Most change order disputes are about the add-ons, and the same 420 m2 of work can be valued anywhere across a 30.3 per cent range.
Price the change order's direct work at the contract rates, add preliminaries only for the time and site resources the change actually consumes, and put overheads and profit on both. On an illustrative 420 m2 addition priced at a contract rate of 2,180, with two weeks of finishing-period preliminaries at 17,800 a week and OH&P at 6.0 per cent, the change order is worth 1,008,272. Adding the tender's full 15.0 per cent preliminaries instead gives 1,116,116, and a new rate struck after signature takes it to 1,192,913.
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Most change order disputes are not about the work. They are about the add-ons: whether the contractor's preliminaries percentage applies to a variation that did not change the site set-up, whether the OH&P is already inside the rates, and whether a rate agreed after award, without competition, should be the starting point at all. On the same 420 m2 the answers put forward range by 30.3 per cent.
| Input | Value |
|---|---|
| Additional floor area instructed, m2 | 420 |
| Contract measured rate for similar work, per m2 | 2,180 |
| Preliminaries in the tender, on works | 15.0% |
| Overheads and profit, on works plus preliminaries | 6.0% |
| Time-related resources on site in the finishing period, per week (illustrative) | 17,800 |
| Weeks the change extends the work, assessed | 2 |
| Premium in a rate struck after award, per m2 | 150 |
The contract's measured rates exclude preliminaries and OH&P, which sit as separate layers above them, as they do in the contract sum build-up for this scheme. Where a bill's rates already include OH&P, the percentage must not be added again.
Direct value = quantity × contract rate
Change order = (direct value + time-related preliminaries actually incurred) × (1 + OH&P %)
In Excel, with the area in B1, the rate in B2, weeks in B3, the weekly preliminaries in B4 and OH&P in B5: =(B1*B2+B3*B4)*(1+B5). Keep the preliminaries line in money and weeks, never as a percentage of the direct value.
Step 1, the direct value: 420 × 2,180 = 915,600. Step 2, preliminaries: the change adds two weeks to the finishing sequence, so the time-related resources actually on site in that period for two weeks, 2 × 17,800 = 35,600. The tower crane and most of the scaffold have gone by then, so the finishing-period rate is lower than the contract average. The fixed preliminaries, set-up and removal, are not incurred again and are not added. Step 3, OH&P at 6.0 per cent on 951,200 gives 1,008,272, or 2,401 per m2.
| Method | Value | Per m2 |
|---|---|---|
| A. Contract rates only | 915,600 | 2,180 |
| B. Contract rates plus OH&P | 970,536 | 2,311 |
| D. Rates, actual time-related preliminaries, OH&P | 1,008,272 | 2,401 |
| C. Rates plus tender preliminaries % plus OH&P | 1,116,116 | 2,657 |
| E. New rate struck after award, plus both percentages | 1,192,913 | 2,840 |
Method D is the one to defend: it pays the contractor for the work at the price it tendered, for the extra time the change actually caused, and its margin on both. Method A underpays, because the contractor does carry margin and, here, two weeks of site. Method C overpays by 107,844, 10.7 per cent: it charges 137,340 of preliminaries as though the change had required its own share of cranes, hoarding and site set-up, where its real effect was two weeks of finishing resources, 35,600.
Method E is where change orders get expensive without anyone noticing. When a rate is agreed after award, the contractor is no longer bidding against anyone. A premium of 150 per m2 is 63,000 on the direct work, and once the percentages ride on it, 76,797. The protection is to value variations from contract rates wherever the work is of a similar character, and to keep a schedule of rates in the contract for the work that is not.
| Weeks of time-related preliminaries | Change order value | Per m2 | Against method C |
|---|---|---|---|
| 0 | 970,536 | 2,311 | −145,580 |
| 1 | 989,404 | 2,356 | −126,712 |
| 2 | 1,008,272 | 2,401 | −107,844 |
| 4 | 1,046,008 | 2,490 | −70,108 |
| 8 | 1,121,480 | 2,670 | 5,364 |
The flat percentage only becomes fair at about 7.7 weeks of time-related preliminaries for this change. A change that is absorbed into the programme, zero weeks, is worth 970,536. That is why the assessment of time is part of the valuation, not a separate argument for later: if the change also delays completion, the weeks belong in an extension of time and a prolongation claim, valued as in how to calculate prolongation costs, and must not be paid twice.
This single change order is 3.8 per cent of the 26,301,102 contract sum. A project with a dozen like it, each valued by method C instead of D, has paid 1,294,133 for preliminaries that were never on site and the margin on them.
Value the direct work at contract rates, add the time-related preliminaries the change really causes, then OH&P on both: 1,008,272 here, against 1,116,116 with a flat percentage and 1,192,913 on a rate struck after signature. The free workbook for this case runs the post-award pricing premium and every other line from the contract sum to the final account.
There is no single figure; the contract should fix the overheads and profit percentage and how preliminaries are treated. On the illustrative contract, OH&P of 6.0 per cent on the direct work plus two weeks of time-related preliminaries is an effective uplift of 10.1 per cent on 915,600, against 21.9 per cent if the tender's 15.0 per cent preliminaries are applied instead.
Only to the extent the variation changes the time on site or the site resources. Fixed preliminaries such as set-up and removal are incurred once. On the illustrative 420 m2 change, two weeks of finishing-period preliminaries are 35,600, while the tender percentage would add 137,340. The percentage only becomes fair at about 7.7 weeks for this change.
Because the contractor no longer prices against competitors. A premium of 150 per m2 on 420 m2 is 63,000 of direct cost and, once preliminaries and OH&P ride on it, 76,797 of price. Valuing variations from contract rates wherever the work is similar, and agreeing a schedule of rates before signature, removes most of it.
This article is one calculation from Construction Cost Control. The book takes the same case from first principles to the decision, chapter by chapter, and every figure it prints is a live formula in the free companion workbooks.
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