Change Order
A written modification to the original construction contract that changes the scope, schedule, or price.
Definition
A change order is a written modification to the original construction contract that changes the scope of work, the contract sum, the contract time, or all three. Change orders are signed by the owner, contractor, and (on most projects) the architect or engineer, and become part of the contract once executed.
Change orders are the formal mechanism for handling everything that does not fit the original contract — design changes, owner-requested additions, unforeseen conditions, and code-driven modifications. They are one of the most contested areas of construction administration.
How change order is used in estimating
In estimating, a change order is priced like a mini-bid. The estimator measures the added or deleted scope, applies unit prices (using the contract unit prices wherever possible), adds labor and equipment time, and applies the contractually agreed change-order markup. On lump-sum jobs the markup is typically 10 to 20 percent depending on whether the contractor or a subcontractor is performing the changed work, with stacked markup when a sub does the work.
Change-order discipline is critical to profitability. Work performed without an executed change order is performed at the contractor’s risk — many owners refuse to pay for unauthorized extras after the fact. Best practice is to price the change, get it signed, then perform the work. Where speed is required, the contractor and owner can issue a construction change directive (CCD) authorizing the work to start with the price negotiated afterward.
Common change-order mistakes
The most common mistake is performing changed work before getting a signed change order. This puts payment at risk and weakens the contractor’s negotiating position. Other frequent issues include underpricing the time impact (most changes also delay the schedule), forgetting to include impact on unchanged work, and stacking markup incorrectly on subcontractor changes. Track every change in writing from the moment it is identified, even if the final pricing comes later.
Frequently asked questions
Q.What is the difference between a change order and an addendum?
An addendum is issued before the contract is signed — it modifies the bid documents during the bidding period. A change order is issued after the contract is in place and modifies the executed contract. They are different documents handled by different procedures.
Q.How are change orders priced?
Either at contract unit prices (where the changed work matches an existing line), at agreed lump sum after negotiation, or on a time-and-materials basis with a not-to-exceed cap. The pricing method is usually specified in the contract.
Q.What markup is allowed on change orders?
It is set by the contract. Typical markup on the contractor’s own work is 10 to 15 percent, with an additional 5 to 10 percent on subcontractor change-order amounts. Read the contract clause carefully — incorrect markup is a common dispute.
Q.Can a change order reduce the contract amount?
Yes. Deductive change orders reduce the contract amount when scope is removed. Some contracts allow the contractor to retain a portion of the markup on deleted work to cover already-incurred planning effort.
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