Construction Change Order Negotiation Strategies 2025: Complete Guide

Quick Answer: How to Negotiate Change Orders

Successful change order negotiation requires thorough documentation, accurate cost calculations, and timely submission. Always document changes in real-time, include all direct and indirect costs, and submit within contractual timeframes. On federal contracts, follow FAR clause requirements precisely to preserve your rights.

72 Hours

Typical Notice Period

15-25%

Typical Markup

30 Days

Proposal Deadline

10-15%

Avg Project Changes

Types of Change Orders

Understanding the different types of changes helps you respond appropriately:

Owner-Directed Changes

• Design modifications
• Scope additions or deletions
• Material substitutions
• Acceleration requirements
• Schedule changes

Constructive Changes

• Defective specifications
• Differing site conditions
• Superior knowledge withheld
• Impossibility of performance
• Over-inspection

Cardinal Changes

• Changes beyond contract scope
• Fundamental character alterations
• May breach the contract
• Contractor can refuse
• Rare in practice

Deductive Changes

• Scope reductions
• Value engineering credits
• Material substitutions
• Owner-furnished items
• Deleted work

Documentation Requirements

Golden Rule of Change Orders

If it is not documented, it did not happen. Real-time documentation is your strongest negotiating tool and legal protection.

Written Notice

Send written notice immediately when you encounter changed conditions. Reference the contract clause, describe the change, and state you are preserving your rights to additional time and compensation.

Daily Records

Maintain detailed daily logs showing labor, equipment, materials, and conditions. Include photos, crew sizes, weather, and any delays or impacts.

Cost Tracking

Track all costs associated with the change using separate cost codes. Include labor burden, equipment rates, material invoices, and subcontractor costs.

Impact Analysis

Document schedule impacts using contemporaneous schedule updates. Show how the change affects critical path activities and overall completion.

Essential Documentation Checklist

☑ Written change notice
☑ RFI and responses
☑ Daily work logs
☑ Labor time sheets
☑ Equipment logs

☑ Material invoices
☑ Photographs dated
☑ Schedule updates
☑ Meeting minutes
☑ Email correspondence

Pricing Strategies

Accurate pricing is critical for successful negotiation. Include all legitimate costs:

Change Order Cost Components

Direct Costs

Labor (including burden at 30-45%), materials, equipment, subcontractors, and any additional direct expenses attributable to the change.

Indirect Costs

Extended general conditions, home office overhead (typically 3-10%), field overhead, supervision, and project management time.

Impact Costs

Loss of productivity, schedule acceleration, trade stacking, remobilization, and cumulative impact of multiple changes.

Markup and Profit

Overhead and profit markup typically 10-20% combined. Federal contracts often cap at 10% overhead and 10% profit (15% combined for subs).

Avoid These Pricing Mistakes

• Omitting labor burden and taxes
• Forgetting equipment mobilization
• Missing schedule impact costs
• Underestimating supervision time
• Ignoring bond cost increases

Negotiation Tactics

Effective Strategies

✓ Lead with documentation
✓ Show your cost backup
✓ Reference contract terms
✓ Propose alternatives
✓ Maintain relationships
✓ Be patient but persistent

Approaches to Avoid

✗ Threatening litigation early
✗ Emotional arguments
✗ Unsupported claims
✗ Take-it-or-leave-it positions
✗ Stopping work without notice
✗ Inflating costs

Negotiation Framework

1. Present facts objectively — Show what changed and why it costs more
2. Reference the contract — Cite specific clauses that entitle you to adjustment
3. Provide detailed backup — Share your calculations and supporting documents
4. Listen to concerns — Understand the owner's budget and schedule constraints
5. Propose solutions — Offer alternatives that address both parties' needs

Government Contract Changes

Federal contracts have specific clauses governing changes. Know your rights:

Key FAR Clauses

FAR 52.243-4 Changes (Construction)

The Contracting Officer may order changes within the general scope. Contractor must assert right to adjustment within 30 days of receipt of written change order.

FAR 52.236-2 Differing Site Conditions

Provides for equitable adjustment when site conditions differ materially from contract documents (Type I) or from normal expectations (Type II).

FAR 52.242-14 Suspension of Work

Entitles contractor to adjustment for unreasonable delays or suspensions caused by the government.

Critical Timing Requirements

• Written notice: Submit promptly, within contract timeframe (often 10-20 days)
• Proposal submission: Within 30 days of change order receipt
• Claim submission: If unresolved, submit written claim to CO
• Contracting Officer decision: Within 60 days for claims under $100K

Dispute Resolution

When negotiations fail, know your options:

Direct Negotiation

Continue working with the project team. Escalate to higher management on both sides if needed. Most disputes are resolved here.

Mediation

Non-binding process with neutral third party. Often faster and cheaper than litigation. Preserves relationships.

Contract Disputes Act (Federal)

For federal contracts, submit a certified claim to the Contracting Officer. Appeal denial to the Board of Contract Appeals or Court of Federal Claims.

Arbitration or Litigation

Last resort. Binding decision from arbitrator or court. Expensive and time-consuming but sometimes necessary.

Frequently Asked Questions

What markup is appropriate for change orders?

For private work, 15-25% combined overhead and profit is typical. Federal contracts often limit markup to 10% overhead and 10% profit on direct costs. Subcontractor work may have an additional 5-10% markup for prime coordination.

Should I continue working during change order disputes?

Generally yes, unless directed otherwise or the change is truly outside contract scope. Preserve your rights with written notice and continue performance to avoid default claims. Document everything carefully while the dispute is ongoing.

How do I handle cumulative impact from multiple changes?

Track impacts from each change individually and cumulatively. Loss of productivity from multiple changes often exceeds the sum of individual impacts. Use studies like MCAA or industry research to support productivity loss claims.

What if the owner refuses to issue a change order?

Document the constructive change, continue performance, and submit a Request for Equitable Adjustment (REA). If unresolved, escalate to a formal claim under the contract disputes process.

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