Chapter 31 — Key Takeaways

Change Order Management: Identifying, Pricing, Negotiating, and Documenting Changes

One page. Self-contained. Come back to it the afternoon somebody tells you to go ahead and build it.

Key Takeaways

• The price of a change is set by what you can document, not by what it cost you. On CO #14, Kestrel spent $186,400, proved $121,000, settled at $142,750, and ate $43,650 — because of four days in August when eleven people built exactly the right thing and nobody wrote it down.
• The cost of a change is rarely the cost of the work. Impact, disruption, resequencing, remobilization, and lost productivity routinely exceed the direct cost. A contractor who prices only the visible work has donated the rest — and an owner billed for unsubstantiated "impact" has been overcharged. The discipline is proving it either way.
• A change order is a settlement, not an invoice. In most standard forms an executed change order closes scope, cost, and time for that change. "We'll sign the cost now and deal with time later" gave away seven days on Northgate: 7 × $5,150 = $36,050.
• A change order that adds time without addressing extended general conditions has given away $5,150 per calendar day. General conditions are a rate, not a quantity — your trailer, staff, temporary power, and cleanup bill whether anything gets built or not.
• Cost and time run on different clocks, and the time clock is usually shorter. Northgate: 14 days for cost, 7 days for time. Kestrel met the first and never sent the second. That single omission cost $25,750 — more than the four days of missing tickets.
• The contract sets the markup percentages. The negotiation is about the base, not the rate. Northgate: 15% self-perform · 15%/5% first tier · 15%/5%/5% second tier · 1.35% bond and insurance · credits at direct cost + 10%. Find yours in Division 01 before you price your first change. Caps, notice periods, and impact recovery vary by contract and jurisdiction and change over time.
• You do not credit what you already built. Deleting a framed, boarded, painted room does not un-build it. Removing it is a cost. Only unperformed scope generates a credit.
• Float belongs to the project, not to you. Nine days of added duration against six days of float is a three-day request. Claiming nine destroys the other lines.
• There are exactly two ways to prove impact: a measured mile, and discrete cost tracking. Discrete tracking wins whenever it is available, because there is nothing to model. Published inefficiency tables are negotiating references, never measurements — they describe conditions in general and do not measure yours.
• Give back the piece that is yours. Kestrel handed back 190 of 1,332 lost man-hours because Kestrel caused them. That concession is what made the other 910 believable and is the cheapest credibility you will ever buy.
• Unapproved changes are a cash-flow problem before they are a profit problem. You generally cannot bill unexecuted change work, so you are financing your owner's decision speed out of your own working capital. Northgate's average $310,000 pending balance cost $43,245 in money nobody ever wrote down.
• Markup and margin are different amounts. "$84,000 plus 15%" is `$96,600, not$98,824`. The second is a 15% margin — a 17.65% markup — and it will be handed to you sincerely.
• Bill the bond and insurance. 1.35% of Northgate's $2,094,200 of changes is $28,272, and most contractors forget it exists.
• The goal is not zero changes. A job with zero changes usually means over-designed documents, an owner with no evolving requirements, or — most commonly — a contractor absorbing scope silently. The goal is that every change is identified the day it appears, priced honestly, decided quickly, and closed in under 50 days.

Action Items

This week, on whatever job you are on:

1. Find your extended-general-conditions daily rate. Divide your general-conditions budget by your contract calendar days. Say the number out loud. Then find out whether your contract stipulates a rate — and whether it is the honest one or a number somebody shaved on bid day.
2. Print your two notice periods on a card — cost and time, separately — and tape it inside the front cover of your project notebook. Add the required addressee and delivery method from the notice clause.
3. Open your change log and add two columns if they are not there: date identified and date notice given, adjacent, so the gap is visible; and days claimed next to days granted.
4. Run the aging report from COR submittal. Count the 61-plus row. If it has anything in it, that is your Monday.
5. Confirm your pending-change exposure appears in three places — the cost report as a distinct line, the cost-to-complete forecast, and the cash-flow projection. If it appears in none, you have a phantom overrun waiting for you.
6. Read your Division 01 change-order article and your general conditions changes article, with a pen. Write down the markup percentages, the credit rule, the notice periods, the required backup format, and whether the documents say anything about impact at all.
7. Check one flow-down. Pull a subcontract and confirm its notice clock is shorter than your prime's. If it mirrors yours exactly, you will be late every time.
8. Put a ticket book in the truck — pre-numbered, triplicate, with the signature acknowledges resources expended, not entitlement or price disclaimer printed on every page.
9. Ask your scheduler to run a fragnet on the last change you priced, even if you did not ask for time. If it shows zero days, write "no adjustment of Contract Time is requested" on the change order and bank the credibility.

Common Mistakes (and the Fix)

Decision Framework

The hour a change appears — seven steps, in order

1. Is it outside the contract documents? If no, it is not a change. Log the clarification, answer it, close it.
2. What is the source — owner-directed, design error or omission, differing site condition, or regulatory? The source determines entitlement and the temperature of the conversation. Contractor-caused rework exits here: no entitlement, log it as your cost anyway.
3. Send written notice. Two clocks — cost and time. Today. Correct addressee, correct method, the word notice, the dated event, the facts, your position, your reservation, and what you are doing.
4. Do you have written authorization? If yes, proceed. If no and you are proceeding anyway: confirming letter the same day · T&M tickets signed daily · segregated cost code opened now · dated photographs.
5. Price the five layers. Direct cost → credits → contract markups → time → impact.
6. Log it, age it, and carry the pending exposure into the cost report, the forecast, and the cash-flow projection.
7. Close it in under 50 days, or escalate.

The five layers, and what each one costs if you skip it

The instruments, at a glance

The ethical line, both directions, in two sentences

Contractor: charge what the contract's pricing mechanism produces on cost you actually incurred and can prove. If your number changes when you learn how badly the owner needs it, you have crossed.

Owner: pay what the contract's pricing mechanism produces on cost the contractor can prove, and decide it inside the contractual response period. An owner who slow-walks decisions is making the contractor finance the project, which is a transfer of value nobody agreed to.

Northgate reference numbers