Treat you projects as stand-alone profit centers when calculating change orders.

Question:

My contract sets the markup limits on any change orders to lower percentages than my standard markups. How can I handle this so that I do not lose money on change orders?

1. Review the contract
   1. How are the markups defined? What is overhead?
   2. Clarify what should be included in the allowable overhead markup
   3. Negotiate the terms if you can
2. Handling the CO
   1. Clearly outline the scope of work for any changes – create line items of the work
   2. Include line items for the support and preparation of the work items
   3. Use publicized rates where applicable – these can set benchmarks and can be higher than you need
   4. Include everything you can – consider the project as a stand-alone company/profit center
3. Load up and be fair
   1. Put every cost associated with a particular change then review and remove things that don’t seem fair
   2. Negotiate win/wins with the Owner by dropping some of the costs
   3. Be sure to include some low hanging fruit for easy picking

Key Questions:

1. Are you capturing the right stuff?

2. Are your markup %s correct?

3. Are you using the right rates?

4. Are you leaving money on the table?

Take-Action Items:

1. Review your change order process

2. Build good estimates for all changes treating your project as a profit center

3. Negotiate fair charges with your Owner/Client