The Change Order Trap: How to Protect Your Profits Mid-Project

You spent weeks preparing a detailed, accurate bid. You won the job with healthy margins built in. Then halfway through the project, the GC asks for "a few small changes." Six months later, you realize you lost money on a job you thought was profitable.

Welcome to the change order trap, where contractors who meticulously estimate their original bids completely abandon that discipline when pricing extra work. It's one of the most common ways contractors hemorrhage profit, and it happens on almost every project.

Why Change Orders Eat Your Profits

When you bid a project, you have time to research material costs, calculate labor hours, apply overhead, and build in reasonable profit. Change orders happen mid-project when you're busy, stressed, and under pressure to give a quick number.

The result? Most contractors price change orders with far less rigor than their original bids:

• They use rough estimates instead of detailed takeoffs
• They forget to include overhead and profit
• They underestimate the disruption to existing work
• They feel pressure to keep the price low to maintain the relationship
• They don't account for the administrative time to process the change

A study of construction projects found that change orders average 5-10% of contract value, but contractors typically recover only 60-70% of their actual costs on that extra work. On a $500,000 project with $40,000 in changes, you might be losing $12,000-$16,000 without even realizing it.

The Psychology Working Against You

Several psychological factors make change order pricing difficult:

Relationship pressure: You've already won the job and built a rapport with the GC or owner. You don't want to seem difficult or expensive on the extras. So you underprice to maintain goodwill.

Sunk cost thinking: You're already mobilized, your crew is there, the materials are being ordered anyway. It feels like the incremental cost should be small, even when the actual impact is significant.

Time pressure: The GC needs a number today. There's no time for a detailed estimate. You throw out a figure that "feels about right" rather than one you've actually calculated.

Optimism bias: "It's just a small change, how much could it really cost?" Contractors consistently underestimate the ripple effects of changes on their work.

A Better Approach to Change Order Pricing

The solution is to treat every change order with the same discipline as your original bid. Here's how:

Create a change order template: Have a standard form that forces you to consider all cost elements: materials, labor, equipment, overhead, profit, and any disruption costs. Never give a verbal quote without running through this checklist.

Apply your standard markup: If your overhead is 15% and your profit target is 10%, apply those same percentages to change orders. The administrative burden of processing changes actually makes your overhead higher, not lower.

Account for disruption: Changes mid-project are inherently less efficient than work bid from the start. Your crew may need to remobilize, redo completed work, or sequence tasks differently. Add a disruption factor of 10-20% to your labor estimate.

Document everything: Before starting any change order work, get written authorization. Keep detailed records of actual labor and materials. This protects you if there are disputes later.

Take your time: Resist the pressure to give immediate pricing. A response like "I'll have a detailed quote for you by tomorrow" is professional, not difficult. GCs respect contractors who take change orders seriously.

How Software Keeps Change Orders Organized

Managing change orders in spreadsheets or email threads is a recipe for lost documentation and forgotten costs. Professional estimating software provides structure that protects your margins:

• Pre-built templates ensure you never forget cost elements
• Automatic overhead and profit calculations maintain consistency
• Digital documentation creates an audit trail
• Historical tracking shows you which projects had the most changes
• Integration with your original estimate makes pricing faster and more accurate

When you can pull up your original bid, see exactly what was included, and price the change against that baseline, you stop leaving money on the table.

Protecting Your Profit on Every Job

Change orders aren't going away. Projects change, and being able to handle modifications efficiently is part of providing good service. The key is ensuring that extra work is profitable work, not a hidden drain on your margins.

Start treating every change order as a mini-bid that deserves the same attention as your original estimate. Your profit margin will thank you.