How to Handle Change Orders as a Contractor
Short answer
To handle change orders as a contractor, write the scope change in plain English, price it with the same markup as the original bid, get the client signature before the work starts, and route the new milestone through the same payment schedule. Change orders that follow this pattern protect the original margin and remove most invoice disputes.
- Trigger a change order any time scope expands, contracts, or shifts.
- Write scope, price, schedule impact, and signature line on every change order.
- Use the same markup percent as the original bid.
- Get the signature before work starts. No verbal change orders.
- Route the new milestone through the same payment schedule.
When does a change order trigger?
A change order triggers any time scope expands, contracts, or shifts after the contract is signed. Common triggers: client adds a feature, demo reveals rot or knob-and-tube wiring, inspector requires a code-driven upgrade, designer changes a fixture or finish, sub finds a structural condition. Every trigger gets a change order. Verbal change orders are the single biggest source of invoice disputes for small contractors.
How do I write the scope change?
Write the scope change in plain English. Three sentences max. What is being added, what is being removed, what stays the same. Example: Scope change CO-002. Add water-resistant gypsum board on the bathroom wet wall in place of standard gypsum. Remove standard gypsum on that wall only. Stays the same: all other drywall scope.
How do I price a change order?
Price the change order with the same combined markup as the original bid. If the original bid used 30% markup, the change order uses 30% markup. Direct cost on the change times 1.30 equals the change order price. Do not raise the markup on change orders to recover risk. Do not lower the markup to win the change. Both moves create suspicion.
- Same combined markup as the original bid.
- Direct cost from current catalog or sub quote.
- Schedule impact in days, not vague language.
- Client signature before work starts.
How do I get the signature before work starts?
Email or text the change order PDF to the client with a signature link. Most clients sign within an hour. If the change is urgent, call the client, walk them through the PDF, and ask them to sign on the link. No verbal change orders. Even with long-time clients.
How do I route the milestone payment?
The signed change order should update the next milestone payment automatically. If the original schedule had a rough-in milestone at $9,200, and the change order adds $1,400, the new rough-in milestone becomes $10,600. Avoid splitting change orders into separate side invoices.
What about a credit change order?
A credit change order documents a scope reduction. The math runs the same as an additive change order. Direct cost removed times 1 plus combined markup. Subtract from the next milestone. Keep credit change orders rare.
Frequently asked questions
What is a typical change order percent on a remodel?
Healthy remodels run 4 to 10% in change orders over the original contract.
Can a client refuse to sign a change order?
Yes. If the client refuses, stop the affected work and document the refusal.
Should I include a contingency on the bid in addition to change orders?
Yes. Contingency on the bid covers known unknowns. Change orders cover scope shifts.
How do I handle a verbal request from the client?
Respond by sending a change order PDF the same day.
How is markup applied on the change order?
Same combined markup as the original bid.
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