What is Change Order?
A written agreement that formally modifies the scope, timeline, or price of an existing construction or service contract.
Definition
A change order is a formal written document that amends an existing contract between a client and contractor (or service provider) by modifying the scope of work, project timeline, contract price, or other terms. Change orders are commonly used in construction projects and long-term service contracts where the original scope inevitably evolves due to unforeseen conditions, client requests, or design changes. A properly executed change order creates a new binding agreement that supersedes the relevant portions of the original contract for the specified modification. Both parties must sign the change order before additional work begins.
Common Reasons for Change Orders
Change orders arise frequently in both construction and professional services for several reasons: scope changes — the client requests additional work not included in the original contract; design modifications — changes to plans or specifications mid-project; unforeseen conditions — discovering issues such as structural problems, code compliance requirements, or environmental hazards that were not visible initially; material substitutions — a specified material is unavailable or costs have changed; schedule changes — acceleration or delay of the project timeline; and regulatory requirements — new building codes or permit conditions discovered during the project.
How to Price a Change Order
Change order pricing should be transparent and fair to both parties. A typical approach includes: Labor Costs — multiply the estimated hours by the agreed labor rate; Materials and Equipment — get quotes or use actual costs for materials needed; Subcontractor Costs — include quotes from any subcontractors required; Overhead — a percentage (typically 10–20%) added to cover indirect costs; and Profit Margin — an additional markup (typically 10–15%) on top of costs to account for risk and administrative burden. Always provide an itemized breakdown so the client understands exactly what they are paying for. Never perform additional work without an approved change order in writing.
Change Order Process
Step 1: Identify the need for a change — either the contractor or client recognizes that a modification is needed. Step 2: Contractor prepares a Change Order Request (COR) form documenting the proposed change, cost, and schedule impact. Step 3: Both parties review and negotiate the terms. Step 4: Once agreed, the Change Order document is formally signed by both parties. Step 5: The contractor performs the additional work as specified in the change order. Step 6: The change order amount is invoiced and paid according to the agreed payment terms. Step 7: The project schedule and contract documents are updated to reflect the change.
Protecting Yourself with Change Orders
For Contractors: always get a signed change order before performing any additional work; include a clause in your original contract stating that no extra work will be performed without a signed change order; keep a paper trail of all communications related to the change; track all costs associated with the change meticulously; and never assume the client is aware of costs — communicate proactively. For Clients: review each change order carefully before signing; ask for an itemized breakdown; understand how the change affects your overall project budget and timeline; negotiate if the pricing seems excessive; and keep copies of all signed change orders for your records.