Construction Change Orders: How Subs Can Protect Their Profit

Change orders are where sub profits go to die. Or they're where you make money instead of breaking even. The difference is whether you understand how to document, price, and defend scope changes.

Most subs are sloppy with change orders. They start work without approval, document changes poorly, and accept below-cost pricing from GCs. Meanwhile, professional subs treat every change order as a line item on their P&L. This guide shows you how.

What Is a Change Order? (And What It's Not)

A change order is a written directive that modifies the scope of work in your contract. It should include:

• Description of the change (what's being added or removed)
• Reason for the change (who requested it and why)
• Impact on cost (how much the change costs or saves)
• Impact on schedule (how much time the change adds or removes)
• Approval signature (from GC and sometimes the owner)

A change order is NOT:

• Verbal approval from the GC to do extra work
• An email saying "go ahead and fix that"
• A text message asking you to add something
• A modification to the plans you discover on site

If it's not in writing with approval signatures, it's not a change order. And if it's not a change order, you likely won't get paid for it.

The Three Types of Change Orders You'll Face

1. Owner-Requested Changes (The Easy Ones)

The owner changes their mind about a design detail, wants to upgrade materials, or modifies the scope. The GC issues a change order to you. This is straightforward—the change is typically approved and funded because the owner requested it.

Your job: Document the exact scope change, quote it at your normal margin (don't discount), and get it signed before you start work.

2. Design Corrections (The Tricky Ones)

The plans showed something one way, but the architect discovers an error or the owner wants to fix a problem. This triggers a change order. The GC might try to pressure you to absorb some cost as "our problem" or "just fix it."

Your job: Distinguish between your error and the designer's error. If the plans were wrong, the cost is a change order and the owner pays. If you bid wrong, that's your problem. Be clear on which one it is.

3. Site Condition Changes (The Expensive Ones)

You discover conditions different from what the plans suggested—subsurface conditions, existing conditions that need rework, safety issues. This is often contentious because nobody wants to pay for it.

Your job: Document the unexpected condition immediately with photos, descriptions, and scope impact. Notify the GC in writing that you're stopping normal work and request a change order. Don't keep working and bill it later—that looks like you absorbed it voluntarily.

The Change Order Process: How to Do It Right

Step 1: Identify the Scope Change

Something's different from the contract. It could be:

• Work the GC is asking you to add (verbal request)
• Work you discover is necessary that wasn't in the contract
• A change in how the work needs to be done
• An error in the plans that requires rework

Action: Stop and notify the GC immediately. Don't assume it's your responsibility or that you'll absorb the cost.

Step 2: Document the Change

Create a detailed description of what's changing:

• What was in the original contract (the baseline)
• What is being changed (the modification)
• Why (reason for change)
• How it affects the work (scope, timing, coordination)

Include photos, marked-up plans, or any visual documentation that supports the change.

Step 3: Price the Change Order

This is where most subs lose money. They either:

• Guess at the price without calculating costs
• Underprice it to appease the GC
• Base it on the original bid margin instead of actual cost

How to price it correctly:

1. Calculate actual material cost (not estimated)
2. Calculate labor hours at your loaded labor rate (wage + burden)
3. Add equipment costs if applicable
4. Apply your normal margin (10-15% for established work, higher for risky work)
5. Factor in schedule impact if it delays other work

Example: Your crew normally costs $150/hour loaded. A change order requires 20 hours of labor, $2,000 in materials, and 2 hours of equipment rental at $100/hour.

• Labor: 20 hrs × $150 = $3,000
• Materials: $2,000
• Equipment: 2 hrs × $100 = $200
• Subtotal: $5,200
• Margin (12%): $624
• Change order cost: $5,824

Some GCs will push back on that margin. Don't budge. You're not absorbing their mistakes or design changes. That margin covers your overhead and profit.

Step 4: Submit for Approval

Send the change order to the GC with:

• Detailed description of the change
• Cost breakdown (labor, materials, equipment)
• Schedule impact (how many days does this add?)
• Supporting documentation (photos, calculations)
• Date needed for approval (usually "before work begins")

Request written approval before you start work. If the GC says "start and we'll approve later," respond in writing: "I'll start after I receive approved change order #X, dated [date]."

Step 5: Track the Change Order

Keep a running log of all approved change orders. Track:

• Change order number
• Date approved
• Amount approved
• Work completed to date
• Status (pending/approved/paid)

This prevents disputes later when the GC claims they never approved it or approved a different amount.

Common GC Tactics and How to Counter Them

Tactic #1: "Let's Just Do It and Figure Out the Price Later"

Translation: We might not pay you for this, or we'll pay you much less later.

Your response: "I'll get started as soon as I receive an approved change order. What's the timeline on getting that approved?"

If they won't approve it in writing, they either don't plan to pay you or they're hiding the cost from the owner. Either way, don't start work.

Tactic #2: "Your Price Is Too High"

Translation: I want you to absorb some of the cost.

Your response: "The price reflects actual cost plus our standard margin. If you see an error in the calculations, I'm happy to review it. Otherwise, this is what the work costs."

Then wait. Many GCs approve the high price later because they don't have another option. Don't negotiate down just because they complain.

Tactic #3: "We'll Pay You When We Get Paid by the Owner"

Translation: Your change order might not get paid for months.

Your response: "Our contract terms are Net 30 from invoice date. I'll invoice as soon as the work is complete."

If they won't commit to your normal payment terms, add a contingency—the change order cost increases 2-3% per month of delay.

Tactic #4: Scope Creep (Small Changes Add Up)

The GC asks for "just a few more ..." and before you know it, you've done $10K of unapproved work. Each small request seems minor, so you do it. But collectively, they add up.

Your response: Document EVERY change, no matter how small. If it's outside the original scope, it needs a change order. No exceptions, no "we'll settle up later."

Red Flags: When NOT to Trust a Change Order

• Verbal approval only — If it's not in writing, it doesn't exist
• No signature or approval authority — Did the GC's project manager approve it? Or did they pass the buck?
• Retroactive change orders — "You already did the work, now we're approving it" often means you won't get paid
• Change order issued by someone without authority — The sub foreman can't approve change orders. It needs to come from the GC's management
• Owner not mentioned or approving — If the owner didn't approve the change order, the GC can't pay it

The Most Important Rule

Your contract scope is your contract scope. Everything outside that scope is a change order. You have zero obligation to absorb design errors, owner changes, or site condition surprises. That's what change orders are for.

Subs who treat change orders as optional profit losses end the year surprised at how little they made. Subs who treat each change order as a billable line item protect their margin and build a sustainable business.

Bottom Line

Change orders are not optional. They're how you protect your bid margin from scope creep and change. Document everything, price it right, get approval before you start, and track it all the way through payment. Do that and change orders become profit instead of headaches.