The Change Order Process: How to Get Paid for Extra Work
The change order process is where a lot of small contractors lose money they earned. The work gets done. The cost is real. But the documentation did not happen in the right sequence, or the paperwork was late, or the owner said 'we'll deal with it at the end' and at the end there was nothing to deal with.
Before you price
What a change order is
A change order is a written agreement between the owner and the contractor that modifies the contract. It can change the scope of work, adjust the contract price, or extend the contract time.
Until a change order is signed, there is no enforceable agreement to pay for the extra work. An owner's verbal instruction to do something is not a change order. An email saying 'go ahead' is not a change order. A signed change order is a change order.
This distinction matters when the project is done and the owner disputes whether they authorized the work.
The sequence that protects you
Step one: the owner or their representative directs a change, or you identify something that is out of scope. Send written notice within the timeframe your contract requires.
Step two: prepare a change order proposal. Include a description of the work, the cost breakdown (labor, materials, equipment, overhead and profit), and the time impact if there is one.
Step three: get it signed before you start the extra work whenever possible. On time-critical changes where you cannot wait, document that you are proceeding under protest pending owner approval.
Step four: track the actual costs of the extra work separately. Do not mix them into your regular cost codes.
When the owner says we'll handle it later
Some owners push back on change orders during the project. They say the job is running fine, they do not want paperwork, deal with it at the end.
This is how extra work becomes disputes at the end of the job when the relationship has soured and memories differ.
Your response: keep sending the written notices and change order proposals regardless of whether the owner signs them promptly. Document that you submitted each one. Create a paper trail even if the owner is not engaging with it.
Pricing a change order correctly
Direct costs: labor hours at the applicable wage rate, materials at actual cost with receipts, equipment at a documented rate.
Overhead and profit: most contracts specify an allowable markup for overhead and profit on changes. A typical allowance is 10 to 15 percent for overhead and 10 percent for profit. Know what your contract allows.
Time impact: if the change affects your schedule, document the impact and include a request for time extension. A change that costs $5,000 but delays your completion by two weeks may have a much larger financial impact through extended general conditions.
When you cannot agree
If the owner disputes the change order amount or whether the work was directed, you have options. Most contracts require a formal dispute notice before you can escalate to litigation or arbitration.
In the meantime: do not stop work over a disputed change order unless the amount at stake is large enough to justify the risk of termination. Continue performing, document everything, and pursue the dispute through the contract's resolution process.
A construction attorney is a good investment when a disputed change order exceeds your deductible on your professional insurance or a significant portion of your margin.