How to Determine the Cost of an Engineering Change Order

An engineering change order can be used to fix a design flaw.

Engineering change orders (ECOs) are changes that engineers propose once a construction project or engineering development schedule has begun. Change orders are expected in large-scale projects and typically add costs to an ongoing project. According to Industry Week, 73 percent of manufacturers don't know the cost of engineering change orders. It is important for manufacturers to know how much an ECO costs so they can adequately budget the project.

Instructions

Contractual Terms

1. Review the original contract to read the ECO policies.

2. Discuss the contract with the engineers, if you believe the engineers should cover the cost of the ECO.

3. Decide who will pay for the ECO costs, the manufacturers or the engineers. You may have to involve a lawyer to review the contract and advise you on how to proceed if the engineers will not cover the ECO costs.

Personnel Hours

1. Research the ECO to ensure the development or construction team has the skill set and certifications to complete the task.

2. Take overtime, training certifications and insurance into account when you are conducting your research.

3. Calculate the hourly salaries of the people involved in the ECO to estimate the total personnel costs.

Material Costs

1. Ask the engineers to provide you with the tools and parts required to complete the ECO.

2. Estimate the costs to acquire the tools and parts.

3. Request a quote from a third-party supplier to ensure the quote you received is comparable with what other companies charge.

Completion Date

1. Inquire if the ECO will affect the project completion date.

2. Figure out the new opening date (if it is affected) and estimate how much the company will lose for opening later than expected.

3. Remember to consider all lost revenue, including additional marketing and public relations expense and VIP guests' plane tickets.

Tips & Warnings

• If your project is large, consider hiring someone to handle change order costing.

References

• Industry Week: How Much do Your Engineer Change Orders Cost You: Adrienne Selko; June 18, 2007
• Electrical Contractors Association of Ottawa: Change Order Cost Guideline; May 2010