What a change order actually needs
A change order is a small contract, not a text message. Whatever form it takes, four things need to be on it before anyone picks up a tool:
- Scope. Exactly what is being added, removed or changed, specific enough that neither side can argue about it later.
- Price. The number this calculator produces: burdened labor, materials, subs and equipment, with overhead and markup or margin already applied, not a round number guessed on the spot.
- Schedule impact. Whether the change adds days to the job, even if the answer is "none."
- Signatures. The owner and the contractor both sign before the added work starts. A verbal "yeah, go ahead" is not a change order, which makes a change-order dispute much harder to prove later.
Many contractors use a standardized form for this rather than writing one from scratch. AIA G701, published by the American Institute of Architects, is one common example. The form matters less than making sure all four items above are actually on it.
The math
Price a change order the same way you would price the job itself, not by guessing a flat add-on:
Loaded labor = (hours × rate) + (hours × rate × burden %)
Direct cost = materials + loaded labor + subcontractors + equipment
Total cost = direct cost + (direct cost × overhead %)
Change order price = total cost × (1 + markup), or total cost ÷ (1 − margin)
Markup and margin describe the same profit dollar two different ways: markup is profit as a share of cost; margin is profit as a share of price. This calculator prices the change order either way and shows both.
Why burden matters
Never mark up the bare wage
Apply markup or margin to the fully burdened labor cost (wages plus the payroll taxes, insurance and benefits that come with them), not to the hourly wage alone. Mark up a $32 wage and you have priced $32 of labor. The hour actually cost more than that before a truck ever left the yard.
Burden is every dollar an hour of labor costs beyond the wage on the paycheck: the employer's share of payroll taxes, workers' compensation, general liability insurance tied to payroll, and any health or retirement benefits. None of it shows up on the crew's pay stub, and all of it is a real cost of putting that hour on the job. Markup applied to the wage alone prices only part of what the hour actually cost. The gap is invisible on the change order and comes straight out of profit.
How to use this calculator
- Enter the labor the change adds: hours, hourly rate, and your burden percentage (payroll taxes, insurance and benefits, not just the wage).
- Add materials, subcontractor cost and equipment or other direct costs the change requires.
- Set your overhead percentage, then price it the way you already price bids: by markup or by margin.
- Add a short description of the change, which becomes the heading on the printed page. Then use Print below to get a page you can attach to the signed change order.
FAQ
What does a change order need to include?
Four things: the scope of the change, its price, any schedule impact, and signatures from both the owner and the contractor before the added work starts. AIA G701 is one common standardized form for capturing all four.
Should markup apply to the wage or the burdened labor cost?
The burdened labor cost: wages plus payroll taxes, insurance and benefits. Marking up the bare wage prices only part of what that hour actually cost you, and the shortfall comes out of profit.
Should I use markup or margin for a change order?
Whichever you already use to price full bids. The two describe the same profit dollar as a share of a different base: cost for markup, price for margin. This calculator solves for either one.
Does a change order need a separate overhead charge?
Treat it like a small job: overhead (office, trucks, insurance and software spread across your work) applies to the change order's direct cost the same way it applies to a full bid.
Related tools
- Bid price calculator: the same direct-cost-plus-overhead-plus-margin math, for pricing the original job.
- Labor burden calculator: work out your actual burden percentage from wages, taxes, insurance and benefits instead of guessing it.
- If you are starting from scratch, a free change order template covers the paperwork this calculator prices.