Why a machine builder with €5 million in project revenue does €300,000 of extra work every year that never reaches an invoice

A €75,600 question at the coffee machine

In week 14, a machine builder's fitter is at a customer's site assembling a packaging line. The customer's production manager walks past and asks whether the outfeed conveyor can be a metre longer, because otherwise the pallets will not fit. The fitter calls the project manager, the project manager says it should be possible, and two weeks later there is a longer conveyor with modified controls. The post-calculation of that project eventually shows 720 hours of requests like this: the conveyor, two extra sensors, a different infeed side and controls that were changed three times. At the sales rate of €105 that is €75,600, on a project of €420,000. None of it was invoiced, because nobody said at the moment of the request that it would cost money.

We see this often at machine and equipment builders, and in the post-calculation it is usually the largest item in the overrun. The managing director sees the overrun, points at the estimate or at the project manager, and looks for the solution in a higher mark-up on the next quotation. Meanwhile the customer has received a machine that can do more than what he bought, and has paid the quoted price for it.

Extra work that is not invoiced is work the company has already delivered and then given away, with the costs already incurred. That is a different item from an estimate that was too low, and it calls for a different measure than a mark-up.

Why the work gets done and the invoice does not get sent

Sun and Meng (2009), peer reviewed in the International Journal of Project Management, brought together the literature on changes in construction projects (change orders or variation orders) in a classification by causes and effects. A large share of the causes lies with the client: changed requirements, a design that only becomes final during construction, decisions that come too late, and new wishes that arise as soon as the client sees the work taking shape. The effects they describe are delay, higher costs, rework and a disrupted schedule for the contractor. Sun and Meng write about construction; a packaging line to customer specification is the same kind of project in this respect: the customer only sees the design working once it is built, and then he wants something different.

Ibbs (2012), peer reviewed in the Journal of Legal Affairs and Dispute Resolution in Engineering and Construction, analysed 226 construction projects and found that changes during the project depress the productivity of the remaining work. On projects with 20 percent change, productivity was on average 18 percent below plan; on projects with less than 5 percent change, the plan was met in 60 percent of cases, and with more than 15 percent change in none. Ibbs also refers to his own earlier work from 2005 on the timing of changes: the later in the project, the greater the damage. For a machine builder this means that a change in the assembly phase costs more than the hours the change itself takes, because the work around it slows down too. That part of the cost appears on no extra-work line at all.

Ismaeil and Sobaih (2024), peer reviewed in Buildings, analysed ten turnkey construction projects at one university in Saudi Arabia and counted 103 change orders with a total value of 7.13 percent of the contract value. That is a different sector and a different country, so the figure cannot be carried over; it does show the order of magnitude at which changes occur in a project organisation. We have not found a published figure for machine building. At the companies we see, change hours on a new design to customer specification are between 5 and 15 percent of the estimated hours, and below 5 percent on a variant of an existing design.

Why the invoice then fails to appear is a different question, and the answer comes from behavioural economics. Kahneman and Tversky (1979), peer reviewed in Econometrica, described in their prospect theory that people weigh a loss more heavily than an equal gain. Brown, Imai, Vieider and Camerer (2024), peer reviewed in the Journal of Economic Literature, combined 607 empirical estimates of that ratio from 150 studies and arrive at an average loss aversion of 1.955: a loss counts about twice as heavily as a gain of the same size. Those estimates come from laboratory and field studies of individuals; research on project managers is not among them. What we see in project managers does fit. The project manager who has to say at the coffee machine that the longer conveyor will cost 40 hours, €4,200, weighs the chance of an irritated customer more heavily at that moment than the €4,200 for the company, and he is not the one who misses the amount at the end of the year.

On top of that comes a legal mechanism. Article 7:755 of the Dutch Civil Code (Burgerlijk Wetboek, BW) provides for contracts for works (aanneming van werk) that, for additions or changes requested by the client, the contractor can only claim a higher price if he warned the client in good time of the need for a price increase, unless the client should have understood that need himself; this rule cannot be set aside to the client's detriment. Building a machine to specification is a contract for works. If you build the longer conveyor without anyone saying at that moment that it costs money, you are in a weaker position afterwards than if someone had. Law firm REIN (2024) discusses in a blog, so not an academic source, two rulings of the Dutch Supreme Court (Hoge Raad) (1 July 2022, ECLI:NL:HR:2022:989, and a ruling from 2024) in which the Supreme Court interprets the exception more broadly than lower courts did: a client who should have understood that his request would lead to extra costs cannot hide behind the absence of a warning. That strengthens the machine builder's position if it comes to proceedings, and at the companies we see it rarely gets that far, because nobody wants to take a customer to court over €4,200.

The last cause lies in the administration. The 720 hours on the packaging line were booked as ordinary assembly hours. In the post-calculation they are called overrun, and overrun is treated as a cost problem of the project, while unbilled extra work is a revenue problem of the company. How those hours end up in the post-calculation next to waiting time, rework and incorrectly booked hours is worked out in Why a machine builder only sees at invoicing that a 2,400-hour project took 2,870. This article is about the largest of those four items, and about why there was never an invoice to match it.

Worked example: €5 million project revenue, 3,200 change hours, 800 invoiced

In this worked example, a machine builder with 48 employees builds twelve projects a year, together €5,000,000 in project revenue excluding VAT. Of that, €3,150,000 is hours (30,000 hours at €105) and €1,850,000 is materials and subcontracted work, with a 10 percent mark-up on a purchase value of €1,682,000. The internal cost per productive hour is €80: wage costs and direct workshop costs. The 30,000 hours therefore cost €2,400,000, and the contribution margin is 5,000,000 minus 2,400,000 minus 1,682,000, which is €918,000, 18.4 percent. Overheads (sales, work preparation, non-project engineering, office) are €650,000 a year, and the profit before tax is €268,000.

Of the 30,000 hours booked, 3,200 were spent on changes requested by customers. We leave the other causes of overrun out of this example; the estimated hours are therefore 26,800, and the changes are 11.9 percent of that. Of those 3,200 hours, 800 were invoiced as extra work, €84,000, and that revenue is already included in the 5,000,000. The other 2,400 hours were carried out and never charged. With the materials that went with them (€43,600 at cost, €48,000 with mark-up) that is €300,000 at sales value: 2,400 times 105 is 252,000, plus 48,000.

The difference between A and B is €300,000, and that is the full amount, because the costs have already been incurred in both scenarios: the fitters have booked the hours and the materials have been bought. Six percent of revenue thus turns out to be 112 percent of profit. The difference between A and C is €235,600, the cost of 2,400 hours and the materials, and that amount only applies if the freed-up hours are sold to another project or are not hired in. At a company with its own permanently employed fitters and no other work in those weeks, the saving in scenario C is smaller, because the wage costs continue anyway. For most machine builders we see, B is therefore the scenario to steer towards: the work is welcome, as long as there is an invoice for it.

We leave corporate income tax (vennootschapsbelasting) out of the table here. In this example the profit of €268,000 falls partly above the €200,000 threshold at which the 25.8 percent rate starts in 2026 (Belastingdienst, rates 2026), and tax on a year is assessed after that year ends; the effect of the extra work on profit is the same pre-tax amount in each scenario.

What the average hides

Six percent of revenue is an average across twelve projects, and that average says little about where the money is. The company divides its projects by how much of them has been built before, the same classification as in the post-calculation article.

The invoiced share is 25 percent across the board: 800 of the 3,200 hours. We call that figure the extra-work ratio, and it is the first figure a managing director should see each quarter. In this example the ratio is at about the same level for each project type, and at the companies we see that is usually the case too: the pattern depends on the people and the procedure, and much less on the type of machine.

The euros, however, sit with one type. The four new designs account for €163,800 of the €252,000, 65 percent, and within those four the packaging line from the opening stands out with 720 of the 1,560 hours. On that one project €75,600 was given away, 18 percent of the €420,000 price. The other three new designs average 280 hours, €29,400 per project. If you put the extra-work ratio per project, per project manager, per customer and per project type side by side, at most companies you will find one or two customers who systematically ask and never pay, and one project manager who systematically says yes.

Ibbs' figures from the previous section also say that 11.9 percent change hours in itself causes a productivity loss on the remaining hours. On projects with 10 percent change, productivity in his dataset was below plan. Part of the waiting time and switching that appears under other items in the post-calculation is therefore also a consequence of the changes, and that part is not in the €300,000. The €300,000 is therefore the lower limit of what unbilled extra work costs the company.

What is acceptable, and at which moment in the project

An extra-work ratio of 100 percent is not a goal. A customer who is a good relationship sometimes deliberately gets something, and you do not put a one-hour change on an invoice. The difference between giving away and leaking lies in who decides and whether it is recorded. This is what we see as workable at machine builders, per moment in the project.

The part that is deliberately given away deserves its own line. In this example 1 percent per project is €4,167, across twelve projects €50,000 a year. That is the amount the project manager can give away without asking, with a line in the change log noting that it was given away. Above that, management decides. The difference from the current situation is then €250,000 a year, and the customer notices little of it: the €4,200 longer conveyor fits within the budget, the controls that were changed three times do not.

How to measure it without a new system

The proper method is a change procedure in the project system: each request gets a number, an estimate, a status and a link to time registration and invoicing, and the project manager sees per project what is outstanding. Setting that up and keeping it going is work we do for clients, and so it is also how we earn our money.

The do-it-yourself version takes one line per change and one column in the weekly sheet. The project manager keeps a list per project with, for each change, the date of the request, who asked, a one-line description, the estimated hours, the date of the notice to the customer, the date of approval, and the status: invoiced, given away or open. The list sits in the same sheet as the progress per work package, so it is updated every week at the moment the project manager is working on the hours anyway. The fitters book the hours for a change to a separate code, with the line number.

If you want to know today how large the leak was over the past year, you can reconstruct it. Step 1: take the post-calculations of the completed projects and put the overrun in hours for each project on one line. Step 2: go through the email correspondence and drawing revisions per project and mark which part of the overrun can be traced back to a customer request; at most companies this is in the project manager's emails and in the revision numbers of the drawings. Step 3: next to that, put what was invoiced as extra work per project, from the sales invoices. Step 4: divide the invoiced extra work in hours by the total change hours from step 2; that is the extra-work ratio. In the worked example: 800 divided by 3,200 is 25 percent. Step 5: multiply the unbilled hours by the sales rate and add the materials: 2,400 times 105 is 252,000, plus 48,000 is €300,000.

That reconstruction is rough, because the hours were never on a code. At the companies where we have done this, an afternoon produced a figure large enough to introduce the list from the previous paragraph the following Monday.

How to get extra work invoiced

Put the change arrangement in the quotation itself. Article 7:755 BW requires you to warn the client of the price increase in good time; a clause in the order confirmation with the €105 rate and the procedure is the first warning, and the notice on the day of the request is the second. If you have both, in this worked example you do not need to rely on the Supreme Court's exception.

Send a short message on the day of the request: what the customer asked for, roughly how many hours it will take, at what rate, and that work starts after approval. The project manager then does not have to say anything about money on the shop floor. At the companies we see, that is why the notice does then get sent: the conversation about the price moves from the moment of the request to an email, and the customer decides himself.

Give the project manager a goodwill budget of 1 percent of the project price, €4,167 per project in the example. Anything within that he can give away without asking, with a line in the log. Anything above it, management decides. In the example that turns €300,000 of work given away into €50,000 of work deliberately given away and €250,000 of revenue.

Invoice extra work on the next progress invoice. At handover, the amount sits opposite a customer who wants to accept the machine and has a list of outstanding items, and in that negotiation extra work is the first thing to go. How progress invoicing also relieves work in progress and the overdraft facility is set out in Why a machine builder with €700,000 of work in progress makes a profit and still hits its credit limit.

Agree a design freeze when the drawings are approved. After that date every change to the design is extra work, even a small one. Ibbs (2012) shows that a change later in the project costs more than the same change early on; the freeze fixes that moment and gives the customer a reason to state his wishes before that date.

Discuss the extra-work ratio per project manager and per customer every quarter. In the example this shows that one customer asked for 720 hours and paid nothing, and the managing director has that conversation with the customer, instead of the project manager on the shop floor. Which part of your customers carries the profit and which part eats it is worked out in The Pareto principle is also a risk meter for your business.

Take unbilled extra work out of the mark-up. A managing director who puts 13 percent on all hours because the post-calculations show a 13 percent overrun prices the extra work in for every customer, including the customer who never asks for anything, and loses quotations as a result. The mark-up is meant for overrun that is not a change. For the changes themselves, the invoice is the instrument.

When this worked example does not apply

The example assumes a company that works at a fixed price per project and carries out the changes itself. For some companies things are different.

A company that works on a time-and-materials basis invoices all hours and does not have this leak; there the problem shifts to the discussion about the invoice and to whether the customer comes back. A company that makes series or repeat orders has few changes during execution, and the changes it does have go through a new drawing and a new price.

The example also does not apply to changes that result from your own mistake. A dimensional error from engineering that only shows up during assembly is rework, not extra work, and article 7:755 does not help there. At some companies we see rework being reported as a change to make the post-calculation look better; that costs the customer and, in time, the relationship.

And there are customers for whom giving away is a deliberate price. A strategic customer with three projects a year, where the longer conveyor secures the follow-up order, gets that conveyor. The difference from the current situation is that management decides it, that the amount is in the log, and that at the end of the year it is €50,000 and not €300,000. We see that a properly handled change strengthens the relationship more often than it harms it, as long as the customer knows in advance what he is asking for and what it costs.

Finally, the project manager's loss aversion may be justified. A customer who questions the relationship at every extra-work notice is a customer with a price, and that price belongs in the quotation for the next project.

What the law provides and what to ask your adviser

For contracts for works, article 7:755 BW applies: a higher price for requested additions or changes can only be claimed if the contractor warned in good time of the need for a price increase, unless the client should have understood that need himself, and this rule cannot be set aside to the client's detriment. Many machine builders also work under industry terms and conditions with their own extra-work clause, and those terms only apply if they have been properly declared applicable and provided to the client.

We do not give tax or legal advice. Questions you can put to your adviser after reading this article: which general terms and conditions apply to our contracts and what do they say about extra and reduced work; is our change procedure part of the agreement or only of the terms and conditions; what is needed to prove a customer's verbal request as an order; how long can we still claim extra work that we carried out last year and never invoiced; and when should a client have understood the need for a price increase himself.

Why this matters now

CBS (2026) reported on 11 September 2026 that 304 companies were declared bankrupt in August, 24 more than a year earlier, and that the bankruptcy rate in construction rose from 10.7 to 16.5 per hundred thousand companies; in manufacturing it stands at 20.1. A machine builder that supplies its lines to a processor or a builder therefore has a customer base in which the risk of a non-paying customer has increased over the past year. Extra work that was never invoiced appears on no list of creditors in such a bankruptcy, because it is not a claim. What has been invoiced is at least a claim, even if only part of it is eventually paid.

Frequently asked questions about extra work that is not invoiced

How do I invoice extra work that the customer requested verbally?

On the day of the request, send a written confirmation stating what was requested, who requested it, the estimated hours at the agreed rate, and that work starts once approved. Then book the hours to a separate code and invoice the approved extra work on the next progress invoice. If the work has already been done without notice, the claim depends on article 7:755 BW: the client must have been expected to understand the need for a price increase without being told. For the €4,200 longer outfeed conveyor in the worked example that is defensible, and the conversation is easier if the notice is on file.

Can I charge for extra work without a written order?

A verbal order is an order, and the law does not require written form. The problem is proof and the duty to warn under article 7:755 BW. Law firm REIN (2024) describes two Supreme Court rulings in which a contractor was entitled to payment even without a warning, because the client should have understood the extra costs. That is a position for a court case, and a short email on the day of the request is cheaper.

How much extra work is normal in a machine building project?

We have not found a published figure for machine building. Ismaeil and Sobaih (2024) counted changes worth 7.13 percent of the contract value across ten turnkey construction projects. At the machine builders we see, change hours on a new design to customer specification are between 5 and 15 percent of the estimated hours, and below 5 percent on a variant; in the worked example it is 11.9 percent across all projects. The number of changes matters less than the share that reaches an invoice.

Why does my project manager not invoice extra work?

Because at the moment of the request he weighs a possible loss (an irritated customer) more heavily than a gain for the company (the invoice), and at the end of the year he does not miss the amount. Brown, Imai, Vieider and Camerer (2024) found in a meta-analysis of 607 estimates that people weigh a loss on average 1.955 times as heavily as a gain. The solution is to take the decision away from the project manager: a standard notice on the day of the request and a goodwill budget of 1 percent within which he can decide himself. Above that budget, management decides.

How do I record extra work without a new system?

With one list per project in the same weekly sheet as the progress: for each change the date of the request, who asked, a one-line description, estimated hours, date of the notice, date of approval and the status (invoiced, given away, open). The fitters book the hours to a separate code with the line number. In the worked example the list produces the extra-work ratio each quarter: 800 invoiced hours divided by 3,200 change hours is 25 percent.

What is a reasonable goodwill budget per project?

We see 1 percent of the project price as workable: in the worked example €4,167 per project of €416,667, and €50,000 a year across twelve projects. Within that, the project manager decides himself and records it as given away; above it, management decides. The budget is meant to handle the small requests without discussion, and to make the large ones visible.

What does Dutch law say about extra work under a construction contract?

Article 7:755 BW provides that, for additions or changes requested by the client, the contractor can only claim a price increase if he pointed out the need for it in good time, unless the client should have understood that need himself. This provision cannot be set aside to the client's detriment. Building a machine to specification falls under a contract for works. We do not give legal advice; which terms and which rules of evidence apply in your contracts is a question for your adviser.

How do I prevent scope creep in a fixed-price project?

With a scope description in the quotation that also says what is not included, a design freeze when the drawings are approved, a change procedure that takes effect on the day of the request, and a separate hours code for changes. Ibbs (2012) found across 226 projects that with less than 5 percent change the plan was met in 60 percent of cases, and with more than 15 percent never. Changes that still come after the freeze are then extra work with a price, and the customer decides himself whether he wants them.

Further reading: Why a machine builder only sees at invoicing that a 2,400-hour project took 2,870, Why a machine builder with €700,000 of work in progress makes a profit and still hits its credit limit, Why a machine builder with fixed prices loses its margin to a steel price rise between quotation and purchase, Why fixed-price deals in IT projects lose money more often than you think, Keeping projects profitable: from estimate to evaluation and The Pareto principle is also a risk meter for your business.

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