🇺🇸United States

Unpriced and Late-Priced Change Orders Eroding Billable Revenue

4 verified sources

Definition

On many nonresidential projects, scope changes are executed in the field before pricing and formal approval are completed, leading to work that is partially or never billed or billed at discounted rates after contentious negotiations. Industry guidance notes that change orders on major projects typically total 10–15% of contract value, and that owners often push for reduced compensation when pricing is not clearly documented up front, causing contractors to absorb costs instead of recovering them through change order revenue.

Key Findings

  • Financial Impact: For a $50M nonresidential project, change orders typically represent $5M–$7.5M; under‑recovery of only 10–20% due to weak pricing/approval controls equates to ~$500K–$1.5M per project, i.e., low‑ to mid‑seven figures annually for a contractor running multiple projects.[2][7][8][9]
  • Frequency: Weekly
  • Root Cause: Field personnel proceed on verbal direction or emails without a fully documented and agreed change order, while project teams lack standardized pricing templates and consistent markups, resulting in underpriced or disputed changes and write‑offs when owners contest amounts after the fact.[2][3][4][8][9]

Why This Matters

This pain point represents a significant opportunity for B2B solutions targeting Nonresidential Building Construction.

Affected Stakeholders

Project Manager, Superintendent, Project Engineer, Estimator, Contracts Manager, Owner’s Representative

Deep Analysis (Premium)

Financial Impact

$100K-$300K per project from unrecovered rework/remediation costs; lack of defensible QC cost documentation in negotiations • $150K-$400K per project from expedited sourcing premiums; supplier overcharges due to lack of competitive bidding; untracked CO-related PO volume • $200K-$400K per project from delay claims and loss of productivity (10-30% reduction when crews idle awaiting formal approval); inability to lock schedule baseline means contingency buffers consumed

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Current Workarounds

Backward pricing from timesheets and material invoices; manual Excel cost-up from memory of contract rates; phone calls to PM asking 'how much crew-time was that?'; reliance on historical project benchmarks • Custom Excel models for industrial change pricing • Email chains with RFIs; manual Excel tracking of pending changes; post-project spreadsheet reconciliation; verbal commitments to PM that later require documentation

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Methodology & Sources

Data collected via OSINT from regulatory filings, industry audits, and verified case studies.

Evidence Sources:

Related Business Risks

Productivity Loss and Rework Costs from Poorly Managed Change Orders

If total change order value equals 10–15% of a $50M contract (~$5M–$7.5M), a 10–30% productivity hit on affected work can easily translate into several hundred thousand to multi‑million‑dollar unpriced labor and overhead costs per project.[2][7][8]

Rework and Defects from Informal or Rushed Change Order Implementation

Given change orders commonly total 10–15% of contract value, even a modest 5–10% rework rate on changed work can represent low‑ to mid‑six‑figure quality‑related costs on a $50M–$100M nonresidential project.[2][7]

Slow Change Order Approval Extending Time to Cash and Tying Up Working Capital

On a project where change orders equal 10–15% of a $50M contract (~$5M–$7.5M), it is common for millions in change order value to remain unapproved for months, effectively acting as an interest‑free loan to the owner and materially worsening the contractor’s cash conversion cycle.[2][7][9]

Administrative Burden of Change Order Pricing Consuming Estimating and PM Capacity

One study example shows two hours of project staff time at $50/hour to prepare a change request, costing $100 before review; scaled across hundreds of change orders on a typical nonresidential portfolio, this equates to tens to hundreds of thousands of dollars annually in indirect labor and lost opportunity capacity.[9][8]

Disputes and Claims from Non‑Compliant Change Order Procedures on Public/Institutional Projects

While the specific dollar impact varies per dispute, on large nonresidential and transportation projects change order claim disputes routinely involve millions in questioned costs and can lead to partial or full disallowance of compensation, effectively converting extra work into an unfunded cost burden on the contractor.[7][2]

Inflated or Opaque Change Order Pricing Enabling Abuse and Disputes

For owners on large nonresidential projects where change orders total 10–15% of contract value (~$5M–$7.5M on a $50M job), even a 5–10% premium from opaque or excessive markups on changes can mean several hundred thousand dollars in avoidable spend.[2][6][8]

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