Change Order Profit Improvement

A 10% improvement in change order pricing for a $50M per year contractor will add $500K to their bottom line.

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D. Brown Management
March 12, 2019 2 minute read
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The average construction project has about 10% changes, so improvements of just a few percentage points in pricing can make a huge difference to contractors. 

Change Management: Changes - How Much Profit Improvement?

This is not about simply marking up the change more, but rather, including the many costs that are typically missed or undervalued:

  • Accurate labor burden costs, including premium pay. 

  • Indirect labor costs, including safety equipment, consumables, small tools, etc.

  • Company owned equipment rates and operating costs.

  • Commodity materials that are often missed during pricing of changes. 

  • Field supervision and project management time.

  • The right labor production units based on the conditions of the change, including impacts to other work.

  • Productivity impacts for shift work, congested work areas, or overtime. 
     
  • Extended general conditions on the project if the change delays the schedule.

Beyond knowing how to include these costs into the change, it is important for the whole project team to master the art of effective negotiations to not only improve pricing, but also speed and customer satisfaction. 

How much could your change management processes be improved? How much is that worth? 

This Series (3 of 23)
A Broader Definition of a Change on a Construction Project Change Orders and Average Cost Impact to the Project (Industry Survey) Change Order Profit Improvement Changes and Cash Flow Improvement Changes - Problem or Fact?
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This Series (3 of 23)
A Broader Definition of a Change on a Construction Project Change Orders and Average Cost Impact to the Project (Industry Survey) Change Order Profit Improvement Changes and Cash Flow Improvement Changes - Problem or Fact?
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