Change Order Costs

How change order costs are structured

Construction change orders are priced using a layered cost structure. Understanding each layer helps owners verify whether the total claim is reasonable and contract-compliant.

Direct costs

Direct costs are the field costs directly attributable to the changed work:

• Labor: Wage rates for each classification of worker involved.
• Materials: Cost of materials purchased or already owned, applied to the change.
• Equipment: Rental rates or internal rates for equipment used on the change.
• Subcontractor costs: Pass-through costs from specialty subcontractors.

Labor burden

Labor burden is the additional cost beyond base wages required to employ workers. It includes payroll taxes (Social Security, Medicare, unemployment), workers' compensation insurance, general liability insurance, and employer-paid benefits. Labor burden typically adds 28–42% to base wages, depending on trade, jurisdiction, and company benefit programs.

Overhead and profit

On top of direct costs, contractors apply overhead and profit markups. Overhead covers home office costs, project management time not captured in direct labor, and administrative expenses. Profit is the contractor's margin. Most contracts cap both rates — typically 10–15% combined for the general contractor.

Bond and insurance

Some contracts allow contractors to add a percentage for performance bond and insurance costs applied to the change order value. These should not be stacked on top of overhead if the overhead rate already includes these costs.