What is a change order?
A change order is an approved change to the scope, price, or schedule of a job, documented before or as the work happens. It covers everything a client asks for after the contract is signed: moving a wall, upgrading a fixture, extra outlets, a different tile, a two-week push. In construction accounting it is the formal mechanism that keeps the contract value and the budget in line with reality.
Change orders matter because a job's original contract price is a snapshot taken before the work existed. The moment scope changes, the price is stale. A change order updates it, and updates the budget along with it, so the job can be judged against its true target.
Why contractors lose money on them
The pattern is always the same. The client asks for something extra in the field. The crew says yes because it is easier than negotiating. The extra work gets done, nobody writes it down, and at billing time nobody remembers it. The cost lands on the job and the revenue never does. On commercial work the reverse happens: the GC approves a sub's extra but the paper trail lags the work, and the billing cycle eats it.
There is nothing small about this leak. A few hundred dollars of extras per job, across dozens of jobs a year, is often the difference between a profitable year and a break-even one. It is also the most fixable leak in the trades, because it is a paperwork problem, not a skill problem.
The rule that fixes it
One rule covers most of the damage: no extra work without a signed change order, and the price on it includes a change-order markup. It does not have to be bureaucratic. A photo, a price, a client signature on a phone, and the extra is captured. The friction of typing it up on the spot is far smaller than the cost of forgetting it.
The markup on a change order is standard practice because change work is disruptive: it breaks the crew's rhythm, it uses smaller quantities at worse prices, and it often happens when other jobs are waiting. A markup that covers that disruption keeps change work from quietly turning profitable jobs into average ones.
The full change order workflow
- Log the request. The moment scope changes, log it against the job with photos. An email or a message in the field app counts.
- Price it. Use loaded labor, the real material cost, and the change-order markup.
- Get it signed. The client signs on their phone before the extra work starts. No signature, no work.
- Add it to the contract. The contract value rises by the approved amount, and so does the job budget.
- Bill it. The change order is invoiced with the work, not discovered at closeout.
How software helps
Change order tracking is one of the core reasons job costing software pays for itself. When the scope changes in the field, the crew logs it from a phone, the office approves the price, and the contract value and budget move together automatically. The report that shows profit per job is then honest, because it includes every extra the client actually paid for. Without that, the reports are only as honest as someone's memory.
If you are still managing change orders on paper, start with the rule above and a simple template. When that works, the software just makes it automatic.
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