How to Manage Change Orders and Variations on a Building Job

What is the change order process, step by step?

The process is the same whether your contract calls it a change order, a variation, a compensation event or simply an extra. Six steps, in this order, every time. The order matters more than the paperwork: the costly mistake is almost always doing step five before step four.

• 1. Spot it. A client request, a 'while you're here', a new drawing revision, a provisional sum being spent, or something hidden found when you open up.
• 2. Record it the same day. A diary note, a written confirmation of any verbal request, and a line in your variation register: reference, date, who asked, how, what and why.
• 3. Price it. Labour from your true hourly cost, materials with waste, plant, subcontract, markup, a risk allowance, and the cost of any extra days on site. Send the price within two working days with an expiry date and a decision date.
• 4. Get written approval. A signature on your form or a one-line email such as 'I approve variation V03 at 1,307'.
• 5. Build it.
• 6. Update everything. The register status, the running contract sum, the job cost budget, the programme if time changes, the weekly report and the next payment application.

What counts as a change order or a variation?

A change order, the usual North American term, or a variation, the usual term in the UK, Ireland, Australia, New Zealand, India and the Gulf, is any change to the work described in the contract. That includes work added, work taken away (an omission, priced as a negative), a different material or standard, a different sequence, or a different time to do the work.

Standard contract families use their own vocabulary. JCT contracts in the UK use variations; NEC contracts handle change through compensation events; AIA documents in the US use change orders and construction change directives; FIDIC contracts, common on international and Gulf projects, use variations. The vocabulary changes, the discipline does not.

Changes come from four places: the client changes their mind, the design changes, a hidden condition is found, or a provisional sum (an allowance for work that could not be priced exactly) is spent. Each needs the same record. California's Contractors State License Board, for example, advises homeowners that changes to the work, materials or completion date should be written on a change order, and that once signed it becomes part of the written contract.

How do you price a variation properly?

Price a variation the way you priced the job, from cost, not from how the request feels on a busy afternoon. Start with your true hourly cost: base pay plus on-costs (employer taxes, paid holiday, pension, insurance), divided by the share of paid hours that are actually productive on jobs. Then add overhead recovery: a year of business running costs (vans, insurance, office, phones, accountant, tools) divided by the productive hours your team sells in a year.

Add materials with a waste allowance, plant and hire, subcontract prices, markup by type of cost, and a small risk allowance for anything you cannot see yet. Finally, if the change adds days on the critical path, price the time-related cost of keeping the site open: welfare, skips, scaffold hire and supervision.

Keep markup and margin apart. Markup is added to cost; margin is the share of the price you keep. A 25 percent markup gives a 20 percent margin, not 25. Many small firms think they are working at a healthy margin when they are only adding a modest markup.

Worked example: pricing one small variation

A fictional builder is asked, mid-job, for three extra double sockets, an outdoor socket, two external wall lights and one radiator moved on a kitchen extension. The builder's overheads are 38,400 a year across four people selling 1,600 productive hours each, so overhead recovery is 38,400 / 6,400 = 6.00 per hour. A multi-trade builder paid 21 an hour with 25 percent on-costs and 85 percent productive time costs 21 x 1.25 / 0.85 = 30.88, plus 6.00 overhead, so 36.88 an hour. A labourer at 14 an hour comes to 26.59 an hour on the same basis.

With 15 percent markup on own labour and materials, 10 percent on subcontract, 5 percent waste on materials and a 3 percent risk allowance on direct cost, the build-up looks like this. Amounts are in any currency; tax is added on top at your local rate.

How do you work out the time impact of a change?

Every programme has a critical path: the chain of dependent tasks that decides the finish date. A day added to a task on that chain moves completion by a day. A task off the chain has float, spare time it can use before it delays anything.

So for each activity the change touches, ask two questions: how many extra working days does it add, and is that activity critical? If it is, the delay to completion equals the extra days. If not, completion only moves when the extra days are more than the float. In the example above, two items used float before plastering and the electrician brought a second person for one day, so the time impact was zero. Had it added two critical days, the price would have included two days of time-related costs, and the quote would have shown the new completion date.

Put the time impact in writing in the quote. Silence about time is how a builder ends up absorbing a delay that the client caused, or facing a late-completion claim for one.

What if the work has to start before the price is agreed?

Sometimes it cannot wait. You dig a foundation and find an old drain crossing the trench, or open a ceiling and find a joist end that has rotted away. Leaving it open is unsafe or holds up the whole job.

The method is: stop work on that part and make it safe; record it with photos from far away and close up with a tape measure in shot; show the client the same day; send a written notice of what you found; ask the right person (inspector, engineer, designer) for the solution; and get a written instruction to proceed with the price to be agreed. Then keep a daywork sheet for every day of that work, listing names, hours, materials and plant, and get it signed daily.

Structural, drainage, electrical and gas decisions belong to the competent person. The builder's job is to stop, record and ask, not to improvise a design on site.

What evidence settles a disputed variation?

Most disputes about extras turn on two questions: was it included in the contract, and what did it cost? The scope, the drawings and your exclusions list answer the first. A same-day diary entry, dated photos, the written instruction, the price build-up and signed daywork sheets answer the second.

A site diary is strongest when it is written on the day by someone who saw what happened. Record the weather and hours lost, who was on site, deliveries, visitors and inspections, instructions received and delays as facts with times. Name photos consistently, for example job number, date, location, subject and number, so anyone can find them in a minute.

When a client disputes a variation, do not argue on the doorstep. Reply in writing with the build-up and the evidence, offer a site meeting, and ask for the undisputed part of any payment application to be paid on time while you resolve the rest.

How do change order and payment rules differ by country?

The habit is universal; the formal rules are local. Many places have security of payment or prompt payment laws covering payment claims, payment schedules and adjudication, and some exclude homeowner work. In New South Wales, for example, the government's guidance says a respondent must give a payment schedule within 10 business days of receiving a payment claim, and lists homeowner contracts the Act does not apply to. In the UK, section 106 of the Housing Grants, Construction and Regeneration Act 1996 excludes construction contracts with a residential occupier from its payment and adjudication rules.

Retentions are changing too. New Zealand requires retention money under commercial construction contracts to be held on trust, with extra separate-account and reporting duties added in 2023. Rules on change orders for home improvement work are set by state in the US.

So follow your contract's variation clause and notice periods, and check current local law with a lawyer for anything that matters. If you want to measure your own planning and site judgement as a supervisor, AssessAll's Construction Site Supervision and Safety Judgment assessment is one starting point.

What are the most common change order mistakes?

A simple way to make the habit stick is an if-then plan: 'If a client asks for anything on site, then I say I will price it and confirm it by email tonight.' Jobulary has a clear explainer on how if-then plans turn intentions into habits at work. The Contractor Job File Kit from Bodhih Training puts the register, calculator, forms and letters for every step in one place.

• Building on a verbal yes. A nod on site is a conversation, not an approval.
• Pricing changes at the end of the job, when nobody remembers the details and the client has already budgeted for the final payment.
• Leaving out the time. A change that adds critical days costs site running costs and may need an extension of time.
• Using a rate that ignores overheads and unproductive time, so every variation quietly loses money.
• Letting trades take instructions directly from the client.
• Forgetting omissions: work taken out should reduce the price, and honest omissions build trust for the additions.
• Not updating the programme, contract sum and payment applications after approval, so approved work is never invoiced.
• Letting an AI tool write the notice. Assistants can draft and check, but a person must verify every fact, number and clause before anything is sent.