Change orders are one of the most frequent sources of construction disputes and unpaid claims. Understanding how to price them correctly, document the scope change, and protect your right to payment before you start the work will keep your project profitable and your relationships intact.
What Triggers a Change Order and Who Has Authority
A change order is required whenever the original scope of work, contract price, or project schedule changes. Common triggers include unforeseen site conditions (hidden utilities, poor soil, asbestos, or unmarked underground tanks), owner-requested additions or substitutions, design errors or omissions discovered during construction, and code-required modifications that differ from the original plans. Under AIA A201, the architect has authority to direct minor changes in the work without a CO if there is no impact on contract sum or time — anything beyond that requires a fully executed CO signed by the owner (or their authorized representative), the architect, and the contractor. On design-build, CM-at-risk, or integrated project delivery contracts, the change order chain and approval authority may differ significantly from traditional design-bid-build. Always read your contract's change order clause before work begins to understand who has signing authority, what notice is required, and how many days you have to submit a priced proposal after a change is directed.
How to Price a Change Order Correctly
Accurate CO pricing requires documenting every cost category: labor (hours × rate × any applicable premium time multiplier), materials (quantities × unit prices from current vendor quotes), subcontractor costs (their written proposal plus your coordination markup), equipment rental (actual invoiced cost), and any permit fees or engineering redesign costs. Overhead is then applied as a percentage of the total direct cost subtotal — your actual overhead rate is your total annual indirect costs divided by your total annual direct costs, typically falling in the 10–20% range. Profit is applied to the sum of direct costs plus overhead, not just to labor. Most AIA contracts explicitly permit contractors to apply the same overhead and profit percentages to subcontractor costs as to their own self-performed work. When pricing, clearly separate what you know from what you are estimating — if the scope is undefined or the subsurface conditions are unclear, propose a not-to-exceed force account with daily time-and-materials records rather than a fixed price that exposes you to unquantified risk.
Documentation That Supports Your CO
Poorly documented change orders are the leading cause of CO non-payment and disputes on construction projects. Before submitting, gather all supporting documentation: labor time sheets with employee names, dates, and hours worked; material invoices or written supplier quotes tied to the changed scope; subcontractor proposals or signed sub-tier contracts; equipment rental invoices; photographs showing the changed condition or hidden obstruction; and a clear reference to the specification section, drawing number, or site condition that triggered the change. For claims based on differing site conditions, a written notice to the owner is typically required within a specific number of days of discovery — missing this notice deadline can permanently bar your claim under most standard contracts regardless of the merits. Organize your documentation in the same order as the CO line items so reviewers can trace every dollar to a source document quickly. Thorough documentation also protects you in mechanics' lien and payment bond claims if the CO is disputed or the project enters arbitration or litigation.
Managing Pending COs and the Revised Contract Value
On any project with active change orders, the contract summary is a living document. Tracking pending COs — those submitted but not yet signed — is as important as tracking approved ones, because the financial exposure on pending COs represents real cash you may have spent or committed. Best practice is to maintain a CO log with the CO number, description, amount, date submitted, current status (pending, approved, rejected, revised), and cumulative revised contract value. Update the log weekly and share it with the owner and architect at each project meeting. Never allow the pending CO total to grow without written acknowledgment from the owner — if they dispute three COs at the end of the project, you need contemporaneous evidence that they were aware of each one. Separately track deductive change orders (credits), because they reduce the revised contract value and must be netted correctly in any schedule of values or payment application.
Protecting Your Right to Payment Before Starting
The single most common cause of unpaid change order work is performing it without a signed authorization. Most construction contracts contain a "no oral modifications" clause that bars payment for work authorized only by verbal instruction, regardless of who gave the instruction. Before starting any changed work, either obtain a signed change order or a written construction change directive (CCD) that authorizes you to proceed at agreed rates while the final price is being negotiated. If the owner refuses to sign and claims the work is part of the original scope, send a written notice reserving your right to additional compensation before you touch the work — and document every hour and dollar spent separately. On public projects, follow the contract's notice and claim procedures precisely; missing a 10-day notice deadline can forfeit your entire claim regardless of merit. The paperwork takes 30 minutes; losing a five-figure claim takes years of litigation.