Resources / Guide · 6 minute read

How to handle a change order

A change order changes the contract. On many jobs that one change has to be typed into three places: the contract sum, the budget and the schedule of values. This guide explains what a change order changes and how to keep the three in step.

What a change order is

A change order is a signed change to the contract's scope, price or time. It comes from the owner (an upgraded finish), from the site (an unforeseen condition) or from the design (a revised drawing). Each one has a number, a description, an amount, and sometimes a change in the contract time.

Before it is signed, a change is often tracked as a potential change order. It is priced and sent to the owner for approval.

The three records it changes

• The contract sum. The original contract plus every approved change order.
• The budget. The cost side: the cost code that pays for the change gets more or less budget.
• The schedule of values. The billing side: the pay application needs a line for the change, so the work can be billed.

When these are kept in three programs, they stop matching. The contract says one sum, the pay application bills against another, and the budget never got its share. Each month someone reconciles them by hand.

In the sample job, change order CO-001 is an owner request for an upgraded lobby storefront, $24,800.00. Approving it raises the contract sum from $8,189,514.04 to $8,214,314.04. It adds $21,500.00 to budget line 0845, aluminum-framed storefronts. It also adds a $24,800.00 line to the schedule of values. The $3,300.00 between the price and the budget is the contractor's markup on the change.

How to price a change order

Price a change order the way you priced the bid, from named sources:

• Quantities measured on the revised drawing, or on a sketch from the site, with the sheet named.
• Unit prices from the contract's own schedule of unit prices where it has one, or from your price list.
• Sub and supplier quotes for the work they will do.
• Markup for overhead and profit, at the rate the contract allows on changes.
• Time: the days the change adds to the job, if any, with the reason.

Send the backup with the price. An owner who can see where each number came from approves faster. A change order approved quickly is billed on the next pay application, not the one after.

Alternates accepted after award

An alternate priced in the bid and accepted after the contract is signed is also a change order. Its amount should come from the bid, not be priced again, so the owner pays what was offered.

Change orders to subs

Most owner change orders flow down to a sub. The subcontract change order raises the commitment against the same budget line. The budget then shows what is left after the sub is paid for the change.

Keep a record of every step

Record who raised each change, who priced it, who approved it and when. Never overwrite an approved amount: if it was wrong, record a correction as a new entry that names the one it replaces. A year later, at closeout or in a dispute, that record shows what happened.

A short checklist

1. Number the change and describe it in one sentence the owner will recognize.
2. Price it from named sources, with the markup and any added days.
3. Get it approved in writing before the work is billed.
4. On approval, change the contract sum, the budget line and the schedule of values together.
5. Flow the change down to the sub whose scope it touches.
6. Bill it on the next pay application, on its own line.

How BuilderSite does it

In BuilderSite, approving a change order once updates the contract sum, the budget and the schedule of values. Each update shows the change order it came from. An alternate accepted after award becomes a change order with its amount carried from the bid. See Change orders.

More guides: How plans become a priced estimate · Retainage and pay applications, explained