Construction Change Orders Guide

A comprehensive guide covering document types, common reasons, pricing methods, markup structures, processing steps, and best practices for managing change orders on construction projects.

What Is a Change Order?

A change order is a written agreement that modifies the original construction contract after execution. It can adjust the project scope, contract sum, contract time, or all three. Change orders are a normal part of construction — even well-designed projects encounter unforeseen conditions, owner-requested modifications, or design clarifications that require formal contract amendments. Understanding the different types of change documents is critical for proper project administration.

Change Order (CO)

Formal bilateral agreement that modifies the contract sum and/or contract time. Requires signatures from the owner, contractor, and architect before work proceeds under the changed terms.

Construction Change Directive (CCD)

Unilateral directive from the owner directing a change in the work. Used when agreement on cost or time impact hasn't been reached — work proceeds while negotiations continue.

Potential Change Order (PCO)

A notice identifying a potential change to the contract. Not yet approved — it initiates the pricing and negotiation process between the parties.

Architect's Supplemental Instructions (ASI)

Written clarification from the architect that interprets or clarifies existing contract documents. Does not change the contract sum or contract time.

Field Order

Minor directive issued in the field, typically for small adjustments that don't affect cost or schedule. Addresses immediate construction needs without formal contract modification.

Common Reasons for Change Orders

Design Errors or Omissions

Incomplete, conflicting, or incorrect information in construction documents that requires correction during construction.

Differing Site Conditions

Unexpected underground utilities, soil conditions, or environmental factors discovered during construction that differ from what was indicated in the contract documents.

Owner-Requested Changes

Scope additions, material upgrades, or layout modifications requested by the owner after contract award.

Code or Regulatory Changes

New building code requirements, ADA updates, or agency mandates that take effect during construction and require contract modification.

Value Engineering

Cost-saving alternatives proposed by the contractor that maintain required performance but require formal contract modification to implement.

Unforeseen Conditions

Hidden structural issues, hazardous materials, or archaeological finds that could not have been reasonably anticipated before construction.

Coordination Conflicts

Clashes between disciplines (MEP vs structural) not resolved during the design phase that require field resolution and contract adjustment.

Material Substitutions

Specified materials that are unavailable, discontinued, or have extended lead times, requiring approved alternatives that may affect cost or performance.

Schedule Acceleration

Owner requests earlier completion than the original contract date, requiring additional resources, overtime, or resequencing of work.

Third-Party Impacts

Utility company delays, adjacent construction, or permit authority changes that affect the project scope, schedule, or cost.

Change Order Pricing Methods

Lump Sum

Contractor provides a fixed price for the changed work. The most common and preferred method — it provides cost certainty for all parties before work begins.

Unit Price

Work priced per unit of measure (e.g., per cubic yard, per linear foot). Used when the scope of work is defined but exact quantities are uncertain until execution.

Time and Materials (T&M) / Force Account

Actual costs tracked for labor, materials, and equipment with agreed-upon markups for overhead and profit. Used when the scope cannot be defined in advance and requires flexibility.

Cost Plus

Actual cost of work plus an agreed percentage or fixed fee for overhead and profit. Similar to T&M but typically used for larger, more complex changes.

Not-to-Exceed (NTE)

T&M method with a maximum price cap. Balances flexibility with cost control — the owner pays actual costs up to the ceiling, providing budget protection while allowing scope uncertainty.

Typical Markup Structure

Labor

15 – 25%

Overhead, profit, and small tools

Materials

10 – 20%

Handling, storage, and profit

Equipment

10 – 15%

Overhead and profit

Subcontracted Work

5 – 10%

Coordination and administration

Insurance & Bonds

1 – 3%

On total change order value

Note: Markups vary by contract and jurisdiction. Always refer to the specific contract terms for allowable overhead and profit percentages.

Change Order Process

Identification

A change condition is discovered or requested by any party — owner, architect, contractor, or inspector. This triggers the formal change management process.

Notification

Written notice is provided to the architect and owner within the timeframe required by the contract. Timely notification is critical — failure to notify can waive the right to a change order.

Pricing

The contractor prepares a cost and schedule impact proposal (PCO), including detailed breakdowns of labor, materials, equipment, subcontractor costs, and markups.

Review

The architect and owner review the proposal for reasonableness and necessity, verifying that the change is legitimate and the pricing is fair.

Negotiation

Parties negotiate the final price, schedule impact, and scope details. Multiple rounds may be required before agreement is reached.

Execution

The formal change order document is prepared and signed by all required parties — typically the owner, contractor, and architect.

Implementation

The changed work proceeds according to the approved scope. Progress is tracked and documented for schedule and cost reporting.

Payment

Change order work is included in subsequent pay applications, with progress billed according to the approved amount and completion percentage.

Best Practices for Minimizing Change Orders

Invest in thorough design review and QA/QC before bidding

Conduct constructability reviews with experienced field personnel

Perform subsurface investigations and utility surveys early

Use BIM and clash detection to resolve coordination issues in preconstruction

Write clear, complete specifications with minimal ambiguity

Build adequate contingency into project budgets

Establish clear communication channels between all project parties

Document all decisions and maintain thorough project records

Process change orders promptly — delays increase costs and disputes

Use technology (AI-powered drawing review, digital plan rooms) to catch errors early

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