Change Order

A change order is a formal document that modifies the original scope, cost, or schedule of a construction contract, used whenever work must deviate from the originally agreed design, plans, or specifications after a contract has already been signed and construction has typically already begun. Change orders are a routine and expected part of most construction projects, since unforeseen site conditions, design errors, owner-requested modifications, and regulatory changes frequently require adjustments that could not have been fully anticipated when the original contract was signed.

Common Causes of Change Orders

Change orders arise from several recurring categories of circumstances on construction projects. Owner-requested changes occur when a client decides to modify finishes, layout, or scope after construction has started, often driven by evolving needs or simply changing preferences once a space begins to take physical form. Differing site conditions, such as unexpected soil conditions, buried utilities not shown on existing records, or hidden structural deficiencies discovered once existing construction is opened up, frequently necessitate change orders on renovation and below-grade work specifically. Design errors or omissions, discrepancies between drawings from different design disciplines, or code requirements not fully addressed in the original design also generate change orders, as does unexpected cost escalation in materials or labor that a contract may or may not allow to be passed through depending on its specific terms.

The Change Order Process

Most construction contracts specify a formal process for initiating, pricing, and approving change orders, typically beginning when either the contractor or owner representative identifies a condition or request requiring a scope change and issues a notice, sometimes called a change order request or proposed change notice, describing the issue. The contractor then typically prepares a cost and schedule impact estimate for the proposed change, which the owner or their representative reviews and negotiates before formally approving the change order, at which point it becomes a binding modification to the original contract. Well-drafted contracts specify time limits for notifying the other party of a potential change and for responding to change order proposals, since delays in this process can themselves generate additional disputes over responsibility for any resulting schedule impact.

Pricing and Markup Considerations

Change order pricing typically includes the direct cost of the additional or modified work, labor, material, and equipment, along with markup for contractor overhead and profit, with many contracts specifying fixed markup percentages in advance specifically to streamline negotiation and avoid disputes over what constitutes a reasonable markup for each individual change. Contractors must also account for indirect costs that a change may trigger even when not immediately obvious, including schedule extension costs if the change adds time to the critical path, or disruption and inefficiency costs if a change forces previously planned work to be resequenced or performed out of its originally intended order. Owners seeking to control change order costs sometimes negotiate unit price agreements for commonly anticipated change categories before construction begins, locking in rates for items like additional excavation or demolition rather than negotiating pricing fresh each time such work arises during construction.

Change Orders and Project Cost Overruns

While individual change orders are routine, their cumulative effect can significantly impact a project overall budget and schedule, and owners and project managers generally track change order volume and value closely as a key project health indicator throughout construction. A project experiencing an unusually high volume or value of change orders relative to its original contract value often signals underlying problems, such as an incomplete design at the time of bidding, unrealistic original cost estimates, or poor original scope definition, prompting some owners to invest more heavily in design completion and site investigation before construction begins specifically to reduce the change order volume and associated cost growth they might otherwise face once work is underway.

Documentation and Record-Keeping Practices

Because change orders frequently become the subject of later disputes, experienced project managers emphasize thorough documentation at every step of the change order process, including dated written notices, detailed cost backup supporting any price increase, and clear records of when and how each change was approved. Photographs of discovered conditions, correspondence discussing proposed changes, and daily field reports noting any work performed before formal change order approval can all become important evidence if a dispute over a change later arises, particularly on complex projects where dozens or hundreds of change orders may ultimately be processed before a project reaches completion.

Maintaining this level of documentation discipline consistently throughout a project, rather than only after a dispute emerges, generally gives all parties a far stronger position if disagreements eventually require resolution.

Some firms now use dedicated change order management software to centralize this documentation, making it easier to track status and value across a large number of changes on a single project.

Adoption of these tools has grown steadily as owners and contractors look for ways to reduce the administrative burden and dispute risk associated with high change order volumes.

This shift reflects a broader industry trend toward more systematic, technology-supported project controls rather than relying solely on paper files and informal tracking methods.

As these practices mature, change order management is increasingly treated as its own specialized discipline within broader construction project controls.

Owners who insist on this documentation standard from the start of a project generally find change order negotiations proceed far more smoothly than on projects lacking such discipline.

Editorially reviewed by Specialty Digest Editorial TeamLast reviewed November 3, 2026Researched and drafted with AI assistanceReport an issue