Construction Change Orders: How They Work and How to Control Them

A construction change order is a written amendment to the contract that changes the contractor's scope of work, usually the price, the schedule, or both. Nothing about it is unusual. What matters is whether the change is priced, approved and documented before the work happens, or argued about afterward. This guide covers what a change order is, why they occur, who pays, the approval process, and how owners and property managers can keep avoidable ones down.

TL;DR

A change order is a signed amendment that adjusts scope, cost, time, or all three. Work should not start on it until it is approved.
Research on change order causes found that plan and specification errors and omissions drove most changes, with owner-directed changes second.
Change orders often cost more than the same work would have in the original bid, so a clear scope and a defined approval process pay off.
Public agencies add their own approval thresholds and documentation rules, so read the agency's contract terms before you bid or sign.
The best way to reduce change orders is to settle design, scope and existing conditions before construction begins.

What counts as a change order
Why change orders happen
What change orders cost and who pays
The change order process, step by step
Public works in California: extra requirements
How to reduce avoidable change orders
Our perspective
Plan the work with one accountable team
FAQ
Sources

What counts as a change order

According to the American Bar Association's construction industry forum, a change order is an amendment to a construction contract that changes the contractor's scope of work. Most of them modify the work required by the contract documents, usually raising the contract price, adjusting the time to finish, or doing both.

That definition covers more than people expect. A change order can:

Add work, such as extra electrical drops in a tenant space after the tenant revises its layout.
Remove work, which credits money back to the owner.
Adjust time, for example when an owner-requested change pushes back a dependent trade.
Revise a material or system, such as swapping a flooring product or an HVAC unit.

They are not only a sign of a mistake. A change order is the tool that lets owners and contractors handle the unexpected without tearing up the contract. The National Association of Credit Management notes that, although change orders are frequent sources of dispute, they give owners and general contractors the flexibility to deal with events no one planned for.

Change order, proposal request and directive

Three terms get mixed up on job sites, and the difference affects your money.

Request for a change or proposal request. This asks the contractor to price a possible change. The sheet metal contractors' association SMACNA points out that such a request is not authorization to do the work and is not an official change order. It gathers the information the owner or architect needs to decide whether to proceed.
Change order. The signed agreement on the changed scope, price and time.
Construction change directive. A written order to proceed with a change when the parties have not yet agreed on the price or time. It exists for urgent situations, and the numbers are settled afterward.

If your team treats a request for pricing as a green light, the contractor is working on a change nobody has approved. That is how disputes start.

Why change orders happen

A frequently cited academic study, Change Order Causation: Who is the Guilty Party?, broke down the causes. More than 52% of the changes came from plan or specification errors and omissions, 33% from owner-directed changes, and 9% from unforeseen or existing conditions.

That split is useful for owners, because most of those causes can be addressed before ground is broken:

Cause	Share in the study	What helps
Plan and specification errors and omissions	More than 52%	Design review and constructability review before bidding
Owner-directed changes	33%	Locking program and finishes early; one decision-maker
Unforeseen or existing conditions	9%	Field surveys, investigation and a realistic contingency

How common are they? The NACM white paper cites an Independent Project Analysis Group study finding that an average of 35% of projects experience at least one major change. It also reports that in large building construction, change orders average between 11% and 15% of the original contract value in cost overrun, and between 10% and 20% of the original duration in schedule overrun. Those figures come from large building projects, so treat them as a reference point rather than a forecast for a small tenant improvement.

Existing buildings are different

Renovation work carries more hidden conditions than new construction. Walls open up to reveal old wiring, unmapped plumbing or structural surprises. In a school or airport that has to keep operating, the phasing plan adds another layer, because a change in one zone can ripple into the sequence of the next. That is a reason to put real effort into investigation and planning up front, which is what feasibility and design work are for. Our airport renovation planning guide shows how phasing decisions shape scope in a live facility.

What change orders cost and who pays

The short answer: the party who caused or bears the risk of the change pays for it, as the contract allocates. An owner who adds a room pays for the room. A contractor who builds something incorrectly pays to fix it. Existing conditions and design errors depend on what the contract says about risk, which is why the contract language matters so much.

Two cost points are worth knowing.

Late changes cost more. A 2007 SMACNA bulletin notes that change orders frequently cost 10 to 15 percent more than the same work would have if included in the original bid. It names lack of competition, scheduling difficulties and added administrative costs as the reasons.

The contractor has to support the number. AACE International's recommended practice on contract change management says that for an owner to approve a requested change, the contractor must show three things: entitlement (a contractual right to the change), causation (the link between the cause and the impact), and quantum (reasonable, supportable cost and schedule impacts). The same document observes that causation is often the hardest of the three to demonstrate. In practice, that means good daily logs, photos and dated correspondence decide who wins an argument.

Three tests for supporting a change order

For how pricing is built in the first place, see our guide to a commercial construction estimate in Bakersfield. A well-built estimate with clear inclusions and exclusions leaves fewer gaps for change orders to fill.

The change order process, step by step

The details differ by contract, but a sound process follows the same sequence.

Identify and define the change. Describe what is different from the contract documents and why. Los Angeles's Bureau of Engineering describes its initiation step as identifying and defining the required change, then reviewing cost and schedule impacts.
Request a priced proposal. The contractor prices labor, materials, equipment, markup and any time impact. Ask for a breakdown, not a lump sum.
Review. The owner, architect or engineer, and the project manager check that the scope matches the intent and that the price is reasonable. Written authorization and approvals from both the owner and the contractor are what turn a proposal into a change to the contract.
Approve in writing. The signature of the person the contract names as authorized. A verbal OK from someone on site is not an approval.
Proceed and track. Work on the change begins, and the cost and schedule adjustments are carried into the budget and the schedule.
Document. File the signed change order with supporting backup. Keep a running log.

Keep a change log and meet regularly

The U.S. Army Corps of Engineers' contract changes playbook recommends sharing change and RFI logs between contractor and government at least bi-monthly to catch inconsistencies, and holding pre-scheduled negotiation sessions at least monthly to resolve quantum and merit issues. Pre-scheduled sessions take calendar conflicts out of the list of reasons negotiations stall. You do not need a federal contract to borrow the idea: a standing weekly or biweekly change-order review in the owner-architect-contractor meeting keeps open items from piling up. Our piece on commercial project management covers the meeting rhythm in more detail.

Public works in California: extra requirements

If you are a school district, city or other public agency, or a contractor bidding for one, the agency's own rules govern change orders in addition to the contract. Three examples show what to expect.

Written, specific orders. Caltrans says a change order must be clear, concise and explicit. When appropriate it should include the work location, specification references, effect on completion time, and the method and amount of compensation.
Approval thresholds. Los Angeles's Bureau of Engineering manual, revised in 2018, calls for a more detailed cost estimate when a proposed change appears likely to exceed $100,000, the project's remaining contingency, or 25% of the original contract amount. It also requires a Change Order Initiation form and extra approvals above set thresholds.
Unilateral orders as a last resort. The same agency's introduction chapter allows a unilateral change order when negotiation fails and the change is necessary, but says to use it only when absolutely necessary, since the contractor will likely dispute the amount and proceed under protest.

These are Los Angeles and Caltrans rules, not a statewide or Kern County standard. Your own district, city or county will have its own thresholds and board approval steps, so check the contract's general conditions and the agency's policies early. If you are planning district or municipal work, our public works page explains how we approach it.

How to reduce avoidable change orders

Since most changes trace back to design gaps and owner decisions, the best prevention happens before construction starts.

Define the scope clearly before work starts. The SMACNA bulletin lists this first among its practices, along with defining the change-order process and the authorized approvers in the contract, and following the established procedures when changes are implemented.
Write the change clause well. The same bulletin says the AGC recommends that change clauses address the role of design professionals, limits on profit and overhead markups, and the timing of the change process. Agreeing on markups before any change arises removes one of the most common arguments.
Name one decision-maker. Owner-directed changes were a third of the changes in the causation study. A single authorized representative for the owner, with a deadline for decisions on finishes and layouts, cuts down on mid-project revisions.
Investigate existing conditions. In a renovation, survey what you can before pricing. Budget a contingency for what you cannot see.
Review the drawings for buildability. Errors and omissions were the biggest cause, so a coordination review between design disciplines is cheap insurance.
Plan permits early. Permit review delays are a schedule risk that can force resequencing and add cost on a renovation. Submit complete packages, and confirm with the local building department what it needs for your type of work.

For tenant spaces, our tenant improvement planning guide walks through the decisions owners should lock early. If speed is the driver, the fast-track construction guide explains how to overlap design and construction without losing control of scope.

Our perspective

Most change order trouble we see starts with the project's structure, not with any single change. When the designer, the engineer and the builder work for different parties who meet for the first time at bid day, gaps in the drawings turn into change orders.

That is why we work design-build. Design, engineering and construction sit under one accountable team, so constructability questions get asked while the drawings can still be changed cheaply. Our self-performing crews handle core tasks themselves instead of relying on a chain of subcontractors, which is designed to cut the handoff delays and finger-pointing that generate extra requests.

In occupied schools, airports and offices, we also plan phasing at the start, so live operations shape the scope instead of interrupting it. Our aim is fewer changes and no surprises on cost, and when a real change does come up, a priced, written proposal reaches you before the work does.

Marcelo

Plan the work with one accountable team

If you are a business owner, property manager, school district or municipality planning a remodel, tenant improvement or public works project in Bakersfield or the Central Valley, the cheapest change order is the one you never need. Our design-build process brings feasibility, budgeting, design and construction together from the start, and you can see all of our commercial construction services in one place. Tell us about your building and your timeline, and we will tell you what we would settle before anyone swings a hammer.

Old-ironsides

You can also review completed projects to see the kinds of occupied-facility work we handle.

FAQ

Who pays for change orders in construction?

The party responsible for the change pays, as the contract allocates risk. Owner-requested additions are normally the owner's cost, while a contractor's own errors are the contractor's. Existing conditions and design errors depend on the contract language, so read those clauses before you sign.

How common are change orders?

Very common. A white paper from the National Association of Credit Management cites a study finding that on average 35% of projects experience at least one major change. Renovations of existing buildings tend to carry more uncertainty than new construction.

Can a contractor start work before the change order is signed?

It is risky for both sides. A proposal request is not authorization to do the work, according to SMACNA. If time is critical, use a written directive that says work proceeds while price and time are settled, and keep records of everything.

How do I keep change order costs down?

Settle scope, finishes and existing conditions before construction, and agree on markup limits in the contract. Price changes before work begins rather than after, because late changes can cost 10 to 15 percent more than the same work in the original bid, according to the SMACNA bulletin.