What it means
When running a business, project plans rarely stay identical from start to finish. Clients often request additional features, unexpected site conditions appear, or timelines shift.
A change order protects your business by recording these updates in writing, preventing disputes over unpaid work or delayed deadlines. Without a proper change order process, companies frequently fall into the trap of doing extra work for free.
Employees or contractors might verbally agree to a client request on-site, only to find the client refuses to pay extra later. Documenting the change keeps budgets accurate and ensures cash flow remains predictable.
In practice, when a modification arises, you calculate the cost impact and schedule adjustment. You present this to the client as a change order.
Once both parties sign, it officially amends the original contract and updates your financial forecasts and job costing reports. Tracking change orders helps non-finance managers monitor project profitability.
If a project accumulates too many small unbilled adjustments, profit margins vanish. Proper tracking ensures your revenue accurately reflects the actual effort and materials delivered.
In practice
Real-world examples.
Example
You run a software agency building an app for a startup. The client asks to add a user login screen mid-project. You issue a change order for 2,000 pounds and two extra weeks, which they sign before coding starts.
Example
Your boutique manufacturing firm receives an order for 500 leather bags. The buyer requests embossed initials on each item. You draft a change order adding 5 pounds per bag to cover the new stamping equipment and labour.
Example
Your interior design business is renovating a cafe. Structural damage is discovered behind a wall, requiring urgent repair. You issue a change order for 3,500 pounds for the remediation work before proceeding.
Think of it
“Ordering a custom house is like building a car. If you originally order a standard model but later ask the factory to add a sunroof, you do not expect them to install it for free. A change order is the official price tag and receipt for that sunroof.
Formula
Calculation
Revised Contract Value = Original Contract Sum + Approved Change Orders
Example: Original contract = 50,000 pounds. Change Order 1 = 5,000 pounds. Change Order 2 = -1,500 pounds (for removed work). Revised Contract Value = 50,000 + 5,000 - 1,500 = 53,500 pounds.Case study
Seen in the real world.
GreenBuild Renovations was hired by Apex Retail to fit out a new shop for 100,000 pounds, with a completion date of November 1. During week three, Apex requested an upgraded lighting system and an extra storage room, verbally assuring the project manager they would cover the cost. GreenBuild completed the additions, spending an extra 15,000 pounds on materials and labour.
When GreenBuild invoiced 115,000 pounds upon completion, Apex refused to pay the extra amount, stating there was no signed agreement for the additional work. Because GreenBuild failed to issue formal change orders before starting the extra tasks, they absorbed the 15,000 pound loss, severely damaging their quarterly profit margin.
For their next project, GreenBuild instituted a strict policy: no work outside the original contract begins without a signed change order. This protected their cash flow and ensured all extra efforts were fully profitable.
Watch out
Common mistakes.
- Proceeding with client requests based on verbal conversations without written approval.
- Failing to update project timelines alongside cost adjustments, leading to unrealistic deadlines.
- Forgetting to factor in overhead and margin when pricing the additional work on the change order.
Questions
People also ask.
What is the difference between a change order and the original contract?
The original contract sets the baseline scope, cost, and deadline. A change order modifies that baseline for specific additions, removals, or alterations.
Can a client refuse to sign a change order?
Yes. If a client refuses to sign, you are generally not obligated to perform the extra work, and they are not obligated to pay for it.
Who should create the change order?
Usually, the service provider or contractor drafts the change order detailing the cost and time impact, then submits it to the client for approval.
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