Nonresidential Building Construction Business Guide
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All 16 Documented Cases
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]Change order pricing often focuses on negotiated labor rates, material markups, overhead, and profit percentages; without transparent breakdowns, this creates risk of inflated charges, double‑counted overhead, or inconsistent markups that owners may perceive as abusive.[2][3][6][8] Industry guidance explicitly warns that fair, itemized pricing and consistent markups are necessary to avoid mistrust and disputes over change order costs.[1][2][8]
Unpriced and Late-Priced Change Orders Eroding Billable Revenue
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]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.
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]Case analysis of change order request workflows shows that preparing, pricing, and processing a single change order can consume multiple hours of project management and office staff time, even before the general contractor reviews it.[9] Industry guidance acknowledges that thorough documentation, negotiations, and meetings are required for each change, creating a recurring overhead load that displaces staff from bidding new work or managing field production.[2][3][8][9]
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]Change order guidance notes that after submission, negotiation and approval can involve multiple parties and senior management, and may extend until project closeout if there is disagreement, delaying payment for change work already performed.[2][3][4] Separate analysis of change order requests shows that substantial time is spent preparing, revising, and chasing approvals, and contractors often have significant value locked in pending, unapproved changes.