Contractor's Corner: Winning with change orders - July 2025
By Dave Stafford
When a commercial contractor hears “change order,” they see an opportunity for profit; when a general contractor hears it, they think additional cost. While the commercial contractor looks for ways to negotiate, the buyer looks for ways to minimize or reject changes. A change order is a modification of a contract, and, if not done properly, it will not be approved. Contractors may make this a game that they win by default if the commercial contractor doesn’t read the “fine print.” In a change order scenario, the most important question for the commercial contractor is, who is authorized to approve changes in contract scope, terms, additions and other modifications?
What is a change order, and how can I get one? A change order is an addition or subtraction from a contract. This occurs when the scope of work or the amount or extent of work changes. It may have to do with floor prep, the amount of new product required, or ancillary services like moving furniture that was not part of the original project. Commercial contractors are accustomed to hearing, “Oh, I thought you would be doing that as part of the job.” That is generally true of minor but not major floor prep, such as rebuilding the floor or moving large office furniture, so if these sorts of activities are necessary, that may initiate a change order. Before completing these tasks, discuss them with your contact on site, submit the change in writing and get their signature.
How to make and submit change orders and the approval process. Each contract should outline exactly how and when to submit change orders as well as who is able to approve any contract changes that involve more money. If this is not spelled out concisely, then ask those questions. Get it in writing and have it signed by the buyer. On one job, I was told that I should get any changes approved by the onsite superintendent, so I relied on that. There was some costly floor prep, moving equipment and a couple of extra rooms added. I submitted the extras to him, and they were approved. However, when it came time to be paid, the change orders were rejected because “only the project manager can approve any monetary changes; the field superintendent was ‘just acknowledging that the work had been done.’” I only collected about 25 cents on the dollar for those.
Submit change orders in writing and with photos if possible. This may be done via email or fax. Be clear in your description of the extra cost involved and what the unit pricing covers. Avoid a “one lot type pricing” where costs are not broken down. Be sure to note that “work will not be performed until a signed change order is received by us.” Frequently, you will be pushed to “go ahead with the extra work” without this approval; in most cases, this results in no approval or a negotiated amount lower than submitted.
I have been burned by buyers when I tried to be a nice guy and rely on verbal assurances of approval. I have even been threatened with liquidated damages if I did not proceed with the work. My response was, “Send me the signed change order, and we’ll make this a priority.” In this case, the contractor’s vice president got involved, and the signed order was sent that day. Do not rely on verbal approvals; people have short memories unless you shoot a video of them giving their approval. Even then, they may argue that there was no real agreement on the dollar cost. If necessary, write it out in long-hand and have them sign with name, title and date.
The selling process and how to value change orders. Document extra work performed using notes and a camera. Nothing beats a photo of the type and extent of the extra work, specified by area. Be prepared to provide an estimate of the extra cost. One way to do this, prior to work being performed, is to use a “not to exceed valuation” as a basis for approval of the change order. This way, you and the buyer agree that his approval is for the top amount. If the extra work is going to exceed that amount, then further approval must be given by him.
A change order is not a license to add profit to a low-ball bid. The pricing must have a clear, factual basis and be appropriate to the geographic area. The astute buyer will be looking for price gouging, and price gouging will damage your relationship with the buyer. Rather, explain in detail what must be done, the time involved, the specialty of the products involved and the expertise to apply. If the site supervisor cannot approve change orders, then ask for his help in getting the project manager’s approval.
Arrange to meet with the project manager onsite and show him what needs to be done and why it was not part of the original contract. “Matt, as you can see, the removal of existing flooring caused extensive damage to the surface of the concrete substrate. The floor should be resurfaced to provide a smooth surface for the LVT; otherwise, the defects will telegraph through the new flooring. This could not have been known by you or us during the site visit. I estimate that a poured topping, like Schönox, could be as much as $4,500; therefore, I’m requesting a change order with a NTE (not to exceed) of $5,000 to give us a little leeway. We will do everything possible to keep the cost down.”
Also, be aware that not every change order incurs additional costs. In some cases, site conditions require less prep than budgeted, areas have changed or products have been substituted. You will look like a hero when you submit a change order that gives money back to the buyer. The same rules apply, though: Be transparent in your pricing, showing the offsets in product prices or labor to be performed. This doesn’t mean you shouldn’t take a full markup on the change. “Hey, Chuck. I think we both agree that LVT in the two areas will not be ideal because of substrate irregularities, and you’ve said that you don’t have the budget or time for floor resurfacing. Why not allow me to substitute with plain level-loop carpet? I believe it can save you some money, too. I’ll send a change order over for you to approve the area selections.”
I have seen some contracts that address change orders up front. “Contract change orders will be limited to documented cost plus 10% for overhead and 10% profit.” I remember one where we were required to attach our copy of the supplier’s invoice for products and our 10&10 calculations. Our method was to calculate the product cost and labor, then multiply by 10% for overhead to arrive at a subtotal. We then increased this subtotal by 10% to determine the total for the change order. This allowed for a bit more money than if we had added the 10&10 and multiplied it by 10%. I always tried to avoid this clause when possible; I did not want to expose my suppliers’ costs or limit my profitability.
Getting paid while avoiding write-offs and controversy. Submit billings for change orders as they occur; do not wait until the end of the job. This way, you have more leverage while the job is ongoing. Your argument should be that you have incurred the cost, the change was approved, and you have a right to be paid promptly, now, not at the end of the job. You might as well find out early if there’s going to be a problem.
You might also ask for accelerated payment if the project is of long duration. With contractors, there is typically a set timeframe for submitting invoices for approval. A trained project coordinator can spot anomalies and include copies of the signed change orders along with invoicing. This eliminates the need for approval upfront.
I made the mistake of waiting until the end of a job to obtain approval for change orders and only recovered about 30% of the money due. “Dave, we don’t have the money on this project. Tell you what, I’ll make it up to you on the next job, okay?” And of course, that never happened. I had no real leverage since the job was done, an expensive lesson for me.
In a similar vein, we had obtained approval for some contract change orders, but we heard that the owner was experiencing financial difficulties. When there was a delay in payment for our normal requisitions, we had our attorney intercede. After some investigation, he advised that many subcontractors were not being paid and that we should offer a discount for payments due. We ended up with about 70% while other subs ended up with 10% to 25% a year later. While frustrating, this was a sound decision.
In a similar case, a government facility refused to pay the total amount of a purchase order, saying it was issued in error because sufficient funds were not available. I hired an attorney who was familiar with the Federal Acquisition Regulation. He sent one letter, made one phone call, and I got my money; he knew which regulations to use to compel performance or face a claim with the inspector general’s office.
Whenever possible, build in a little bit more on a bid so you can “overlook” job glitches and do that extra little bit of work to avoid being seen as nitpicking. “George, the moving and shifting of furniture and file cabinets was not part of the job. However, there won’t be an extra charge for this room. If we have to do this again, though, we’d have to be paid, okay?” George was appreciative and later signed for some extra work because we had treated him right.
For any contract changes, there needs to be clarity in the verbiage, an attitude of integrity and fairness in pricing. Woe be unto you if the buyer feels you’re “taking a shot”; then, anything you ask for is open to negotiation. When he feels you’re working with him in the spirit of the contract scope of work, you can usually stop any controversy before it becomes deadly and personal. After all is said, you’d like to have more business and referrals, right?