What is a change order in construction?

A change order is a written agreement, made after a contract is signed, that changes its work, price or time. When you're the one paying, it's the only clean way a signed price should move, and the place a fixed bid grows.

This page is written from the side that pays: you, hiring the trades on a flip or a build. Say you signed a contractor for the hall bath at $12,500, and at demo he found the subfloor under the tub rotted through. What happens next is either a change order or, later, an argument.

What makes it a change order

Three things. It comes after the contract is signed. It changes what the contract says about the work, the price or the time. And both of you agree to it in writing. Before anything is signed, a new number is just a new bid.

The American Institute of Architects' change order form, G701, works the same way: signing it means agreeing to every term of the change, including what it does to the contract sum and the contract time. It has signature lines for the owner, the contractor and the architect; AIA's version between a contractor and a sub has two. A flip rarely has an architect, so on yours the signatures are usually yours and the contractor's.

It can take money off, too. Say you decide to buy the vanity yourself and he takes $400 off the price. That's a change order for −$400. It isn't $400 saved: you're buying the vanity now, so what you pay for it goes against the same scope.

What isn't a change order

• A correction. Fixing a figure you typed in wrong isn't a change order: the contract didn't change, only your copy of it. Keep corrections out of your change-order total, or your log will say the job grew when it didn't. If the mistake is on the signed paper itself, fixing it changes the contract, so put it in writing and get both signatures.
• A time-and-materials ticket, on its own. The sheet a sub fills in with the hours and materials spent on extra work is a count. It isn't a price you agreed to before the work. What your signature on one commits you to depends on your contract and your state, so read it before you sign it. Get the rates, the markup and a not-to-exceed onto a change order before the work, and the final number onto one after.
• A construction change directive. On jobs run on AIA's forms, a directive (G714) is a written order to go ahead with a change while the owner and the contractor haven't yet agreed what it does to the price or the time. The contractor has to proceed, and the money gets settled later, on a change order that replaces the directive. It's an order, not an agreement, which is why it's a different form.
• The government's meaning. Federal contracts use the words differently. There, a "change order" is the government's written order for a change the contract lets it make without the contractor's consent, closer to AIA's directive. The agreed kind is a "supplemental agreement." AIA's forms use change order for the agreed kind, and so does this page.

Get it in writing before the work

Before the work, a change is a decision. You can take the price, push back on it, get a second number, change the spec or say no. Once the new subfloor is down, it's a bill, and all that's left to settle is what it should have cost.

Writing it first also pins down what was agreed. "Fix the floor" can mean a four-square-foot patch or the whole bathroom down to the joists. A price on paper, with the work described, is the difference between the two.

California, for one, makes it law: its contractor licensing board says a change to the price or scope of a home improvement contract must be done with a written change order, signed by the customer and the contractor before the change. Other states and other contracts set their own rules, and whether a home-improvement rule covers a house you own as an investment is a legal question. If an extra turns into a dispute, ask your attorney.

A dispute can follow the house to the closing table. California's board also warns that an unpaid contractor, sub, laborer or supplier can record a mechanics lien on the property, and that a recorded lien can affect your ability to borrow against it, refinance or sell. On a flip, selling is the whole point.

If the work can't wait for paper, at least get the price and your yes in a text or an email before he starts, then sign the change order as soon as you can. Where the rules call for a signed change order, the text may not be enough on its own.

What goes on one

Enough that someone who wasn't there could price it, and could tell it was agreed:

• The work, in words a second contractor could price. Not "fix floor", but "replace the subfloor under the hall-bath tub, about 30 square feet, and sister two joists."
• The price change, plus or minus, and how it was priced: a lump sum, a unit price times a count, or time and materials with a cap.
• The time change, in days, or "none."
• The reason, with a photo of what was found when there's something to see.
• Who asked for it: you, the sub or the building department.
• Which contract it changes, and which part of it, if the contract is split into lines.
• The running total: the original contract, the changes so far, this one, and the new total.
• When it gets paid: which draw the new money rides on.
• Both signatures and the date.

Keep a log that adds up

A change order log is one row per change order, per contract, with its status. It runs on one rule: original + approved change orders = the current contract. Pending ones are still requests: they go on the log but stay out of the figure, because you haven't agreed to them yet.

The hall bath, logged:

$12,500 + $1,800 − $400 = $13,900. That's the number you pay against: not $12,500, and not $14,550. The niche goes into the figure the day you approve it, or stays on the log as rejected.

Add up the current figure of every contract you've signed on a scope, plus any order you've placed for it, and you have what that scope is committed to: the middle column in a flip budget, between what you estimated and what you've paid.

Firmabuilt keeps the money side of this log on every plan: the amount, the reason, who asked and who approved. Once a contract is signed, its amount locks (the field's hint reads "Signed. It changes by change order, below."), and a change order won't save without an amount and a reason. When someone you've allowed to approve change orders records one, it applies at once. Anyone else's waits as pending, and the people on that job who approve change orders and can see its money get a notification with the amount and the reason. The contracts page shows what each contract's change orders add up to and flags the ones awaiting approval, which stay out of the figure. Every edit to a contract leaves a line in its history: who changed which field, from what to what, and when. The days and the signatures stay on the paper.

What a change order really costs

The price on the paper, plus the days it adds when those days land on the critical path, plus anything it pushes onto the other trades: a return trip, a second inspection.

Say the new subfloor adds three days to the bathroom, and the bathroom is on the critical path, the chain of tasks that sets your finish date. Every day the finish moves is another day of holding costs. At $100 a day, the $1,800 change order costs you $1,800 + 3 × $100 = $2,100. If the bathroom had a week of float, the three days add no holding cost, though they use up three days of its float, and the change costs what it says. To find your own daily number, see how to calculate holding costs.

That's why the time change belongs on the paper. If those days are on the critical path, a sub who says "it's three more days" has just told you the part of the price his number leaves out.

It also moves what you've committed. Say you estimated the hall bath at $13,000, and this contract was the whole bathroom. At $12,500 you had $500 of room. At $13,900 you're $900 over before you've paid a dollar of it, and that's before the vanity you're now buying yourself. That's an overrun you can see coming at the signing table, and how to avoid cost overruns covers the other early signs. The niche is different: it's work you chose to add, so if you approve it, raise the estimate by $650 with it, or the scope reads $1,550 over and stops telling you how the original work is going. In Firmabuilt, a scope whose signed contracts pass its estimate gets a critical alert, and the scope page says "You've signed $900 more than you estimated for this scope." An approved change order counts toward it as soon as it's approved; a pending one doesn't.

Rot under a tub is the kind of change contingency is there for. Jobs change. What hurts is finding out what a change cost after you've paid for it.

The low bid that grows

A fixed bid fixes what it describes. Whatever it leaves vague is where change orders come from, so a low bid on a loose scope can turn into the expensive one.

• Spec it tight. "Remodel hall bath" prices nothing. Name the tile and the square footage, the fixtures and who buys them, the demo and the haul-off, and who patches the drywall after the plumber. How to estimate rehab costs walks through writing that scope.
• Name your allowances. An allowance is a dollar amount written into the contract as a placeholder for something that can't be priced exactly when the bid is written, often a finish you haven't picked yet. When the real price comes in, the difference goes on a change order, up or down. On AIA's forms the allowance covers the material delivered to the site, tax included, and the contractor's labor, installation, overhead and profit are already in the price. If your pick changes his labor, say a bigger tile that's slower to set, that goes on the change order too. Other contracts do it differently, so write down which yours is. Say the tile allowance is $4 a square foot on 80 square feet, $320, and you pick $7 tile: that's $560 of tile and a +$240 change order.
• Ask for unit prices for what's behind the walls. Nobody can price rot, bad wiring or a cracked drain before demo. Get a price per unit up front: per joist sistered, per foot of drain line replaced, per circuit rewired. Then the change order is counting, not negotiating.
• Compare bids line by line. When one bid is far under the others, find out what it leaves out before you sign it.

Questions

Can a contractor charge more than the quote?

It depends what you signed. On a fixed price, the price is meant to move only by change order, including the ones the contract sets up ahead of time for allowances, unit prices or conditions nobody could see. If the number was only an estimate, or the deal is time and materials or cost-plus with no cap, the bill can move by design. A cost-plus deal with a guaranteed maximum goes past the cap only by change order. Read which one you signed. If you're already in a dispute over it, ask your attorney.

What is a change order log?

A list of every change order on a contract or a job: what changed, the amount up or down, the days, the reason, who asked, who approved and its status. It adds up one way: the original contract plus the approved change orders is the current contract. Pending ones are still requests: they're listed but kept out of that figure until they're approved.

Does a change order have to be signed before the work?

Often the contract says so, and California, for one, makes it law for home improvement contracts: the state's contractor licensing board says a change to the price or scope must be a written change order signed by the customer and the contractor before the change. Elsewhere it depends on your state and your contract. Either way, before the work is when you can still say no. If you're in a dispute, ask your attorney.