What is a Change Order in Construction?
Understanding change orders is critical for protecting your profits. Learn what they are, when they are needed, and how to manage them effectively.
Quick Answer
A change order in construction is a formal written agreement between the contractor and client to modify the original contract. Change orders document any alteration to the project scope, cost, or schedule after the contract has been signed. They are a standard part of construction — virtually every project encounters some changes. What separates successful contractors from struggling ones is how well they manage the change order process.
When Are Change Orders Needed?
Change orders arise from a variety of situations. Understanding the common triggers helps you anticipate and handle them proactively:
- Design changes (different layout, added rooms)
- Material upgrades (granite instead of laminate)
- Additional scope (extra bathroom, upgraded HVAC)
- Hidden structural damage or rot
- Unexpected soil or foundation issues
- Asbestos, mold, or environmental hazards
- Errors or conflicts in plans and specifications
- Building code changes or inspector requirements
- Engineering revisions during construction
- Material price escalation on long projects
- Supply chain delays requiring substitutions
- Regulatory changes during project duration
The Change Order Process
A well-defined change order process protects both the contractor and the client. Follow these steps every time:
- Identify the Change: Recognize that the requested or required work falls outside the original contract scope. Document what has changed and why.
- Notify the Client: Immediately inform the client in writing that a change order is required. Do not begin any changed work before this step.
- Price the Change: Prepare a detailed breakdown showing additional material costs, labor hours, subcontractor costs, equipment, and your overhead and profit markup. Reference the original estimate where helpful.
- Document Schedule Impact: Determine how many days (if any) the change adds to the project timeline. Be specific and realistic.
- Submit the Change Order: Present a formal change order document that clearly states the scope change, cost adjustment, and schedule modification.
- Obtain Written Approval: Get the client's signature before performing the work. A verbal "go ahead" is not sufficient — insist on written authorization.
- Execute the Work: Perform the changed work and track costs against the change order budget using your job costing system.
- Update Project Records: Adjust the overall project budget, schedule, and payment schedule to reflect the approved change.
Impact of Change Orders on Budget and Timeline
Change orders affect projects in ways that go beyond the obvious cost and time additions:
- Direct Cost Increase: The most obvious impact — additional materials, labor, and subcontractor costs for the changed work.
- Indirect Cost Increase: Extended project duration means more days of overhead: supervision, insurance, portable toilets, equipment rentals, and general conditions.
- Disruption Costs: Changes often interrupt the planned sequence of work, requiring re-mobilization of trades, idle time, and rescheduling that ripple through the entire project.
- Cash Flow Impact: Change orders affect the payment schedule. The contractor may need to fund additional materials and labor before receiving payment for the change.
- Relationship Strain: Poorly managed change orders are the number one source of disputes between contractors and clients. Clear communication and documentation prevent most conflicts.
Change Order Best Practices
| Best Practice | Why It Matters |
|---|---|
| Always get written approval first | Verbal agreements are unenforceable. Written signatures protect your payment rights. |
| Price changes promptly | Delayed pricing creates sticker shock. Present costs while the reason for the change is fresh. |
| Include schedule impact | Clients accept time extensions more easily when they understand the connection to their changes. |
| Use clear, detailed descriptions | Vague descriptions lead to disputes about what was included. Be specific about scope. |
| Maintain a change order log | Track all change orders in one place with running totals of cost and schedule impact. |
| Establish markup in the contract | Pre-agreed markup percentages eliminate negotiation on every change order. |
| Photograph existing conditions | Visual documentation of hidden conditions supports your change order justification. |
How BuilderMate Simplifies Change Order Management
BuilderMate's change order tools streamline the entire process so nothing falls through the cracks:
- Digital Change Orders: Create professional change order documents in minutes with pre-built templates. Include line-item pricing, schedule impact, and scope descriptions.
- Client Approval Workflow: Send change orders to clients for electronic signature directly through the platform. No printing, scanning, or chasing paper.
- Automatic Budget Updates: When a change order is approved, the project budget updates automatically in the budget tracking system — no manual adjustments.
- Schedule Integration: Timeline adjustments from change orders flow into the project schedule in project management.
- Payment Schedule Adjustments: Approved change orders automatically update the payment schedule and invoicing.
- Complete Audit Trail: Every change order is timestamped and stored with the full approval history, creating documentation you can rely on if disputes arise.
- Change Order Log: A centralized dashboard shows all change orders across all projects with running totals, statuses, and trends.
What to Include in Every Change Order
A complete change order document should contain:
- Change order number — sequential numbering for the project (CO-001, CO-002, etc.)
- Date — when the change order was created
- Project name and contract reference
- Description of changed work — detailed and specific
- Reason for change — client request, unforeseen condition, design error, etc.
- Cost breakdown — materials, labor, subs, equipment, overhead, profit
- Schedule impact — number of days added (or subtracted)
- Running total — revised contract amount after this change
- Signature lines — for both contractor and client with dates
Frequently Asked Questions
What is a change order in construction?
A change order is a formal, written amendment to the original construction contract that modifies the scope of work, project cost, schedule, or any combination of the three. It must be agreed upon and signed by both the contractor and the client before the changed work is performed.
Who can initiate a change order?
Either party can initiate a change order. The owner may request design changes, material upgrades, or additional work. The contractor may initiate change orders due to unforeseen site conditions, code requirements, or design errors. Architects and engineers may also recommend changes during construction.
What happens if work changes without a signed change order?
Performing changed work without a signed change order is one of the biggest financial risks in construction. Without written documentation and approval, the contractor may not be able to collect payment for the extra work, leading to disputes, legal action, and lost profits.
How do change orders affect the project timeline?
Change orders frequently extend the project timeline. Additional work takes additional time, and changes may disrupt the sequence of other activities. The change order should specify the number of additional days added to the schedule, if any, to set clear expectations.
How should change orders be priced?
Change orders should be priced using the same methods as the original estimate: material costs, labor hours, subcontractor quotes, equipment, plus overhead and profit markup. Many contracts specify an agreed-upon markup percentage (commonly 15-20%) for change order work.
What is the difference between a change order and a change directive?
A change order is a mutual agreement signed by both parties. A change directive (or construction change directive) is a written order from the owner directing the contractor to proceed with changed work before the price and time are formally agreed upon. The cost is negotiated afterward.
How many change orders are normal on a project?
Some change orders are normal on virtually every project. Industry data suggests that change orders typically add 5-15% to the original contract value. Projects with thorough pre-construction planning tend to have fewer and smaller change orders.
How does BuilderMate manage change orders?
BuilderMate provides digital change order creation, client approval workflows with electronic signatures, automatic budget and schedule adjustments, and a complete audit trail. Change orders flow directly into job costing and invoicing. Plans start at $99/month with a 30-day free trial.
Manage Change Orders Without the Headaches
BuilderMate makes change orders simple: create, price, send for approval, and automatically update budgets and schedules. No more lost paperwork or unpaid extra work. Try it free for 30 days.