3.4 Change Orders, Allowances, and Unit Pricing

Change Orders, Allowances, and Unit Pricing

Few commercial projects finish exactly as bid. Contracts therefore build in mechanisms to price changed, undefined, or variable-quantity work: the change order, the allowance, and unit pricing. The NASCLA exam tests both the contract mechanics and the arithmetic, because mishandling these is a leading source of disputes and unpaid work.

Change Orders

A change order (CO) is a written, signed amendment to the contract that modifies the scope, price, or schedule. The governing rule: get it in writing and signed before performing the work. Verbal directions and unsigned field tickets are the top cause of payment disputes.

A CO price typically equals direct cost of the change + agreed overhead and profit markup. Contracts often cap CO markup, for example 10 percent overhead plus 10 percent profit on self-performed work and a lower percentage on subcontracted change work (commonly 5 percent on a sub's marked-up price).

Constructive Changes and the Paper Trail

Not all changes arrive as tidy COs. A constructive change occurs when the owner's act or direction effectively changes the work without a formal order, for example requiring inspection beyond the spec. Protect entitlement with the documents in order:

Always follow the notice provisions and time limits in the contract or claims may be waived.

Allowances

An allowance is a dollar amount placed in the bid for work or materials not yet selected, such as a 12,000 lighting allowance or a 6 dollar per SF flooring allowance. The contractor includes that figure in the contract sum and reconciles it when the owner makes the actual selection.

Key exam point: the standard allowance covers material/equipment cost delivered to the site; labor to install, overhead, and profit are normally carried in the base bid, not the allowance, unless the contract says otherwise. When actual cost differs, a CO adjusts the contract sum up or down by the difference.

Unit Pricing

A unit price is a pre-agreed price per unit of work used when the exact quantity is unknown at bid time, common for earthwork, rock excavation, undercut/import fill, and piling. The owner pays for the quantity actually installed at the bid unit rate.

Worked example: Unit price for rock excavation = 45 dollars per CY. The plan estimated 200 CY but field conditions yield 260 CY. Payment = 260 x 45 = 11,700, an increase of 60 CY x 45 = 2,700 over the estimated 9,000. Many contracts allow renegotiation if actual quantity varies beyond a threshold (often +/- 15 to 25 percent) of the estimate.

Allowance vs. Unit Price vs. Contingency

These three are commonly confused on the exam:

• Allowance = a placeholder dollar sum for an undefined material/selection, reconciled by CO.
• Unit price = a fixed rate per measured unit, paid on actual installed quantity.
• Contingency = the contractor's or owner's reserve for unforeseen costs, not tied to a specific selection or unit.

A frequent trap question gives an allowance overrun and asks for the adjustment: the contract sum changes only by the difference between the allowance and the actual reconciled cost, processed as a change order.

Change Order Mechanics and Pricing Methods

A change order (CO) is a written, signed amendment altering scope, price, or time. Price a CO by one of three methods: lump sum (negotiated), unit price (rate × measured quantity), or time-and-materials (cost + agreed markup). A CO adjusts the contract sum and may extend the contract time. Performing changed work on an oral directive risks non-payment where the contract requires written authorization.

Allowances and Their True-Up

An allowance is a placeholder dollar amount in the contract for an item not yet selected (e.g., "$10/SF tile allowance"). At selection, the actual cost is reconciled: if the owner picks $14/SF tile, a CO adds the difference; if they pick $7/SF, the contract sum is reduced (a credit/deductive CO). The exam point: allowances cover material cost as specified — verify whether labor and overhead are included or added separately, a frequent dispute.

Unit Pricing and Worked Example

Unit prices are pre-agreed rates for adding/deleting quantities of uncertain-quantity work (rock excavation, undercut, piles). Example: Contract carries unit price $45/CY for rock removal; field measures 120 CY of unforeseen rock → CO add = 120 × 45 = $5,400. Unit prices avoid renegotiating each occurrence and should state whether they include overhead and profit.

Common Exam Traps

• Trap: Proceeding on a verbal change without written authorization.
• Trap: Assuming an allowance includes labor and markup when it may be material-only.
• Trap: Forgetting a change order can add time, not just money.
• Trap: Applying a unit price to the wrong measured quantity or unit.

Constructive Changes and Documentation

A constructive change occurs when the owner's actions (defective plans, denied access, added inspections) effectively alter the work without a formal CO — the contractor must give prompt written notice to preserve a claim. Track changed-work costs with daily reports, photos, and segregated cost codes so the claim is provable. The exam stresses documentation: an entitlement that is real but undocumented is, in practice, unrecoverable, and late notice can waive an otherwise valid claim.