How do you price change orders to maximize revenue and customer satisfaction?

1 Assess the change order request

The first step to price a change order is to assess the request from the customer or the design team. You need to understand what the change entails, why it is needed, how it affects the original contract, and what are the implications for the schedule, the budget, and the quality of the project. You should also verify if the change is within the scope of the contract, or if it requires a formal change order agreement. You should document the request and communicate with the customer or the design team to clarify any questions or concerns.

2 Estimate the cost and the profit

The next step is to estimate the cost and the profit of the change order. You need to calculate the direct and indirect costs of the change, such as labor, materials, equipment, subcontractors, permits, overhead, and contingencies. You should also factor in the profit margin that you want to earn from the change, based on your business goals, the market conditions, and the customer relationship. You should use a consistent and transparent method to estimate the cost and the profit, such as a unit price, a lump sum, or a time and materials approach.

3 Negotiate the price and the terms

The third step is to negotiate the price and the terms of the change order with the customer or the design team. You need to present your estimate and explain how you arrived at the price, showing the breakdown of the cost and the profit. You should also discuss the terms of the change order, such as the payment schedule, the completion date, the warranty, and the dispute resolution process. You should aim for a fair and reasonable price and terms that reflect the value of the change and the impact on the project.

4 Manage the change order process

The final step is to manage the change order process, from the approval to the execution of the change. You need to obtain a written authorization from the customer or the design team before starting any work related to the change. You should also update the project documents, such as the contract, the scope, the schedule, the budget, and the quality plan, to reflect the change. You should also monitor and control the change order work, ensuring that it meets the specifications, the quality standards, and the customer expectations.