lift renting for $650 per day with $120 in delivery each way adds over $1,400 to a two-day change, before fuel.

Owned equipment. Owning the equipment does not make it free. Price it at your internal ownership cost rate (depreciation, maintenance, insurance, financing) or a published reference. The AED Green Book and FHWA equipment rates are two widely accepted references, and on public work you can use the AASHTO equipment cost guide or your regional DOT schedule. A common shorthand is 75% to 80% of the local rental rate, which captures depreciation, insurance, maintenance, and capital cost without over-charging.

Small tools. Hand tools, cordless drills, levels, and similar items are typically covered as a percentage of labor instead of priced individually. A rate of 3% to 5% of direct labor cost is defensible on most jobs.

Step 5: Add Subcontractor Costs

If any of the change order scope flows to a sub, get their written price first. Do not estimate what they will charge. Once you have their number, apply your markup to it the same way you would to your own costs. Some GCs apply a lower markup to sub costs, typically 5% to 10%, because the administration burden is lighter than on self-performed work. Whatever your policy is, apply it consistently.

Step 6: Apply Overhead and Profit Markup

Markup is the last layer. Apply it to the direct cost subtotal, not to individual components. It has two parts.

Overhead and Profit Rates

Overhead covers your home office and the project management time allocated to the change. Your rate should reflect your actual G&A cost as a percentage of direct project cost. Most small-to-mid GCs run overhead between 10% and 18% of direct cost. If you do not know your exact rate, talk to your accountant or controller. Guess too low and every change order contributes less than it should toward your office, your insurance, and your staff.

Profit is your return. On change orders it is typically higher than on the base contract, and rightly so. Changes interrupt planned workflow, require expedited procurement, and often carry schedule risk. A standard range is 5% to 15% on the cost subtotal, with many GCs landing at 10% on normal changes and pushing toward 15% on complex or time-sensitive ones.

Split Rate or Blended Rate

There are two common ways to apply the markup:

• Split rate: Overhead and profit applied separately, for example 10% overhead plus 10% profit.
• Blended rate: A single markup percentage, often 15% to 20%, applied to total direct cost. Simpler to defend and calculate.

The blended approach on the foreman example from Step 2:

• Direct labor (loaded): $927.36
• Materials: $1,440.00
• Equipment: $320.00
• Subcontractor costs: $0
• Total direct cost: $2,687.36

Applying 15% to $2,687.36 gives you $403.10. The change order total is $3,090.46, rounded or kept as-is.

A larger change stacked with a split rate:

• Labor (burdened): $8,400
• Materials (with tax and freight): $6,200
• Equipment: $1,300
• Small tools (4% of labor): $336
• Direct cost subtotal: $16,236
• Overhead (12%): $1,948
• Profit (10%): $1,624
• Total change order amount: $19,808

Contract Rates and Caps

Many standard contract forms, including AIA A201, allow the contractor to state a fixed overhead and profit percentage in the contract. If your agreement specifies 15%, use 15% and document it. Do not renegotiate that rate mid-project.

Some contracts cap markup. General Services Administration (GSA) contracts, for example, often cap combined overhead and profit at 15%, and public work in many states sets similar limits. Know what your contract allows before you submit.

Step 7: Check for Schedule Impact Before Submitting

Every change order has a potential schedule impact, even if it seems minor. Before you submit the number, check whether the work adds days to a critical path activity. If it does, document the time extension request alongside the cost. Pricing the work without reserving the right to a time extension is one of the most common mistakes GCs make. A signed change order without a time extension clause can be used against you in a delay claim later.

Step 8: Assemble the Backup and Submit

A well-priced change order means nothing if the documentation does not back it up. Your package should include:

• The change order form with a brief scope description, cost, and time impact
• A line-by-line cost breakdown organized by cost category
• Labor detail: hours by worker classification, the burdened rate used, and the source of that rate
• Supplier quotes, invoices, or purchase orders for materials, with quantities and unit prices itemized
• Equipment rental quote or owned-equipment rate sheet, with the source cited
• Sub quote, if applicable
• Reference to the triggering document (RFI number, ASI number, or email directive)

Submit through whatever process your contract requires. Most AIA contracts route change orders through the architect for recommendation and then to the owner for signature. Mark the change order pending until you have a signed approval in hand, and never accept verbal approval as final authorization. Keep your log current. Our guide to tracking pending, approved, and rejected change orders in a log shows how.

Keep a copy of every submission and every response. If a change order goes unsigned and you proceed at the owner's direction, that paper trail is how you get paid when the job closes.

One Formula, Used Consistently

Pricing discipline is what separates contractors who make money on change orders from those who break even or lose. The GCs who price changes well are not doing anything exotic. They have a template, they apply it consistently, and they document the inputs. That protects margin on small changes and makes large ones much easier to defend. It also shortens the approval cycle, because architects and owners learn to trust pricing that shows up the same way every time.

Tracking change orders across projects does not have to live in spreadsheets. EZBilling ties them directly to your Schedule of Values and pay applications in the G702/G703 format so your G703 stays current without manual reconciliation.