Change Orders in Construction: How General Contractors Track Them and Protect the Job Budget

This guide covers what a change order is, what to put in one, how to price it, who signs it, when to bill it, and the simple system that keeps your margins intact. The system works whatever tool you use.

What Is a Change Order in Construction?

The purpose of a change order is to keep the contract accurate as the project evolves. Without one, the scope you’re building and the price you agreed on drift apart, and that gap is where disputes and lost margin come from. With one, everyone knows what changed, what it costs and who agreed to it.

Common change order terms on residential and commercial projects.

Why Do Change Orders Happen?

Most change orders come from five sources:

Client requests. Upgraded finishes, a moved wall, an added outlet.

Unforeseen site conditions. Rot behind the drywall, old wiring that isn’t to code, poor soil.

Design changes or errors. Missing details in the drawings, or a designer revising the plans.

Code or permit requirements. An inspector requires work that wasn’t in the original scope.

Value engineering. Swapping a material or method to save money, which often creates a credit.

Changes tend to cluster at two points: right after demolition or excavation, when hidden conditions appear, and during finishes, when clients see the space taking shape. Renovations usually see more change orders than new builds, because there’s more you can’t see before you open the walls.

Who Initiates, Prepares and Signs a Change Order?

Who initiates it: anyone can request a change: the client, the general contractor, a subcontractor (through the GC) or the architect or designer.

Who prepares it: on most residential and small commercial jobs, the general contractor prices the change and writes the change order. When an architect administers the contract, the architect often issues the change order after reviewing the contractor’s pricing.

Who signs it: the client (owner) and the general contractor sign every change order. The architect signs too when they administer the contract. Changes with subcontractors are handled with separate change orders between the GC and the sub.

What Should a Change Order Include?

A change order should be clear enough that someone who wasn’t in the room could understand exactly what changed and why. Include:

Change order number and date

Project name, address and the contract it modifies

Who requested the change and the reason (client request, site condition, design change)

A plain description of the added, removed or changed work, with photos or drawings attached

The cost breakdown: labor, materials, subcontractors, equipment, markup and tax

Schedule impact in days, and the revised completion date

The original contract value, previous change orders, this change, and the new contract total

Payment terms for the change

Signature and date lines for the client and the contractor

What a Change Order Looks Like

Here’s a simple, complete example for a residential renovation:

Example change order. Applicable sales taxes (GST/QST in Quebec, HST or GST/PST elsewhere in Canada, state sales tax in the U.S.) are added per your contract and local rules.

How to Price a Change Order: Markup, Tax and Schedule

Price the full impact of the change, not just the materials. A reliable formula:

Markup and contractor fee: you can usually include overhead and profit on a change order, the same way you did in your original estimate. Many contracts set the markup percentage allowed on changes, so use that number and show it as its own line.

Sales tax on materials: whether tax applies, and whether markup is calculated before or after tax, depends on your province or state and your contract. Show tax on its own line and confirm the rules with your accountant.

Schedule impact: estimate the working days the change adds, including time waiting for materials or approvals, and state the revised completion date.

Credits: if the change removes work, include the value of the removed scope as a negative line.

What Is a Deductive Change Order?

A deductive change order removes work from the contract and lowers the price. For example, the client decides to keep the existing kitchen backsplash instead of retiling. Record it as a credit with a negative amount, so the revised contract total goes down. Some changes are mixed, adding one item and removing another, like the baseboard example above.

A 6-Step System for Tracking Change Orders and Job Budgets

Change orders rarely lose money because of the change itself. They lose money in the gaps around it: work started before approval, changes priced for materials only, approved changes that never make it into the budget, and changes that are approved but never invoiced. These six steps close all four gaps.

1. Start from a baseline budget by cost code

Turn the accepted estimate into the job budget, broken down by cost code or category (demolition, framing, electrical, finishes). Every change order is attached to one of these lines, which is what makes budget-versus-actual tracking possible.

2. Log every change request the day it comes up

Give it a number (CO-001, CO-002), the date, who requested it, a plain description and the reason. Attach photos or drawings. Log rejected requests too.

3. Price the full impact

Labor, materials, subcontractors, equipment, markup, tax and schedule days. Enter removed work as a credit.

4. Get written approval before the work starts

A signed change order protects your margin and your client relationship. Electronic signatures with a timestamp give you a clean record of what was approved and when.

5. Update the contract value and budget the same day

Update four numbers for the job: original contract value, approved change orders, pending change orders and current contract value. Add the approved amount to the matching budget line so budget versus actual stays accurate.

6. Invoice it and review budget versus actual weekly

Bill approved change orders right away or on your next progress invoice. Once a week, compare actual costs to the updated budget for each cost code. Catching an overrun in week three is a conversation; catching it at closeout is a loss.

Efficient vs. Ad Hoc Change Order Process

How an efficient change order process compares with an ad hoc one, stage by stage.

Change Order Log: What to Track

Whether you use a spreadsheet or software, track these fields for every change:

Change order log fields. Keep one row per change order.

Then keep a running summary at the top of each job:

Job summary. Pending changes stay out of the contract value until they’re signed.

When Should a Change Order Be Invoiced?

Invoice a change order after it’s approved, either right away or on your next progress invoice, following the payment terms in your contract. Keep pending change orders in a separate column and don’t bill them until they’re signed. Billing unapproved work as if it were approved is one of the fastest ways to start a dispute, and misrepresenting what was approved can expose you to legal claims.

What About Verbal Change Orders?

Many contracts require changes in writing, so a verbal OK is risky even when it’s technically enforceable. If a client approves a change on site, send a written confirmation the same day with the scope and price, and get the signed change order before the crew starts. On a phone or tablet, an e-signature takes the client a minute.

Can a Contractor Refuse a Change Order, or Charge for Their Own Mistake?

Refusing: it depends on your contract. Many contracts give the owner the right to order changes within the general scope of the work. In that case the contractor can’t simply refuse, but can negotiate the price and time. A contractor can usually decline changes well outside the original scope, or ones they aren’t licensed or equipped to do.

Your own mistakes: generally, no. Fixing the contractor’s own errors is covered by the original contract price. Change orders are for client changes, unforeseen conditions, design changes and other events your contract allows. When a contractor is entitled to a change order is defined by the contract, so read the changes clause before the job starts.

Do Change Orders Delay Construction?

Often, yes. Added work takes time, new materials can have lead times, and the job may wait while the client decides. That’s why every change order should state its schedule impact in days and update the completion date, so the client agrees to the time along with the price.

How to Reduce Change Orders

Write a detailed scope of work with clear inclusions and exclusions.

Finalize selections (fixtures, finishes, appliances) before work starts.

Use allowances for items the client hasn’t chosen yet.

Investigate the site before pricing, especially on renovations.

Review drawings for gaps and conflicts before construction.

Put a clear change process in the contract: how changes are requested, priced, approved and billed.

Spreadsheet, QuickBooks or Construction Software?

Three common ways small GCs track change orders.

How Change Orders Work in Billdr

Billdr is an AI-native construction management platform for general contractors and home builders. Change orders, budgets and invoices live in the same place, so the six steps above happen without extra admin:

Create it from the job. Build a change order in a few clicks with labor, materials, taxes, markups, notes, photos and attachments. Removed work is entered as a credit and subtracted from the contract total.

Get it signed online. The client reviews it in their Billdr Client Dashboard and approves or rejects it electronically from any device. Every approval is recorded with a full audit trail.

Budgets update automatically. Once approved, Billdr updates the project value, so everyone sees the original contract value, approved and pending change orders, and the current project value.

Bill it instantly. Turn on auto-invoicing and Billdr issues an invoice for the change as soon as the client signs. Invoices sync to QuickBooks Online.

Nothing slips. Bob, Billdr’s AI copilot, watches every active job and flags the unapproved change order and the overdue invoice without you having to go looking for them.

Contractors already running change orders this way include Oakridge Contracting, which moved its quotes, change orders and client files into one hub, and Construction Tomico, a Montreal cost-plus general contractor that now bills clients twice as fast. Learn more about change orders and project budgets in Billdr.

5 Common Change Order Mistakes

Starting work on a verbal OK.

Pricing materials and forgetting labor, markup and extra days.

Not recording credits when scope is removed.

Updating the budget only at the end of the job.

Approving a change order and never invoicing it.

What to Do This Week

Read the changes clause in your standard contract and note the allowed markup and approval rules.

Number every open change on your active jobs and mark each one pending, approved or rejected.

Add the approved changes to each job’s contract value and budget.

Invoice any approved change orders that haven’t been billed yet.

Pick one place to track change orders going forward, and make it the only place.

Change Orders at a Glance