Change Order Markups

What are change order markups?

Change order markups are percentage rates applied to direct costs — labor, material, and equipment — to recover the contractor's indirect costs and margin. Most construction contracts specify the maximum markup rates the contractor may apply to change order work.

Common markup categories

Construction change orders typically include markups in these categories:

• Labor burden (28–42%): Payroll taxes, workers' compensation, insurance, and benefits applied to labor wages.
• General contractor overhead (8–12%): Home office costs, project management, and administration.
• Profit (8–15%): The contractor's project margin.
• Subcontractor markup by GC (5–10%): The GC's markup on costs passed through from subcontractors.
• Subcontractor own overhead and profit (10–15%): Each sub's internal markup on their direct costs.
• Bond and insurance (1–3%): Performance bond and insurance costs applied to the change value.

Contract markup caps

Most construction contracts set maximum allowable markup rates. These caps are typically found in the general conditions or supplementary conditions. When a contractor applies rates above the cap, the owner is entitled to negotiate down to the contract limit — but only if they identify the overage.

How contractors apply markups

Markup application methods vary. Some contractors apply all markups to all direct cost categories. Others apply labor burden only to labor, and overhead and profit to the total after burden. The order and basis of application affects the total — which is why extracting and calculating the actual applied rates from the submission is essential.