Change Orders in Construction: The Definitive Guide for 2026

Whether you’re a contractor trying to protect your margins or an owner managing project costs, understanding how change orders work is essential. This guide covers everything you need to know: types of change orders, the approval process, pricing strategies, standard forms, and the major 2026 legal changes affecting the industry.

What is a Change Order in Construction?

A change order is a written agreement that modifies a construction contract’s scope, cost, or timeline after the original contract has been signed. It’s the formal mechanism for adjusting the deal when conditions change during a project.

Change orders become necessary whenever:

• The owner requests additional work or modifications
• Unforeseen site conditions are discovered
• Design errors or omissions require corrections
• Building codes or regulations change
• Materials need substitution
• Weather or other factors impact the schedule

Once signed by all parties (typically the owner, contractor, and architect), a change order becomes a legally binding amendment to the original contract.

Types of Change Orders

Not all change orders are structured the same way. The type you use depends on how well the additional work can be defined and priced upfront.

1. Time and Materials (T&M) Change Orders

Used when the full cost of a modification cannot be accurately estimated beforehand. The contractor tracks actual time spent and materials used, billing at agreed-upon rates. This approach is common for exploratory work or when the scope of additional work is uncertain.

2. Unit-Priced Change Orders

Establishes a fixed price for each unit of work—for example, a set rate per square foot of flooring or per linear foot of piping. This works well when the type of work is known but the quantity isn’t.

3. Lump Sum Change Orders

A fixed price for the entire change, negotiated and agreed upon before work begins. Best for well-defined changes where scope is clear.

4. Time-Only Change Orders

Extends or shortens the project schedule without changing the contract price. Common when permit delays, weather events, or other factors affect the timeline but not the work itself.

5. Value Engineering Change Orders

Substitutes a different method or material to reduce cost without compromising quality. For example, using an alternative HVAC system that still meets performance specifications but costs less.

Construction Change Directives (CCDs)

A Construction Change Directive (CCD) is distinct from a standard change order. CCDs allow work to proceed immediately, even without contractor agreement on cost or schedule impacts.

The owner and architect sign CCDs to direct the contractor to implement changes before reaching agreement on adjustments. This mechanism serves primarily as an emergency measure when:

• Delays from the traditional change order process would cause undue risk
• Work must continue to maintain project momentum
• Parties need time to negotiate final costs

The contractor performs the work under protest if necessary, and cost negotiations continue afterward. CCDs should be used sparingly—they can create disputes if final pricing isn’t resolved promptly.

The Change Order Process: Step by Step

Most construction contracts specify precise procedures and timeframes for change order processing. Here’s the typical workflow:

Step 1: Identification

A potential change is identified. This could come from the owner requesting modifications, the contractor discovering unforeseen conditions, or the architect issuing design clarifications.

Step 2: Written Notice

Most U.S. contracts (including AIA and ConsensusDocs) require written notice before a change order can be submitted. This formal notification states that a change to the work may be needed. Typical deadline: 7-14 days from identifying the change.

Step 3: Change Order Request (COR)

The contractor submits a Change Order Request documenting:

• Detailed description of the proposed change
• Cost estimate with breakdown
• Schedule impact analysis
• Justification and supporting documentation

Step 4: Review and Negotiation

The owner and architect review the COR. This stage often involves negotiation on pricing, scope, and schedule impacts. Be prepared to defend your numbers with documentation.

Step 5: Approval

Once terms are agreed, the change order is formally issued and signed by all parties. Only then should additional work begin (unless a CCD has been issued).

Step 6: Execution and Documentation

Work proceeds according to the change order terms. Track all costs and maintain documentation for billing and potential disputes.

Change Order Request (COR) vs. Change Order: What’s the Difference?

These terms are often confused, but they represent different stages in the process:

A COR is a contractor-generated document requesting a change. It becomes a Change Order only after review, negotiation, and signature by all required parties. Multiple CORs may be bundled into a single Change Order.

Essential Components of a Change Order

Every change order should include these elements:

Project Information

• Project name and location
• Client/owner name
• Contractor information
• Original contract date and number

Change Order Details

• Change order number: Unique identifier for tracking
• Date of request
• Description of change: Clear, detailed explanation of modified work
• Reason/justification: Why the change is necessary

Financial Impact

• Cost breakdown (labor, materials, equipment, overhead, profit)
• Revised contract sum
• Payment terms for the additional work

Schedule Impact

• Days added or subtracted
• Revised completion date
• Impact on project milestones

Supporting Documentation

• Revised drawings or specifications
• Photos documenting conditions
• Correspondence related to the change

Signatures

• Owner
• Contractor
• Architect (if applicable)

Change Order Markup and Pricing

Pricing change orders correctly is critical for contractor profitability. Many contractors lose money on change orders because they underestimate true costs.

Standard Markup Rates

The industry standard maximum markup for change orders is typically 15% combined overhead and profit. However, this varies by contract:

• 5-10% overhead + 5-10% profit is common in many contracts
• 10% total is specified in many institutional contracts (colleges, universities)
• 15% maximum is the general industry standard

For subcontractor work supervised by the general contractor, markups are often limited to 5% on top of the sub’s pricing.

The Problem with Low Markups

Industry experts warn that standard 10-15% markups often don’t cover true costs. Processing change orders requires:

• Estimating time
• Administrative overhead
• Schedule coordination
• Additional supervision
• Documentation and reporting

These hidden costs can make change order work unprofitable at low markups. Know your true costs before agreeing to markup caps in contracts.

Pricing Best Practices

• Itemize all costs transparently (labor, materials, equipment, overhead, profit)
• Include disruption and productivity impacts
• Document everything to support your pricing
• Negotiate markup rates during original contract negotiation, not after changes arise

AIA G701 and Standard Forms

The AIA G701 is the most widely used standard form for documenting change orders in construction. Published by the American Institute of Architects, it provides a consistent format recognized across the industry.

What the AIA G701 Includes

• Project information (name, address, contract details)
• Change order number and date
• Description of changes
• Adjustments to contract sum
• Adjustments to contract time
• Signature blocks for all parties

When to Use AIA G701

Use the AIA G701 whenever there’s a change that all parties agree on. It documents:

• Scope changes when the owner adds or removes work
• Unexpected site conditions requiring changes
• Value engineering modifications
• Design clarifications from the architect

Important Notes

• The form is not valid until signed by the architect, contractor, and owner
• AIA G701 works with AIA G702 (Application for Payment) and G703 (Continuation Sheet)
• Forms are copyrighted; legitimate copies start at approximately $50 for single use

Common Causes of Change Orders

Understanding why change orders occur helps prevent them. Research shows these are the most frequent causes:

Design Issues (Leading Cause)

Design changes contribute to 56.5% of cost overruns and 40% of project delays. The dominant category of change order causes is “errors and omissions” in design documents. As many as 70% of projects experience rework due to design inconsistencies or errors.

Owner-Initiated Changes

Owners frequently request modifications after seeing work in progress. While legitimate, these changes must be formally documented and priced.

Unforeseen Site Conditions

Discovering contaminated soil, underground utilities, or structural issues not shown in drawings triggers change orders to address the unexpected work.

Regulatory and Code Changes

Building codes evolve, and inspectors may require modifications to meet current standards.

Coordination Issues

When multiple trades don’t align, resulting conflicts often require change orders to resolve.

Market Conditions

Material availability issues may force substitutions, requiring formal documentation of alternatives.

Change Order Management Best Practices

Effective change order management protects both contractor profitability and owner budgets.

1. Document Everything

Thorough documentation is the cornerstone of effective change order management. Maintain records of all discussions, decisions, and approvals. This documentation serves as historical reference, aids dispute resolution, and ensures transparency.

2. Communicate Proactively

Don’t blindside clients with additional costs. When a change order is required:

• Explain the reasons behind the change
• Discuss budget and timeline impacts
• Obtain clear approval before proceeding

A PMI study found that poor communication leads to one-third of construction project failures.

3. Never Work Without Approval

The most critical rule: never perform work without a signed change order. Doing so often leads to payment denial and forms the basis for disputes and lawsuits.

4. Know Your Contract

The change order process is typically defined in your contract. Understand:

• Notification deadlines
• Required documentation
• Approval workflows
• Markup limitations

5. Track and Update Schedules

When changes impact the timeline, immediately update project schedules. Document how the change affects task dependencies and milestones.

6. Use Digital Tools

Paper-based tracking leads to lost tickets, errors, and delays. Modern change order software provides:

• Centralized documentation
• Automated workflows
• Digital signatures
• Real-time visibility for all stakeholders

7. Plan to Prevent

The best change order strategy is prevention. Thorough preconstruction planning, comprehensive design review, and clear scope definition minimize surprises during construction.

Avoiding Change Order Disputes

Change orders are a leading source of construction disputes. Here’s how to prevent them from becoming legal battles.

Clear Contract Language

Vague contracts breed disputes. Ensure your contract clearly defines:

• What constitutes a change
• The change order process and timelines
• Pricing methodology and markup limits
• Dispute resolution procedures

Written Approval Always

All change orders must be in writing before work begins. Verbal approvals lead to “I never agreed to that” disputes.

Timely Processing

Don’t let change orders linger. Establish systematic processes for prompt review, evaluation, and response. Delays breed frustration and forgotten details.

Maintain Open Communication

Establishing robust communication channels mitigates dispute risk. Keep all stakeholders informed and address concerns early, before they escalate.

Dispute Resolution Options

When disputes arise despite best efforts:

• Mediation: Facilitates dialogue and compromise; lower cost than litigation
• Arbitration: Third party rules on the matter; binding but less costly than court
• Mechanic’s liens: Legal claim on property to ensure payment for completed work

Change Order Software and Digital Tools

Modern construction software has transformed change order management. Key features to look for:

Essential Capabilities

• Mobile access: Create and approve change orders from any device
• Digital signatures: Eliminate paper shuffling and speed approvals
• Photo documentation: Attach timestamped images to change orders
• Automated workflows: Route CORs through approval chains automatically
• Budget integration: Update project financials in real-time
• Audit trails: Track all changes and approvals for compliance

Popular Solutions

Leading change order management platforms include Procore, Autodesk Construction Cloud, Buildern, Fieldwire, and specialized tools like Clearstory that focus specifically on change order workflows. Many claim 70%+ reduction in COR processing time compared to manual methods.

2026 Legal Changes: California SB 440 and SB 61

Major new laws taking effect January 1, 2026 significantly change how private construction projects handle change orders and payments in California. These changes signal broader industry trends.

SB 440: Private Works Change Order Fair Payment Act

This law establishes a standardized statutory process for change order disputes on most large private construction projects.

Key Requirements:

• Owners must respond in writing to contractor claims within 30 days
• Undisputed amounts must be paid within 60 days
• Late payments accrue 2% monthly interest
• Covers claims for additional compensation, time extensions, and delay impacts

SB 440 is scheduled to sunset on January 1, 2030, unless extended.

SB 61: Retention Cap

SB 61 caps retention—the portion of payment withheld until work is complete—at 5% instead of the commonly used 10%.

Key Provisions:

• Applies to most private projects beginning in 2026
• Contractors cannot retain more than the amount withheld by owners
• Exceptions exist for most residential projects (unless mixed-use over 4 stories)
• Higher retention permitted if subcontractor doesn’t provide bonds

Preparing for 2026

Companies should review and update contracts and internal procedures now to ensure compliance when these laws take effect. The emphasis on documentation, timely notice, and formal claims processes underscores industry-wide trends toward standardized change order management.

Change Order Statistics Every Contractor Should Know

• 85% of construction projects experience cost overruns
• 28% is the average cost overrun across projects globally
• 10-15% of contract value is the average change order cost on major projects
• 56.5% of cost overruns are attributed to design changes
• 70% of projects experience rework due to design issues
• $177 billion is the annual cost of rework and delays in the US construction industry
• 31% of construction jobs come within 10% of their budget
• 1/3 of project failures are caused by poor communication

Frequently Asked Questions

What is a change order in construction?

A change order is a written agreement that modifies a construction contract’s scope, cost, or timeline after the original contract is signed. It becomes legally binding once signed by the owner, contractor, and architect.

Who pays for change orders?

It depends on what caused the change. Owner-requested changes are paid by the owner. Changes due to contractor errors are typically the contractor’s responsibility. Changes from design errors may be charged to the architect or absorbed depending on contract terms.

What is a typical change order markup?

Industry standard is 10-15% combined overhead and profit, though this varies by contract. Many institutional contracts limit markup to 10%. Markups on subcontractor work are often capped at 5%.

What’s the difference between a change order and a construction change directive?

A change order requires agreement from all parties before work begins. A Construction Change Directive (CCD) allows work to proceed immediately, even without agreement on cost, with negotiations continuing afterward. CCDs are used in urgent situations.

How long do I have to submit a change order request?

Most contracts require written notice within 7-14 days of identifying a potential change. Check your specific contract for exact deadlines—missing them can invalidate your claim.

Can I perform work before the change order is signed?

Generally, no. Performing work without a signed change order often leads to payment disputes. The only exception is when a Construction Change Directive has been issued for urgent situations.

What happens if the owner won’t sign a change order?

If the owner disputes the change, you have several options: negotiate, seek mediation or arbitration per your contract terms, or in some cases, issue a stop work notice. Never continue disputed work without written authorization.

Key Takeaways

Effective change order management is essential for construction project success:

• Document everything: Thorough records protect you in disputes
• Communicate proactively: Don’t surprise clients with costs
• Get written approval: Never work without a signed change order
• Know your contract: Understand deadlines, processes, and markup limits
• Price accurately: Ensure markups cover true overhead costs
• Use digital tools: Replace paper with purpose-built software
• Prevent when possible: Thorough planning reduces change orders
• Stay current on laws: 2026 brings significant changes, especially in California

When handled properly, change orders can boost contractor revenue and maintain project momentum. When mismanaged, they lead to profit fade, disputes, and damaged relationships. The difference is discipline, documentation, and clear communication.