Understanding change orders matters because they account for 8-14% of total contract value on average. On distressed projects, that figure can reach 25%. This guide explains what change orders are, how they work, and how to manage them effectively.
What is a Change Order?
A change order is a written document that officially modifies an existing construction contract. When signed by all required parties, it becomes a binding amendment to the original agreement.
Change orders typically address one or more of these elements:
- Scope: Work added, removed, or modified from original plans
- Cost: Contract price increases or decreases
- Schedule: Time extensions or accelerations
Any project stakeholder can initiate a change order, owners, contractors, architects, or subcontractors. But the change only takes effect when all required parties approve and sign.
Why Change Orders Matter
Change orders protect both parties. They document what changed, why it changed, who agreed to it, and what it costs. Without proper change order documentation, contractors risk not getting paid for extra work, and owners risk paying for work that wasn’t authorized.
Types of Change Orders
Change orders fall into three main categories based on their cost impact:
Additive Change Orders
The most common type. Additive change orders add work, materials, time, or cost to the project. Examples include:
- Owner requests additional electrical outlets
- Design team adds a window not in original plans
- New fire safety regulations require additional sprinklers
- Unforeseen rock formations require extra excavation
Deductive Change Orders
These remove or reduce scope from the contract, lowering the total price. Examples include:
- Owner eliminates custom millwork to save costs
- Material substitution results in lower cost
- Planned features removed due to budget constraints
Zero-Sum Change Orders
Changes that don’t affect the overall contract price. The modification might involve substitutions of equal value or scope adjustments that balance out.
What Causes Change Orders?
Change orders happen for various reasons:
Owner Requests
The client wants something different, such as upgraded finishes, layout changes, additional features. These are often the cleanest change orders since the owner initiates them.
Design Errors and Omissions
The dominant category of change order causes. Missing details in blueprints, conflicting drawings, or elements that can’t be built as designed all require contract modifications.
Unforeseen Site Conditions
Hidden conditions that couldn’t be anticipated: undocumented utilities, rock formations, contaminated soil, or structural issues behind existing walls.
Regulatory Changes
New building codes, inspector requirements, or zoning changes that differ from what was originally planned and approved.
Material Availability
Supply chain issues or significant price increases that force material substitutions. This has become increasingly common since 2020.
The Change Order Process: Step by Step
A typical change order workflow follows these steps:
1. Identify the Change
Someone notices an issue requiring modification, during a walkthrough, field work, or design review. Determine if it affects cost, schedule, or scope.
2. Notify Stakeholders
Formally notify the owner or architect immediately. Most contracts require notification within 5-10 days of discovery. Missing this deadline can forfeit your right to compensation.
3. Submit Change Order Request
Document the proposed change using your contract’s required format. Include a clear description, reason for the change, and supporting documentation.
4. Estimate Costs
Develop detailed cost estimates including labor, materials, equipment, overhead, and profit. Itemize everything transparently.
5. Review and Negotiate
All parties review the proposal. The owner, architect, and contractor discuss and may negotiate the cost, timeline, or approach.
6. Approve and Sign
Once terms are agreed, all required parties sign the change order. It now becomes a binding amendment to the contract.
7. Document and Update
Add the signed change order to project records. Update schedules, budgets, and notify affected teams.
Critical rule: Never start change order work until all signatures are in place. Verbal approval doesn’t protect you if payment is later disputed.
Who Signs a Change Order?
Required signatures vary by contract type, but typically include:
- Project owner (or authorized representative)
- General contractor
- Architect or engineer (on AIA contracts)
The change order isn’t valid until all required parties have signed. Keep this in mind when scheduling work—waiting for the last signature can take time.
Change Order vs. RFI vs. Submittal
These documents serve different purposes and shouldn’t be confused:
| Document | Purpose | Modifies Contract? |
|---|---|---|
| RFI | Asks questions or seeks clarification | No |
| Submittal | Provides product/material info for approval | No |
| Change Order | Documents agreed changes to scope, cost, schedule | Yes |
An RFI (Request for Information) asks for clarification but doesn’t authorize any changes. A submittal shows intent to use specific products but doesn’t modify the contract. Only a signed change order actually amends the agreement.
Change Order vs. Construction Change Directive
A Construction Change Directive (CCD) is different from a standard change order in one important way: it allows work to proceed without contractor agreement on price.
With a CCD, the owner directs the change immediately. The contractor must comply even though payment terms haven’t been settled. Negotiations happen afterward.
CCDs are used when:
- Work needs to proceed urgently and can’t wait for price agreement
- Schedule is critical and delays are unacceptable
- Parties can’t agree on price but the work must happen
Standard change orders require mutual agreement before work begins. CCDs shift that negotiation to after the work.
Change Order Statistics: The Financial Impact
The numbers show why change order management matters:
- 8-14% of contract value: Average cost impact from change orders
- Up to 25%: Change order costs on distressed projects
- $177 billion annually: Cost of rework and delays in U.S. construction (about 5% of all spending)
- 35% of projects: Experience at least one major change
- 10-20% of delays: Attributed to the change order process itself
- 10-30% productivity reduction: Caused by high frequency of changes
Projects valued at $10-50 million typically see 1-17 change orders. Projects over $50 million may have 1-27 change orders. Larger projects have more complexity and longer communication chains.
Best Practices for Managing Change Orders
Always Get Written Approval
Never start work on verbal authorization. Performing work without a signed change order is the most common cause of payment disputes. The owner’s “go ahead” means nothing if they later claim they never authorized the charge.
Document Everything
Keep records of all discussions, decisions, and approvals. Use daily logs, photos, emails, and formal correspondence. This documentation is your best defense in disputes.
Notify Immediately
When you identify a potential change, notify the owner right away. Most contracts have strict deadlines—sometimes as short as 7 days. Missing the deadline can void your claim.
Use Standardized Templates
Consistent documentation ensures nothing gets missed. Standard templates also speed up the review process because everyone knows what to expect.
Communicate Transparently
Keep all stakeholders informed. Explain the reason for changes, discuss impacts on budget and timeline. Surprises create conflicts; proactive communication builds trust.
Price Accurately
Include all costs: labor, materials, overhead, profit, and disruption. Underestimating the true impact erodes margins. Itemize clearly so clients understand what they’re paying for.
Preventing Change Order Disputes
Most disputes arise from the same issues:
Prepare Clear Contracts
Define the change order process explicitly in your original contract: notification requirements, timelines, markup percentages, and approval procedures.
Respond Promptly
Establish a systematic process for reviewing and responding to change order requests. Delays breed frustration and can escalate into conflicts.
Build Complete Documentation
Maintain records of original plans, specifications, correspondence, meeting minutes, and all change order requests with signatures.
Use Integrated Teams
Research shows only 15% of projects using integrated teams had claims, compared to 35% of projects with non-integrated teams. Better coordination means fewer disputes.
Frequently Asked Questions
What is a change order in construction?
A change order is a formal, written amendment to a construction contract that modifies the agreed scope, cost, or schedule. It becomes legally binding when signed by all required parties (typically owner, contractor, and architect).
Who can initiate a change order?
Any project stakeholder can initiate a change order—owners, contractors, architects, or subcontractors. However, all required parties must approve and sign for it to take effect.
What’s the difference between a change order and an RFI?
An RFI (Request for Information) asks questions and seeks clarification but does not modify the contract. A change order documents approved changes and does modify the contract when signed.
Can I start work before the change order is signed?
This is risky. Performing work without signed approval is the most common cause of payment disputes. Get all signatures before starting change order work.
How much do change orders typically cost?
Change orders average 8-14% of total contract value across the industry. Distressed projects can see change order costs reach 25% of the original contract amount.
Key Takeaways
- Definition: A change order is a formal, written amendment to a construction contract modifying scope, cost, or schedule
- Types: Additive (adds work/cost), Deductive (removes work/reduces cost), Zero-sum (no cost impact)
- Process: Identify, notify, submit, estimate, review, approve, document
- Golden rule: Never start work without signed approval
- Documentation: Keep detailed records of everything—it’s your best protection
- Notification: Most contracts require notice within 5-10 days; missing deadlines can forfeit claims
- Cost impact: 8-14% of contract value on average; up to 25% on troubled projects
Change orders are inevitable in construction. Proper documentation and process management determine whether they become minor administrative tasks or major sources of conflict and lost profit.
