AIA G701 and what the form actually asks for
AIA Document G701-2017 Change Order is the standard instrument for formal contract modification in contracts on AIA A101/A201 forms. It captures the change in contract sum, the change in contract time, and the revised totals, and it is executed by the owner, architect, and contractor. Before G701 is signed, the pricing arrives on a Proposal Request response or on the contractor's Change Order Request (COR) with a back-up breakdown.
The form does not specify method. It accepts a lump sum (one dollar figure, one signature, done) or T&M billed against a rate schedule. The choice — lump sum, T&M, unit price, cost-plus with GMP — should be called out in the supporting back-up. What A201 Section 7 does specify is the allowable markup ranges and the categories of recoverable cost. Read A201-2017 Section 7.3.7 for the overhead-and-profit categories specifically.
When lump sum actually wins
Lump sum pricing beats T&M when:
- Scope is fully defined — a drawing supplement, ASI, or RFI response with specific quantities.
- Work is largely repetitive and productivity is predictable — add 40 LF of 2" conduit on the same floor as 800 LF already run.
- The contractor's labor productivity for that task is better than the industry assumption.
- Approval will happen quickly and the work will execute in the next 30-45 days at current crew rates.
- There is low interference with ongoing base-contract work.
Under those conditions, a contractor who prices the change correctly keeps every dollar of the productivity premium. If the take 4 hours estimate turns into 3 hours of field time, the extra hour is margin.
When T&M actually wins
T&M wins when scope is undefined or fluid, the work disrupts the base contract, the contractor cannot estimate productivity with confidence, or the owner's RFI loop is unpredictable. T&M billing covers actual hours, actual material with a markup, and equipment actually used. The owner takes the productivity risk — if the work takes 40% longer than anyone expected, the contractor is paid for every hour.
The tradeoff: T&M ceilings get scrutinized harder at billing. Daily tickets have to be signed by the owner's representative or architect. If you fail to get signatures or fail to capture the full burden on the rate sheet, unbilled hours evaporate.
Composite crew rate for change orders
Whichever method you use, the crew rate calculation is the same and it matters. A clean composite rate for a change order includes:
- Base wage at current CBA or posted rate.
- Full labor burden — FICA, FUTA, SUTA, workers comp at the class-code rate, GL, fringe, PTO, 401(k) match — typically 38-65% above base.
- Small tools allowance, commonly 2-4% of labor.
- Supervision loading if working foremen participate in the crew.
- Overtime premium if the work is scheduled off-shift — 1.5x or 2.0x per the CBA.
The formula:
Composite Rate = (Base Wage + Fringe) × (1 + Statutory% + Insurance%) + Small Tools + Supervision Share + OT Premium
Allowable overhead and profit markups
Industry-standard overhead and profit markups for change orders, based on widely-published contracts and historical AGC/ABC surveys:
| Contract Tier | Overhead % | Profit % | Typical Combined |
|---|---|---|---|
| General Contractor on own forces | 10-12% | 5-7% | 15-19% |
| General Contractor on subcontracted scope | 5-7% | 3-5% | 8-12% |
| First-tier Subcontractor | 12-15% | 8-10% | 20-25% |
| Second-tier Subcontractor | 10-12% | 5-8% | 15-20% |
| Bond, when required | 1.0-1.5% | — | 1.0-1.5% |
| Insurance (GL / umbrella) | 0.8-1.5% | — | 0.8-1.5% |
Some contracts cap total markup stack (GC + sub + sub-sub) at a number — 25% is common, 30% generous, 20% tight. Always check A201 Section 7.3.7 or the project-specific supplementary conditions before quoting.
Productivity loss and the MAA method
When a change order disrupts ongoing base-contract work, you are entitled to claim lost productivity — the hours that would have been billed to the base contract but ran slower because of the change. The industry-accepted framework is the Measured Mile method, published in detail in Ibbs and Nguyen's Construction CPM and Schedule Risk Analysis literature and AACE International's Recommended Practice 25R-03 on Estimating Lost Labor Productivity.
Measured Mile compares productivity on an unimpacted section of identical work with productivity on the impacted section. The delta, converted to inefficient manhours, becomes a claim. If unimpacted base-contract conduit runs 2.8 mh per 100 LF and the same work post-change-disruption runs 3.9 mh per 100 LF, the lost-productivity factor is (3.9 − 2.8) / 2.8 = 39%. That 39% applied to affected base-contract hours is a real, documentable claim.
The alternative, MCAA-factor method (also the NECA Column 3 approach), applies a published inefficiency percentage to the impacted scope — typically 10-30% depending on the disruption type. It is weaker evidentially but widely accepted when measured-mile data does not exist.
Quoting a lump-sum change order during an active owner-directed delay without protecting productivity loss on unimpacted work. The lump sum signed on AIA G701 typically includes a broad waiver of further claims related to the change. Sign it, and you have signed away the measured-mile claim on the base-contract inefficiency caused by the same change. Always carry T&M or include explicit productivity-impact reservation language.
Contingency vs. allowance — two different animals
Both appear in change-order discussions and they are not interchangeable. A contingency is owner-controlled money set aside for unknowns; it is released at the owner's direction and typically requires an owner-approved change order to draw against. An allowance is a contract-sum carrying amount for a scope defined in concept but not in detail (hardware allowance, flooring allowance); when the actual scope is priced, a deductive or additive change order reconciles the allowance to actual cost per A201-2017 Section 3.8.
On contingency, the contractor has no claim until work is directed. On allowance, the contractor has a contractual obligation to propose and execute the scope within the allowance framework. Mixing the two in a COR conversation leads to arguments that are avoidable if the language was clean at contract signing.
Delayed approval and carrying cost
A change order sitting in architect or owner review for 90 days is costing the contractor money. Two categories of carrying cost apply:
- Direct carrying cost — interest on material already purchased, crew hours not billable until approval, vendor hold-price windows expiring.
- Indirect carrying cost — general conditions and extended home-office overhead for schedule delay caused by the change. The Eichleay formula (Eichleay Corp., ASBCA No. 5183, 60-2 BCA ¶ 2688, 1960) is the most-cited method for unabsorbed home-office overhead, though many state courts and some federal boards accept alternatives.
The discipline: every open COR older than 45 days generates a carrying-cost line on the disputed change log, so the cumulative exposure is visible to ownership and recoverable if the change is ultimately executed.
The disputed change log
Every active project maintains a change log, but the discipline that separates profitable firms from break-even ones is the disputed change log — CORs submitted, CORs in review, CORs rejected, CORs approved but unexecuted. Each line carries the scope, dollar amount, date submitted, current age, and a flag for carrying-cost accrual. Monthly, this log feeds the WIP schedule and shows up on the risk report to ownership.
Without this discipline, disputed changes quietly become losses at project closeout when memory is poor and documentation is thin.
Worked example: 3-day T&M vs. lump sum
Scope: add two 30-amp circuits from a new subpanel to two new dedicated receptacles in a healthcare corridor, with existing ceilings to be reopened and reclosed. Scope is partially defined — circuit routing requires field verification above ceilings and coordination with base-building MEP.
| Pricing Element | Lump Sum | T&M (Actual) |
|---|---|---|
| Electrician hours (estimated) | 18 mh | actual: 26 mh |
| Apprentice hours (estimated) | 18 mh | actual: 26 mh |
| Composite rate electrician | $115/hr | $115/hr |
| Composite rate apprentice | $78/hr | $78/hr |
| Labor cost | $3,474 | $5,018 |
| Material — wire, conduit, devices, fittings | $1,180 | $1,210 actual |
| Material markup at 15% | $177 | $182 |
| Small tools/consumables | $95 | $118 |
| Subtotal | $4,926 | $6,528 |
| Sub overhead & profit 22% | $1,084 | $1,436 |
| GC overhead & profit 10% | $601 | $796 |
| Change order total | $6,611 | $8,760 |
Actual field time landed at 26 hours per trade rather than 18, driven by unexpected cable tray congestion above the corridor ceiling. On the lump sum, the sub absorbs the $2,149 overrun. On T&M, the owner pays it. Both invoices ride AIA G701. In both cases, the markup stack is 32% — the difference is who holds the productivity risk.
The operating principle
Quote lump sum when you own the productivity. Quote T&M when the owner owns the disruption. Never sign a G701 without reviewing the language for waiver of further claims, and always keep the disputed change log current so carrying cost is documented and recoverable. The firms that grow on change orders are the firms that run this discipline every week.
PILRS attaches change-order quantification to the takeoff so the same crew rates and burden stack from the base bid flow directly into the COR. See pricing and make the change-order conversation a pricing exercise, not a renegotiation.