Change Order Pricing Under a Fixed-Price Contract
You are managing a $680,000 fixed-price structured cabling installation for a hospital. The contract includes a unit-price schedule: $95 per Cat 6A drop and $140 per fiber drop, with a 10% overhead-and-profit markup on materials only. During construction, the owner requests 240 additional Cat 6A drops in the imaging wing, which requires after-hours work because the wing operates 24/7. Your labor rate is $62/hour, and after-hours work carries a 1.5× premium. The original estimate assumed 0.75 labor-hours per drop; the imaging wing's ceiling congestion will push it to 1.1 hours per drop. The owner's representative says the unit price already covers it.
1. Build the change-order price and determine whether the unit price applies.
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Does the unit price apply? The unit-price schedule presumes normal working hours and normal conditions. The owner's request introduces two conditions the unit price did not contemplate: after-hours premium pay and congested-ceiling productivity loss. A well-drafted unit price is a baseline, not a ceiling, when scope conditions materially differ. You should price the change on actual conditions and document the deviation.
Labor. 240 drops × 1.1 h = 264 labor-hours. At $62/h = $16,368 base labor. After-hours premium: 264 × $62 × 0.5 = $8,184. Total labor = $24,552.
Materials. Assume the drop material cost embedded in the $95 unit price is, say, $28/drop. 240 × $28 = $6,720. Markup 10% = $672. Materials with markup = $7,392.
Total change order. $24,552 + $7,392 = $31,944. Compare to the unit-price approach: 240 × $95 = $22,800 - a $9,144 gap driven by after-hours and congestion.
Recommendation. Submit the $31,944 change order with the labor-hour buildup and after-hours justification attached. Offer the unit price as an alternative only if the owner accepts daytime work.
2. The owner rejects the change order and directs you to proceed at the unit price. What are your options?
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First, separate direction from agreement. The owner can direct work; that does not waive your right to be paid for changed conditions. Proceed under protest and confirm in writing that you are performing per direction while reserving the right to pursue the difference.
Options. (1) Negotiate a middle path - daytime work for the drops that can be scheduled, after-hours only where the wing truly cannot be interrupted, reducing the premium. (2) Escalate to a formal claim under the contract's disputes clause, with the labor-hour buildup, after-hours authorization, and productivity evidence. (3) Request a written determination from the owner's authorized representative rather than the on-site rep, since the rep may lack authority to bind the owner.
Risk management. Do not stop work - suspension can expose you to delay damages. Track the disputed amount separately in the cost ledger so it does not contaminate the base contract. Preserve emails, daily reports, and the after-hours access restriction. If the gap remains unresolved at substantial completion, file a timely claim and consider mediation before litigation. The key judgment: protect the relationship while never letting a verbal rejection become an implied acceptance of the lower price.