Why change orders cause trouble
A job can look profitable on the original estimate and still lose money when extra work is handled informally. A customer asks for another outlet, a room needs additional prep, or a material choice changes. If the crew starts before the price and schedule impact are documented, it becomes harder to collect payment and explain the final invoice.
A change order is a written record of work that falls outside the agreed scope. It should explain what is changing, why it is changing, how much it costs, and whether it affects the completion date.
1. Record the request before the work begins
Give each change a unique number tied to the project. Record the date, customer, job address, who requested the change, and a plain-language description. Be specific: “replace six additional damaged subfloor sheets in the kitchen” is more useful than “extra flooring work.” Add photos or supporting notes when they help clarify the scope.
Keep the original contract scope intact. The change order should add to or revise that scope rather than quietly replacing the original estimate.
2. Price the full cost—not just the materials
Break the added work into the same cost categories you use for the original estimate:
- Materials: quantity, unit cost, delivery, waste, and any price change.
- Labor: hours by trade or worker type multiplied by the appropriate labor cost rate.
- Subcontractors and rentals: written quotes, equipment, and extra mobilization.
- Overhead and margin: apply your normal pricing method consistently.
- Schedule impact: added days, remobilization, or work that must be rescheduled.
Do not treat the amount charged to the customer as if it were profit. Track the estimated cost of the added work separately from the selling price so you can see whether the change is actually profitable.
3. Get written approval before proceeding
Send the customer the scope, price, and schedule impact for approval. Keep a record of the approval and its date. Follow the contract and applicable local requirements for signatures, authorizations, and emergency work. If a customer has not approved the change, clarify the situation before directing the crew to proceed, except where your contract and applicable rules provide a different process.
4. Update the job budget and schedule
Once approved, update the project record in three places: the contract value, the budgeted cost, and the schedule. A useful change-order log includes:
- Change-order number and project name
- Date requested and date submitted
- Description of added or removed work
- Estimated labor, materials, subcontractor, and other costs
- Customer price and expected margin
- Approval status and approval date
- Schedule days added or removed
- Actual cost and final billing status
Use clear statuses such as Draft, Sent for Approval, Approved, Declined, In Progress, and Billed. This makes it easier to spot changes that are waiting on a customer or have been completed but not invoiced.
5. Compare estimated and actual results
After the extra work is complete, enter actual labor hours, material costs, subcontractor charges, and other expenses. Compare the actual total with the estimate. If changes repeatedly take more labor than expected, adjust future production assumptions and pricing. If certain requests routinely create delays, build those risks into planning and communication.
A simple example
Suppose a customer approves an added-work price of $1,200. Your expected direct costs are $720, leaving $480 before any additional overhead or other costs not included in that estimate. If actual costs rise to $930, the amount left before those other costs falls to $270. Without a separate record, that overrun can disappear inside the project’s overall numbers.
Make change orders part of your normal workflow
The goal is not more paperwork for its own sake. A consistent process gives you a record of what was requested, what was approved, what it should cost, and whether it was billed. Use the same project identifier across your estimate, change-order log, job-cost tracker, and invoice so the records stay connected.
If you are building a more consistent estimating and tracking process, start with the related guides: how to estimate a contractor job, how to track job costs and profitability, and cash-flow planning for small contractors. You can also browse the downloadable tools in the TradeReady Templates store.
Practical note: this article is general business guidance, not legal or accounting advice. Contract terms and change-order requirements vary by project and jurisdiction.