What a change order is
AIA Contract Documents defines it in one sentence: "A change order is a written modification to the contract, signed by the owner, architect, and contractor, that adjusts the contract sum, the contract time, or both." [1]
Four things are doing work in that definition, and each one is a place a payment goes missing.
- Written. Not a text message agreeing to the scope, not a nod in the driveway. A modification to a written contract is a written document.
- Modification to the contract. A change order does not sit beside the contract. It becomes part of it, which is why it can move the contract sum and the contract time.
- Signed by the parties. AIA's definition names the owner, the architect and the contractor. Who signs on your job is whatever your contract says.
- Adjusts the sum, the time, or both. Time is half the sentence and the half that gets dropped. A change that adds two weeks and no dollars is still a change order.
AIA publishes a standard form for this: "G701 is the form used to document these agreed-upon changes." [1] It is one adopted form, not a legal requirement. Your contract decides which document, if any, is required. Whichever form you use has to carry the contract reference, the description of the change, the adjustment to the sum, the adjustment to the time, and the signature blocks. Our free change order form carries those five fields.
Change order vs change directive vs a verbal "go ahead"
These three look similar on a jobsite and behave completely differently on an invoice.
A change order is agreed first. AIA states the test: "Unlike a construction change directive, a change order requires agreement from all parties before it takes effect." [1] Scope, price and schedule are settled, everyone signs, and then the work is performed under known terms.
A construction change directive reverses the order. AIA describes it as "a written order from the owner that is prepared by the architect directing the contractor to proceed with changed work before the parties have agreed on the cost or schedule impact" [1]. The work starts; the money is resolved afterward. AIA also notes the signature difference: "Under A201, the owner can issue a construction change directive without the contractor's signature." [1] A201 is AIA's general conditions document [1], and G714 is its directive form [1].
A verbal go-ahead is neither. It has no document, no agreed price, no adjustment to the contract sum and no signature. It is where the money disappears: the work, the cost and the crew hours are real, and the only record is memory. When the job closes and the final application is short, there is nothing to attach the claim to.
The practical rule is the boring one. Before extra work starts, either a signed change order exists or a written directive from the owner exists. If a directive is what you have, log the cost from the first hour, because that record is the basis on which the adjustment will later be settled.
Notice: the clock you cannot get back
Notice is the part contractors lose on paperwork rather than on merit. The clock starts on an event, runs whether or not you are thinking about it, and the work being legitimate does not stop it.
Federal fixed-price construction shows the mechanism at its clearest. FAR 52.243-4 lets the Contracting Officer make changes: "The Contracting Officer may, at any time, without notice to the sureties, if any, by written order designated or indicated to be a change order, make changes in the work within the general scope of the contract" [2]. When a change increases or decreases your cost or the time required, "the Contracting Officer shall make an equitable adjustment and modify the contract in writing" [2].
Then the clause sets the deadline: "The Contractor must assert its right to an adjustment under this clause within 30 days after (1) receipt of a written change order under paragraph (a) of this clause or (2) the furnishing of a written notice under paragraph (b) of this clause, by submitting to the Contracting Officer a written statement describing the general nature and amount of the proposal, unless this period is extended by the Government." [2]
Three details matter. The assertion is a written statement, not a phone call. It describes "the general nature and amount of the proposal" [2], so a bare notice with no amount is not the same thing. And the 30-day window [2] runs from an event (receipt of the written change order, or the furnishing of a written notice) rather than from when the extra work finishes.
This clause governs the federal contracts that incorporate it. It is not a private-contract rule. A private agreement sets its own notice period, its own form of notice and its own recipient, and those terms govern that job. Read your contract's notice clause before the first change comes up, and confirm the procedure with the contracting officer or the owner rather than assuming this one applies.
Pricing the change like a small bid
A change order is a small bid, and it earns the same treatment as the big one. The mistake is pricing it off the cuff because it feels small.
burdened labor + materials + subs + equipment = direct cost direct cost + overhead = total cost price = total cost ÷ (1 − margin)
Burdened labor means the wage plus what the wage costs you (payroll taxes, insurance and the rest), not the number on the timecard. Overhead belongs in the change for the same reason it belongs in the base contract: the office, the truck and the insurance do not pause while the extra work happens. And the profit applied to the change should be the profit that priced the base contract, so the job ends at the margin it was bid at rather than being diluted by every addition.
Here is the arithmetic on an example. Every input below is a placeholder for your own number: your wage, your burden rate, your overhead rate, your margin. None of them is a recommendation.
Suppose the change takes 20 hours of labor at a $32 base wage, with burden at 30%; materials of $1,450; a subcontractor quote of $900; and $150 of equipment. Apply overhead at 12% and price to a 20% margin.
| Line | Calculation | Amount |
|---|---|---|
| Base labor | 20 hrs × $32 | $640.00 |
| Burden | $640 × 30% | $192.00 |
| Burdened labor | $640 + $192 | $832.00 |
| Materials | Stated | $1,450.00 |
| Subcontractor | Quoted | $900.00 |
| Equipment | Stated | $150.00 |
| Direct cost | Sum of the above | $3,332.00 |
| Overhead | $3,332 × 12% | $399.84 |
| Total cost | $3,332 + $399.84 | $3,731.84 |
| Price at a 20% margin | $3,731.84 ÷ 0.80 | $4,664.80 |
| Profit | $4,664.80 − $3,731.84 | $932.96 |
Two notes on the last two lines. Dividing by one minus the margin is what delivers the margin you asked for; multiplying the cost by one plus the same percentage is a markup and lands lower. And a change priced on a different basis from the base contract ends the job at a different profitability than the one you bid. Our change order calculator runs this stack both ways and shows the markup and the margin side by side.
Price the time as well as the money. If the change moves the completion date, the adjustment to the contract time belongs on the same document as the adjustment to the sum.
Getting it into the pay application
A signed change order is not paid because it is signed. It is paid because it reaches the payment application and reconciles there.
AIA's guidance describes what the application summarizes: it covers "the contract sum, approved change orders, completed and stored work, retainage, previous payments, and the current payment requested" [4]. The supporting detail sits on the continuation sheet, G703®, which "organizes the schedule of values and line-item detail supporting those totals" [4].
So an executed change order has to land in three places at once. It moves the contract sum. It needs a line on the schedule of values, or its value cannot be billed as it is completed. And because it moved the contract sum, it moved the base that retainage is calculated on. AIA's own review checklist for the application includes the check to run every month: that the original sum and the approved change orders reconcile with the current contract sum [4].
Retainage then follows the documents rather than a default: "Retainage requirements come from the contract documents and may also be affected by applicable law." [4] Our retainage calculator shows what a retainage rate holds back as the contract sum moves.
The habit that keeps this clean is sequencing. Sign the change order, add its line to the schedule of values in the same cycle, then bill against that line. A change order that never gets a line becomes an argument at closeout.
Where this varies by state
Once an application is approved, when the money has to arrive is a matter of state law, and prompt-payment statutes differ in every direction: which projects they cover, when the clock starts, what retainage may be held, and what late payment costs.
Missouri is one worked example, for public works. The statute directs that "The public owner shall pay the contractor the amount due, less a retainage, within thirty days following the latter of the following" the events it lists [3]. It caps the hold: "Retainage withheld on any construction contract or subcontract for public works projects shall not exceed five percent of the value of the contract or subcontract." [3] It prices lateness: where payment has not been made in that window, "the contracting agency shall pay the contractor, in addition to the payment due him, interest at the rate of one and one-half percent per month calculated from the expiration of the thirty-day period until fully paid" [3]. And it pushes the money down the chain: "When a contractor receives any payment, the contractor shall pay each subcontractor and material supplier in proportion to the work completed by each subcontractor and material supplier his application less any retention not to exceed five percent." [3]
That is Missouri, for public works. It is not a national rule and it does not describe private contracts in Missouri or public work anywhere else. Framing & Figures publishes verified per-state records with the statute and the date each was checked, including a retainage laws dataset. The index of state data is at /states/.
For your own job, the binding terms are your contract's notice and payment clauses read against your state's statute. Confirm both with the owner or the contracting officer before you rely on either.
Frequently asked questions
What is a change order?
A written modification to the contract, signed by the parties, that adjusts the contract sum, the contract time, or both. It becomes part of the contract, which is what gives it the power to move the money and the schedule.
What is a change order in construction?
The same document, in a construction contract: a signed written modification adjusting the contract sum, the contract time, or both. It takes effect on agreement, unlike a construction change directive, which the owner issues to start changed work before the cost and schedule impact have been agreed.
What is a construction change order?
A written, signed modification that changes the scope, price or duration of a construction contract. AIA publishes G701 as a standard form for it, but the document your job requires is whatever your contract specifies.
What is change order in construction?
It is the contract mechanism for adding, deleting or altering work after signing. Price it like a small bid, with the same burden, overhead and profit as the base contract, get it signed before the work starts, and give it a line on the schedule of values so it can be billed.
Related
- Change order calculator: price a change on markup or on margin, with burden and overhead in the stack, and see both numbers.
- Retainage calculator: what a retainage rate holds back as the contract sum moves with approved changes.
- Change order form: a free Word form with the fields a change-order form has to carry.
- State data: verified per-state records, including the retainage laws dataset, each with its statute and check date.