Commercial Change Order Pricing: Cost-Plus vs Unit-Price vs Lump-Sum

Why this matters

Residential change orders are usually a verbal upsell with a one-page form. Commercial change orders are a contractual amendment governed by the prime contract's Changes clause, priced by one of three methodologies the GC or owner reserves the right to select. Pick the wrong methodology for the work scope and you either leave 20-plus margin points on the table or eat unrecoverable cost overruns. The mechanical task is documentation; the strategic task is selecting and defending the right pricing model before the work proceeds.

The three commercial methodologies

Cost-plus (force account or time-and-materials)

You charge actual cost of labor, materials, equipment, and subcontract work, marked up by a contractually defined overhead and profit (O&P) percentage. The prime contract specifies the markup ceiling, typically separately for self-performed work and subcontract pass-through.

When it fits:

• Emergency work or unforeseen conditions where the scope cannot be defined in advance
• Owner-directed changes during shutdown windows where the cost driver is uncertain
• Concealed condition discoveries (asbestos, unmarked utilities, structural surprises)

Documentation discipline:

• Daily time sheets signed by the GC superintendent before each shift ends
• Material invoices with supplier names and unit pricing
• Equipment rental tickets with delivery and pickup dates
• Subcontract billings with their own backup
• A single rolled-up cost-plus reconciliation submitted with the change order request

Watch-outs: most prime contracts cap cost-plus markups asymmetrically; commonly 15 percent O&P on self-performed labor and material, 10 percent on equipment, and 5 to 10 percent on subcontract pass-through. Your overhead allocation must match the contract definition, not your internal CFO definition.

Unit-price

You charge a pre-agreed unit rate for a defined unit of measure (linear foot of conduit, square foot of demo, each fixture installed). The prime contract or addendum sets the unit list, and the change order quantifies the units actually performed.

When it fits:

• Site work, demo, rough-in, or repetitive install where unit boundaries are clean
• Work where the GC needs price certainty per unit but quantity is uncertain (over-run / under-run protection)
• Public works projects under Davis-Bacon where labor rates are fixed by wage determination

Documentation discipline:

• Field measurement log signed daily by the GC
• Photographs at start, mid-completion, and final, geotagged
• Mutual sign-off on as-built unit count before invoicing
• Cross-reference to the unit price schedule in the prime contract

Watch-outs: unit prices set during bid include a productivity assumption. If the change is performed under disruption (out of sequence, after hours, in confined space, in a partially occupied tenant space), the productivity assumption breaks. Document the disruption and request a productivity adjustment in writing before starting, not after.

Lump-sum (fixed price)

You quote a single number for a defined scope of work. The risk of cost overrun and the reward of cost underrun both shift to you.

When it fits:

• Scope is fully definable from drawings, specs, or a clear directive
• You have completed similar work and have reliable productivity data
• The GC or owner refuses cost-plus and the work is too irregular for the unit-price schedule
• The change is small enough that the documentation burden of cost-plus exceeds the price difference

Documentation discipline:

• Detailed quantity takeoff and labor hour estimate stored with the change order
• Scope inclusion / exclusion list explicit (what is NOT in this lump sum)
• Schedule impact statement (days added to critical path) priced separately
• Mutual sign-off on scope before performing

Methodology selection by scope characteristic

Overhead and profit on commercial change orders

The prime contract Changes clause defines allowable O&P. Common structures:

• Self-performed labor, material, and equipment: combined O&P at a fixed percent
• Subcontract pass-through: lower combined percent
• Bond premium: separately reimbursed at actual cost
• Insurance premium: separately reimbursed at actual cost
• Schedule extension cost: extended general conditions priced per day at a pre-agreed daily rate

Negotiate the daily extended general conditions rate at contract execution, not at change order time. The leverage flips entirely once the project is underway and the change is mid-flight.

Schedule impact and time extensions

A change order with no time extension is a productivity disruption claim waiting to happen. Three categories of time impact:

• Concurrent delay: typically no compensable time extension, but excusable
• Critical path delay: time extension plus extended general conditions cost
• Non-critical path delay: time extension without extended general conditions

Use a time impact analysis (TIA) on any change exceeding 5 working days. AACE International Recommended Practice 52R-06 is the industry standard.

Submission and approval workflow

1. Receive RFI or Construction Change Directive (CCD)
2. Within the contractual response window (7 to 21 days typical) submit a Proposed Change Order with pricing methodology, backup, and schedule impact
3. Perform work only after written authorization, except under CCD emergency conditions
4. Submit the executed Change Order for owner countersignature
5. Invoice on the next pay app; do not commingle CO billing with base contract billing on the same SOV line

References

• AIA A201 General Conditions of the Contract for Construction, Article 7 (Changes in the Work)
• ConsensusDocs 200 Standard Agreement Between Owner and Contractor, Article 8
• AACE International Recommended Practice 52R-06 Time Impact Analysis
• Federal Acquisition Regulation (FAR) 52.243-1 through 52.243-7 (Changes clauses)
• AGC Document 200 (Standard Form of Agreement and General Conditions)