WHY CHANGE ORDERS ALWAYS LOSE MONEY.
Change orders should be some of the most profitable work on a job, because the crew is already mobilized, the equipment is on site, and the overhead is already running. Most of them lose money anyway. The scope isn't the problem. The billing protocol is. Work starts before a price is agreed, overhead gets left out of the price, billing is delayed past the leverage window, and the costs code to the wrong place.
None of those four failures are field problems. They're protocol problems, and they repeat on every job because nobody wrote the protocol down. The PM is doing what keeps the relationship with the GC intact, which is a reasonable instinct that costs money every single time. On a $5M sub running 15 jobs with four change orders each averaging $8,000, recovering at 70 percent instead of 100 percent costs $24,000 per job and $360,000 a year. That's on work you already did.
WHAT IT MEANS.
A change order log is a record of every scope change by job: description, date directed, date submitted, date approved or disputed, dollar value, and billing status.
WHERE THE MONEY GETS GIVEN AWAY.
Work before price
The GC says just get it done, we will deal with the paperwork later. The PM goes along with it because the relationship counts. The work gets done, and two weeks later the PM submits a change order. The GC says the price is too high, they negotiate, and the PM settles for 70 percent of cost because the work is already done and there's no leverage left. The right sequence is price first and work second, because without a price agreement, get it done is authorization to work for free.
Direct cost only pricing
The PM prices the change order at $8,000 labor plus $3,200 material, so $11,200 total. The overhead allocation at 13 percent is $1,456. The profit margin at 22 percent gross is $3,542. The real change order value is $16,198 rather than $11,200. Most subcontractors price change orders the way they priced T&M work in 2014, which is direct cost plus a round markup that has nothing to do with the true overhead structure.
Delayed billing past the leverage window
The PM completes change order work in March and submits the billing in May. By May the GC's contingency is allocated, the project has moved on, and the superintendent who directed the work has been reassigned. The claim gets disputed and the sub collects 60 percent. The leverage window for a change order closes roughly 30 days after completion, and after that the clock runs against you.
Costs coded to the base contract
The PM doesn't set up a change order cost code, so the crew's labor goes to the base contract labor code and the extra material goes to the base contract material code. The change order gets billed and paid. The job cost report still shows $12,000 over on labor and $3,000 over on material, because the change order revenue never got matched to its cost. The job looks like it lost money. It didn't. The coding structure made the profit invisible.
WHAT IT LOOKS LIKE IN DOLLARS.
$8,000 of labor plus $3,200 of material is $11,200 of direct cost. Overhead allocation at 13 percent adds $1,456. Profit at 22 percent gross adds $3,542. The change order is worth $16,198, so pricing it at $11,200 gives the difference to the GC for free.
Take a $5M subcontractor running 15 jobs with an average of 4 change orders per job. If each change order averages $8,000 and recovers at 70 percent instead of 100 percent because of these four failures, that's $24,000 per job and $360,000 per year of preventable under recovery, every year.
THREE RULES THAT FIX IT.
The PM's standing instruction is that a verbal just get it done isn't authorization. Every scope change needs either a written direction to proceed, which preserves your right to price it, or a price agreement in writing before work starts. The PM raises this with the GC as a professional standard rather than a confrontation. Most GCs who work with structured subs respect it, and the ones who don't are teaching you something about the relationship.
The formula is direct labor fully burdened, plus direct material, plus equipment at the cost basis rate, plus overhead allocation at the current overhead rate, plus profit at target margin, plus any impact costs such as standby time, re sequencing, or added mobilization. Build a change order pricing template that calculates each line. The PM fills in the scope quantities and the template does the rest.
Every completed change order gets billed within 5 days. The CFO maintains a change order log for every active job and reviews it monthly, and any change order with costs hitting the job but no billing event gets escalated to the PM that week. The log is the enforcement mechanism. Without it, billing timing depends on the PM remembering, which is how 60 day delays happen.
FLAT MONTHLY FEE. NO SURPRISES.
Three tiers, priced by your trailing twelve month revenue. Which one you're in depends on how much of the work you want off your desk. No hourly billing, no payroll, and no add-ons.
Pricing
| Last 12 months revenue | Monthly fee |
|---|---|
| Up to $1M | $1,900 to $2,900 |
| $1M to $3.5M | $2,600 to $3,900 |
| $3.5M to $6.5M | $3,800 to $5,700 |
| $6.5M to $9.5M | $5,100 to $7,100 |
| $9.5M to $12.5M | $6,100 to $8,500 |
| $12.5M to $15.5M | $7,400 to $11,000 |
| $15.5M to $18.5M | $9,400 to $13,500 |
| $18.5M+ | Quoted individually |
Range reflects the three tiers below. Which one you're in depends on how much of the work you want off your desk. No payroll. No hidden line items.
You stop guessing.
You get the CFO work. Job costing built against the way you estimate, a 13 week cash forecast, monthly WIP, and a meeting every month that ends in decisions rather than a report.
Your bookkeeper keeps doing the books.
You stop touching the books.
Everything in Core, and we run the bookkeeping and the controllership as well. Nobody in your office is answering coding questions or chasing a reconciliation at month end.
We do the books. No payroll.
Every job shows its margin while it's still running.
Everything in Executive, plus the job costing and WIP platform set up, loaded with your cost codes, and managed for you every month. You never have to learn it.
We do the job costing.
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