What Is a Change Order?
A change order is a formal, written document that modifies the original scope, price, or timeline of a construction contract after work has already begun. It is how a project accommodates changes, whether requested by the owner, required by unforeseen site conditions, or triggered by a design revision, without abandoning and renegotiating the entire original contract.
What Triggers a Change Order
- Owner-requested changes:
The owner decides to add scope, upgrade a finish, or modify a design after work has started.
- Unforeseen site conditions:
Conditions discovered during construction that were not visible or known when the original contract was priced, such as unexpected soil conditions or hidden structural issues.
- Design errors or omissions:
Gaps or mistakes in the original plans that require additional work to correct once discovered.
- Regulatory or code requirements:
Changes required to meet inspection findings or updated code requirements.
- Value engineering:
Changes proposed to reduce cost or improve constructability, which can either add or remove scope.
The Change Order Process
- Identify and document the change.
What is changing, why, and its impact on scope.
- Prepare a cost and schedule proposal.
The contractor or subcontractor prices the change and estimates any schedule impact.
- Submit for review.
The proposal goes to the owner or architect for evaluation.
- Negotiate if needed.
Pricing or scope details are refined until both parties agree.
- Formal approval.
The change order is signed by all required parties before the additional work proceeds.
- Update the contract value and schedule of values.
The approved change order becomes part of the contract, adjusting the total value the project bills against.
Change Order Pricing Methods
- Lump sum:
A fixed price agreed for the entire scope of the change before work begins.
- Time and materials:
Billed based on actual labor hours and material costs incurred, with agreed rates, when the scope cannot be precisely defined in advance.
- Unit price:
Using rates already established in the original contract for defined units of additional work.
Lump sum gives both parties price certainty but requires the scope to be well-defined enough to price accurately upfront. Time and materials is more flexible for genuinely undefined scope but shifts more cost risk to the owner, since the final price is not known until the work is complete.
Change Orders and Retainage
Change order value is typically subject to the same retainage terms as the original contract, added to the contract sum and the schedule of values, and billed and retained the same way as the base contract scope. A change order negotiated without clearly stating whether retainage applies to it is a common source of billing disputes once the change order work is actually invoiced.
Why Unapproved Work Is a Real Risk
Work performed before a change order is formally approved is a common and costly problem in construction. A contractor who proceeds on a verbal go-ahead, expecting formal approval to follow, risks doing the work without a guaranteed price or even a guarantee of payment at all if the change is later disputed or rejected.
This is why most construction contracts explicitly require written change order approval before additional work begins, and why invoices that reference work outside the currently approved contract value are exactly the kind of exception that should be flagged for review rather than paid automatically, the same principle applied to any invoice that does not match its authorizing document.
Frequently Asked Questions About Change Order
1. What is a change order?
A change order is a formal, written document that modifies the original scope, price, or timeline of a construction contract after work has begun, used to accommodate owner requests, unforeseen conditions, or design changes without renegotiating the entire contract.
2. What triggers a change order?
Owner-requested changes to scope or design, unforeseen site conditions discovered during construction, design errors or omissions, regulatory or code requirements, and value engineering proposals to reduce cost or improve constructability.
3. How does the change order approval process work?
The change is documented, a cost and schedule proposal is prepared, it is submitted for review, negotiated if needed, formally approved by all required parties, and the approved amount updates the contract value and schedule of values before the additional work proceeds.
4. What are the different ways a change order can be priced?
Lump sum, a fixed agreed price for the entire change; time and materials, billed on actual costs incurred when scope cannot be precisely defined upfront; and unit price, using rates already established in the original contract.
5. Does retainage apply to change orders?
Typically yes, under the same terms as the original contract, once the change order is added to the contract sum and schedule of values. Whether retainage applies should be explicitly stated when the change order is negotiated to avoid later disputes.
6. What happens if work is performed before a change order is approved?
The contractor risks doing the work without a guaranteed price or payment if the change is later disputed or rejected. Most construction contracts require written approval before additional work begins for exactly this reason.
