Contractors and Change Orders: What You Need to Know

A submitted change order does not automatically mean the owner is responsible for the cost.

Originally published May 2012. Updated September 2026 to reflect current owner-side project delivery practices.

When you’ve signed a contract with a general contractor and receive a change order, the first question may be:

“Do I actually owe this?”

Sometimes the answer is yes. Sometimes it isn’t.

Rarely, if ever, do construction projects escape change orders. But the fact that a contractor has submitted one does not by itself establish that the owner is responsible for the additional cost.

Change Orders (COs), also known as Construction Change Requests, can arise during a project because of design modifications, additional work requirements, unforeseen conditions, owner-directed changes, or gaps and conflicts in the construction documents. They can increase costs, affect schedules, and create disputes between the parties.

Here are some key points to understand about contractors and change orders:

• Change orders are inevitable and costly: Ensure you have a healthy set-aside of at least a 10% contingency in your budget on Hard Costs, Soft Costs, FF&E (Furniture, Fixtures, and Equipment), and other Expenses for anticipated change orders.

• Acceptable instances: Most construction contracts establish procedures for changes to the work. When the owner modifies the original scope, the contractor may be entitled to additional cost and time associated with performing that work. The contract should establish how those changes are proposed, reviewed, authorized, and priced.

• Unforeseen conditions: While contractors should carefully assess the site before construction begins, conditions can still arise that could not reasonably have been identified during due diligence.

  These may include unexpected subsurface conditions, underground utilities, contaminated soil, or obstructions concealed behind existing walls.

  When unforeseen conditions are encountered, the contractor may request additional cost and time to address them. Whether the owner is responsible depends on the condition, the contract, what could reasonably have been anticipated, and the allocation of risk among the parties.

• Changes in design: Design changes can also lead to change orders. If the owner decides to modify the design after construction starts, the change may result in additional costs and schedule impacts.

• Poor construction document coordination: As much as everyone would like 100% coordinated drawings, conflicts among architectural, MEP, structural, fire protection, and other construction documents can result in field changes.

  That raises another owner-side question: Who should be responsible for the cost—the owner, contractor, or design team?

  The answer depends on the circumstances, contractual responsibilities, and cause of the change.

The cost of a change order can vary greatly depending on the nature and extent of the change and when it occurs. A relatively minor material substitution may have limited cost implications. A significant change involving structure, building systems, or completed work can affect multiple trades and substantially increase both cost and time.

Change orders can also have a cascading effect on the project schedule. If changes are not evaluated and resolved promptly, additional costs can result from material delivery and storage, personnel availability, demobilization and remobilization, idle labor and equipment, and impacts on subsequent work.

Reducing the Risk of Change Orders

Owners can take proactive measures to reduce both the number and impact of changes:

• Thorough planning: Detailed design, a clear scope of work, and a realistic budget and schedule can help limit change orders. Involving the appropriate owner stakeholders, design team, contractor, and consultants during planning can identify risks before they become field problems.

• Use a contract: A well-drafted construction contract should define the scope of work, payment terms, change procedures, allowable markups, documentation requirements, and potential schedule impacts. The American Institute of Architects (AIA) provides commonly used construction contract forms, although the appropriate agreement and modifications should reflect the specific project and contractual relationships.

Anatomy of the Change Order

A change order may include:

Change Order Cost = Trade Cost + Insurance % + Project Fee % + Overhead % + Profit %

Your construction contract should establish the percentages or markups applicable to both additive and deductive changes.

Typical components may include:

• Trade Cost: Labor, materials, equipment, and subcontractor costs associated with the affected work.

• Insurance: Depending on the contract and project, applicable insurance costs or adjustments may be included as a percentage of the trade cost.

• Project Fee: If the contract establishes a project or management fee, the agreed-upon percentage may cover project management and administrative expenses.

• Overhead: Overhead or General Conditions can include project expenses such as site supervision, temporary facilities, equipment, utilities, and other project-related costs.

• Profit: The contract may allow an agreed-upon profit markup on change-order work.

How to Deconstruct Your Change Order

To understand how a change order was calculated, trace the costs and markups in the order established by the contract.

For example:

1. Start with the Trade Cost.

2. Add the applicable Insurance percentage.

3. Add the Project Fee percentage, if applicable.

4. Add the allowable Overhead percentage.

5. Add the allowable Profit percentage.

6. Confirm that the resulting total follows the contractually agreed-upon markup structure.

The chart below illustrates how $1,000 in contractor trade costs can become a $1,593.90 change order when successive percentage fees are applied:

Category	Percentage (%)	Calculation	Amount
Subcontractor Trade Cost to General Contractor	100%	–	$1,000.00
+ Insurance	5%	Trade Cost * 5% Insurance	$50.00
		Subtotal 1	$1,050.00
+ Project Fee	10%	Subtotal 1 * 10% Project Fee	$105.00
		Subtotal 2	$1,155.00
+ Overhead	15%	Subtotal 2 * 15% Overhead	$173.25
		Subtotal 3	$1,328.25.00
+ Profit	20%	Subtotal 3 * 20% Profit	$265.65
		TOTAL CHANGE ORDER	$1,593.90

The specific percentages and allowable costs for insurance, fees, overhead, and profit depend on the project, contract, and negotiations between the parties.

Validate the Change Order

When faced with a change order, don’t simply accept it because a price has been submitted.

First establish why the change occurred and who is contractually responsible for it.

Then have the appropriate members of the project team review the proposed scope, pricing, schedule impact, and available alternatives. The design team may identify another solution, determine that portions of the work are already included in the contract documents, or help establish the technical basis for the change.

Don’t Forget the Design Impact

Owner-directed design changes can lead to construction change orders, but unforeseen and field conditions may also require the design team to modify its construction documents.

One field change can affect architectural, mechanical, electrical, plumbing, fire protection, structural, and other disciplines. Updated drawings may be necessary to direct the trades or may need to be resubmitted to the permitting authority.

That can create a design change order in addition to the construction change order.

Design agreements, like construction contracts, should clearly establish how additional services and changes are addressed.

Maintain Flexibility—but Understand the Change

A clear scope and contract are essential, but projects also require flexibility. Unexpected conditions occur. Owner requirements change. Better solutions sometimes emerge after construction begins.

The objective is not to eliminate every change order.

It is to understand why the change occurred, who is responsible, what it really costs, what else it affects, and whether the owner is receiving what is being paid for.