Change Orders in Construction: The Contractor's Complete Guide

A change order is a formal, written modification to an existing construction contract that adjusts the scope, price, schedule, or materials of a project. Every contractor will deal with change orders. The ones who handle them well protect their margins. The ones who don’t end up working for free.

Whether you’re a general contractor running kitchen remodels or a specialty sub handling drywall and paint, change orders are part of the job. Homeowners change their minds. Inspectors flag surprises. Demo reveals rot, bad wiring, or plumbing that wasn’t up to code. The question isn’t whether change orders will happen. It’s whether you have a system to handle them.

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Quick Answer

A change order modifies one or more elements of a construction contract: scope, cost, timeline, or materials. It must be documented in writing and approved by both parties before work begins. Typical contractor markup on change order work ranges from 15% to 35% for overhead and profit, though some contracts allow a higher rate for mid-project changes. Always get the signature before you pick up a tool.

Why Change Orders Matter

Change orders protect three things:

• Your profit. Extra work without a signed change order is free work.
• Your schedule. Added scope pushes your timeline. If the client doesn’t acknowledge this in writing, you’re the one who looks late.
• Your relationship. Disputes over money kill trust faster than anything else on a job. Written documentation keeps everyone honest.

Here’s the reality from the field: most client disputes aren’t about bad craftsmanship. They’re about money. Specifically, about work that was done but never formally agreed to. A five-minute conversation and a signed form prevent a five-week argument.

Types of Change Orders

Not all change orders look the same. Here are the most common types you’ll encounter:

Type	Trigger	Example
Client-initiated	Homeowner changes their mind	Upgrading from laminate to quartz countertops mid-project
Unforeseen conditions	Hidden problems found during demo	Rot behind shower walls, knob-and-tube wiring, failed subfloor
Code-required	Inspector flags non-compliance	Bringing existing electrical panel up to current code
Design error	Plans don’t match field conditions	Structural beam placement conflicts with HVAC duct routing
Material substitution	Specified product unavailable	Switching to equivalent tile when original is backordered 12 weeks

Each type needs different handling. A client upgrade is a straightforward add. Unforeseen conditions often involve time pressure because the wall is already open. Code-required work is non-negotiable, but you still need to document the cost impact.

What Every Change Order Should Include

A complete change order has seven elements:

1. Reference to the original contract - contract number, date, and project address
2. Description of the change - what’s being added, removed, or modified
3. Reason for the change - client request, unforeseen condition, code requirement
4. Cost impact - itemized labor, materials, equipment, and markup
5. Schedule impact - how many days the change adds (or subtracts)
6. Signatures - both contractor and client, with date
7. Sequential numbering - CO-001, CO-002, etc. for tracking

Missing any of these creates a gap someone can argue through later. The most commonly skipped item is the schedule impact. Contractors add the cost but forget to note that the $3,200 tile upgrade also pushes completion by 5 days because the new tile has a 2-week lead time.

How to Price a Change Order

Pricing a change order follows the same logic as pricing a mini-job within the existing project. For a detailed step-by-step process, see our guide on how to price a change order.

The formula is straightforward:

Change Order Price = Labor + Materials + Subs + Direct Costs + Overhead & Profit Markup

Worked Example 1: Client Upgrade

A homeowner on a bathroom remodel wants to swap the standard 32” x 60” alcove tub for a freestanding soaking tub.

Line Item	Cost
Remove alcove tub (already installed)	$280 labor (2 hrs x 2 workers @ $35/hr x 2)
Freestanding tub (material)	$1,400
Modified plumbing rough-in	$450 (plumber, 3 hrs)
Floor patch where alcove framing was	$175 labor + $60 materials
Subtotal	$2,365
Overhead & profit @ 25%	$591
Change Order Total	$2,956
Schedule impact	+3 days (tub delivery + plumbing rework)

Worked Example 2: Unforeseen Condition

During a kitchen remodel demo, you discover the subfloor under the old vinyl has water damage and needs replacement in a 10’ x 12’ area.

Line Item	Cost
Subfloor removal (120 sq ft)	$360 labor (4 hrs @ $30/hr x 3 workers)
New 3/4” CDX plywood (4 sheets)	$180 materials
Joist inspection and sistering (2 joists)	$420 labor + $85 materials
Disposal	$75
Subtotal	$1,120
Overhead & profit @ 25%	$280
Change Order Total	$1,400
Schedule impact	+2 days

Notice the markup stays consistent at 25%. Some contractors bump their change order markup to 30-35% because mid-project changes disrupt workflow, require rescheduling crews, and often involve rush material orders. Your contract should specify which rate applies. Industry standard for overhead and profit ranges from 15% to 35%, with most residential contractors landing around 20-25% (source: NAHB cost data, RSMeans O&P benchmarks).

Common Change Order Mistakes

These mistakes cost contractors money every single month:

• Verbal agreements. “Yeah, I’ll take care of that” without paperwork means you just volunteered for free labor. Every change, no matter how small, gets documented.
• Doing the work before getting approval. Once you’ve already done it, you lose all leverage. The client can argue the price, delay payment, or claim they never agreed.
• Bundling changes. Don’t save up three changes and submit them as one big change order. Process each change individually as it comes up. Bundling makes the total look huge and gives clients sticker shock.
• Forgetting overhead. Your overhead doesn’t stop because the work is “extra.” Insurance, truck payments, tools, licenses - those costs apply to every hour on the job, including change order hours.
• Skipping the schedule impact. If a $2,000 change adds 4 days to the project, the client needs to know that up front. Otherwise you’re the contractor who’s “running behind.”
• No sequential tracking. Without numbered change orders, you can’t prove what was agreed to and when. This matters if there’s ever a dispute or a lien situation.

Pro Tips for Managing Change Orders

Set expectations in the original contract

Your contract should include a change order clause that covers:

• How changes are requested and approved
• What markup rate applies to change order work
• Who has authority to approve changes on the client side
• Minimum processing time (e.g., “changes require 48 hours for pricing”)

Use a consistent form every time

Whether it’s a $200 outlet addition or a $15,000 kitchen layout change, use the same form. Consistency builds professionalism and creates a paper trail that holds up if anyone questions the work later. Our Change Order Template is designed for exactly this.

Document unforeseen conditions with photos

When demo reveals something unexpected, stop and take photos before doing anything. Send them to the client with a description. This is your evidence that the change was necessary and not something you should have included in the original scope. A photo of rot behind a shower wall is worth a thousand arguments.

Keep a running change order log

Track every change order on the project:

• CO number
• Date submitted and date approved
• Dollar amount and schedule impact
• Running total of all approved changes

This log becomes critical at the end of the project when you submit the final invoice. If the original contract was $45,000 and you have $8,200 in approved change orders, your final invoice should show exactly how that $53,200 total came together.

When to Use a Change Order vs. When Not To

Use a change order when:

• The client requests any addition, deletion, or modification to the agreed scope
• You discover conditions that require work beyond the original scope
• An inspector requires upgrades to existing systems
• Material substitutions affect cost or appearance

You probably don’t need a change order for:

• Minor adjustments within your existing allowances (e.g., switching paint colors within the same price tier)
• Work explicitly covered by your contingency line item
• Standard warranty callbacks after project completion

The gray area is small stuff. A homeowner asks you to move an outlet 6 inches while the electrician is already there. Is that a change order? Technically, yes. Practically, most contractors eat small adjustments to keep the relationship smooth. The key is knowing where your line is and being consistent about it.

A strong scope of work in your original contract minimizes gray areas. The more specific your scope, the clearer it is when something falls outside of it.

Change Orders and Your Estimating Workflow

Change orders are easier to manage when your original estimate is detailed and accurate. If your initial bid was a lump-sum guess, every change becomes an argument about what was and wasn’t included.

When your estimate breaks down labor, materials, and overhead by line item, pricing a change is simple. You already know your labor rates, your material costs, and your markup. You just apply the same math to the new scope. That’s why the estimating process and change order process are connected. A sloppy estimate leads to messy change orders.

FAQ

What is the difference between a change order and a change directive?

A change order requires mutual agreement. Both parties sign before work begins. A change directive (sometimes called a construction change directive) is issued by the owner or architect directing the contractor to proceed before price is agreed upon. Change directives are more common on commercial projects. In residential remodeling, stick with change orders - get the price and approval locked in before touching anything.

Can a homeowner refuse to sign a change order?

Yes. The homeowner can refuse any change to the contract, and you can refuse to do the work without a signed change order. If the change is code-required and the homeowner refuses, document that refusal in writing and consult your contract language. You may need to stop work on that portion until the issue is resolved.

How much markup should I charge on change orders?

Most residential contractors apply 15-35% overhead and profit on change order work. The typical range is 20-25%. Some contracts specify a different (usually higher) markup for change orders because mid-project changes disrupt scheduling and workflow. Whatever rate you use, it should be stated in your original contract so there are no surprises.

Should I charge for the time it takes to price a change order?

It depends on the size. For small changes that take 15 minutes to price, most contractors absorb the time. For complex changes that require supplier quotes, engineering review, or sub coordination, include a pricing/coordination fee in the change order. Some contracts build in a flat administrative fee per change order (typically $50-$150) to cover this.

What if the client verbally approves but won’t sign the form?

Don’t start the work. A verbal approval is not a signed approval. If the client says “go ahead” but won’t put pen to paper, that’s a red flag. Politely explain that written approval protects both parties and is standard practice. If they still refuse, document the verbal conversation in an email or text and get written confirmation before proceeding. You get what you pay for in documentation, and verbal agreements aren’t worth the paper they’re not printed on.

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Prices vary by region, material availability, and project complexity. The figures in this guide reflect 2026 national averages.

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