Change order
A change order is a written amendment to a contract that adds, removes, or modifies work, adjusting the contract price and schedule accordingly.
Also written as CO, contract change order.
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Reviewed by Eric Collin · President and Founder of Firmo Construction, 20+ years in preconstruction and bid evaluation
It is the formal mechanism for changing a signed agreement, and it requires agreement from both sides. That requirement is the reason a change order costs more than the same work would have cost at bid: the contractor performing it is the only one who can, and there is no competing price to test it against.
This is the economic argument for catching a scope gap before award rather than after. The same roof curbs priced during leveling sit in a competitive field of bidders who want the job. Priced as a change order eight months later, they are quoted by a single contractor with the schedule on its side.
Change orders come from four broad sources: owner-directed additions, design errors or omissions, unforeseen site conditions, and scope that no bidder carried. Only the first is genuinely unavoidable, and the last is the one careful comparison removes.
The markup allowed on change orders is normally capped by the contract, and that cap is negotiated at buyout rather than when the change arises. A percentage agreed without much attention at signing governs every change for the life of the job — see overhead and profit.
- Scope gap
A scope gap is work required by the project that no bidder included in its price, because every bidder assumed someone else was carrying it.
- Buyout
Buyout is the process, after a project is won, of converting each estimated scope into a signed subcontract at an agreed price.
- Overhead and profit
Overhead and profit is the markup a contractor adds to its direct costs to cover the expense of running the business and to earn a return on the work.
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