Key takeaways
- Every change order should be necessary, correctly priced and signed before the work.
- Low allowances become overruns. Convert them to fixed scope where selections can be made early.
- Set the rules in the contract: breakdowns, fixed markups, equal-rate credits, unit prices, time tied to the critical path.
- Review each request: is it a change, who caused it, is the fix right, are quantities, prices, markups and days correct.
- Keep a current change-order log and contingency budget.
Almost every construction project has change orders: written amendments to the contract that adjust scope, price, time or all three. The goal isn’t zero. It is that every change order is necessary, correctly priced, documented before the work and decided by the owner with full information.
Example only: twenty change orders averaging $30,000 each turn a $3,000,000 build into a $3,600,000 build, a 20% overrun nobody agreed to at any one moment.
Why change orders happen
- Owner changes: a moved wall, an upgraded finish, an added room
- Design errors and omissions: conflicts between drawings, missing details
- Unforeseen conditions: rotted framing, deteriorated concrete, unpermitted prior work or poor soils
- Code and inspector requirements that weren’t in the drawings
- Allowance overruns: selections that cost more than the amount in the contract
- Scope gaps: work nobody priced because the bid package didn’t assign it
Renovations of older South Florida buildings are especially exposed to unforeseen conditions from salt air, humidity and decades of patching. In a FEMA flood zone, an improvement that crosses the substantial-improvement threshold can require bringing the whole structure up to current flood requirements.
Contractor mistakes such as rework or its own sequencing problems are not change orders. They are the contractor’s cost.
Allowances vs. fixed scope
An allowance is a placeholder amount for something not yet selected: lighting, appliances, tile, plumbing fixtures, hardware. They cause overruns because amounts are often set low to make the bid look competitive, selections happen late, and the overage gets marked up.
Example only: the contract carries a $40,000 lighting allowance. The owner picks fixtures totaling $62,000. The overage is $22,000, and with a 10% markup on allowance overruns, the change order is $24,200. Had the fixtures been in the drawings, the price would have been set on bid day, against competition.
How to keep allowances under control:
- Convert allowances to fixed scope wherever selections can be made before bidding
- Set the rest line by line, at amounts that match the intended product level
- Define whether each covers material only, or labor, delivery and installation too
- Require unused amounts to be credited back
- Limit or eliminate markup on overruns
- Put selection deadlines on the schedule
Control starts in the contract
A good change-order clause covers:
- Written change orders signed by the owner before work proceeds, except in a real emergency
- A required breakdown: labor hours and rates, material quantities and costs, equipment and sub quotes
- Fixed markups for overhead and profit, separate for self-performed and subcontracted work, with a limit on stacked markups
- Credits for deleted work at the same rates and markups as added work
- Unit prices for items likely to vary, such as rock excavation, concrete repair or damaged framing
- Time requests submitted with the change order and tied to the critical path, or waived
- A process for disputed changes: the owner can direct the work to proceed while price is resolved, tracked on signed daily time-and-material tickets
How to review a change order
- Is it actually a change? If the work was shown, specified or reasonably implied in the documents, it was already bought.
- Who caused it? Owner, design, unforeseen condition or contractor error. That decides who pays.
- Is the scope right? The engineer may have a simpler, cheaper fix.
- Are the quantities right? Measure them against the drawings and the site.
- Are the prices right? Compare with the market and the contract’s unit prices.
- Are the markups per the contract? Watch for markup on markup and general conditions charged twice.
- Is the time request justified? Extra days apply only if the critical path moves.
A negotiation, worked through
Example only. The owner moves an interior wall, which needs a new steel beam. The contractor submits a lump-sum change order for $46,000. The owner’s rep asks for a breakdown:
| Item | Requested | Reviewed |
|---|---|---|
| Steel supply and fabrication | $15,000 | $15,000 |
| Erection (subcontractor) | $10,000 | $10,000 |
| Temporary shoring and demolition | $6,000 | $6,000 |
| Extended general conditions, 2 weeks | $9,000 | $0 |
| Subtotal | $40,000 | $31,000 |
| Overhead and profit | $6,000 (15%) | $3,100 (10%) |
| Total | $46,000 | $34,100 |
Two adjustments. The beam can go in while MEP rough-in continues, so the critical path doesn’t move and extended general conditions don’t apply. And the contract sets the markup on subcontracted work at 10%, not 15%. The steel and shoring quotes check out against the market. Approved at $34,100, which is $11,900 less on one change.
Documentation that holds up
- A change-order log: status, amount requested and approved, time impact and cause for every request
- RFIs and responses showing when an issue was raised and how it was answered
- Photos and field reports of unforeseen conditions before they’re covered
- Signed change orders before the work, or a written directive with agreed pricing terms
- Budget tracking: approved and pending changes against contingency, updated monthly
Verbal approvals in the field lead to disputes, because the contractor will bill for them and the owner has no record.
Keeping the total small
- Bid complete documents
- Make decisions on time. Late decisions become rework
- Investigate existing conditions before bidding a renovation, through selective demolition, testing or scanning
- Carry an owner contingency and manage it as a budget line
- Batch small owner changes and price them together
How Monster Project Group handles change orders
We start before the first one arrives, with complete bid documents, realistic allowances and a change-order clause with defined markups and unit prices. During construction, every change order comes through MPG. We confirm it is a real change, check scope, quantities, price and time, negotiate with the contractor and give the owner a recommendation.
What markup on change orders is reasonable?
It depends on contract type, project size and who performs the work. Fix the rates in the contract before work starts, with limits on stacked markups.
Should I sign a change order after the work is already done?
Avoid it. Once the work is done you can’t choose another solution or negotiate from strength. If work must proceed first, use a written directive and track labor and materials daily.
What is a construction change directive?
A written order from the owner to proceed with a change before price and time are agreed. Cost is settled under the contract’s pricing terms, often time and materials with signed daily tickets.
How much contingency should I carry?
It depends on how complete the drawings are and how much is unknown. Renovations of older buildings generally need more than ground-up work on a clean site.