Change Orders in Commercial Construction: How They Work and How to Control Their Cost

A change order is a written modification to your original construction contract, and on a typical commercial project you should expect at least three to five of them before substantial completion. The problem isn’t that change orders exist. The problem is that most property owners sign them without understanding how the price was calculated or whether the change was actually necessary. That gap is where budgets get blown.

What Triggers a Change Order

Change orders fall into a handful of predictable categories. Knowing which one you’re dealing with tells you how much room you have to negotiate.

Owner-requested changes: you decide you want a different door hardware finish, an added electrical outlet, or a wall moved two feet. These are the most negotiable because you initiated them.
Unforeseen conditions: a demolition crew opens a wall and finds outdated wiring, asbestos insulation, or rotted framing that wasn’t visible during bidding. These are common in renovation work, less common in ground-up builds.
Design errors or omissions: the architect’s drawings didn’t account for a structural beam, or a mechanical system doesn’t fit in the space allotted. Depending on your contract language, the architect’s insurance may cover part of this cost, not you.
Code compliance updates: a local inspector requires an upgrade that wasn’t in the original scope, such as an additional fire-rated door or an ADA-compliant ramp adjustment.

Ask the contractor to state the category on every change order request. If a contractor labels an obvious design flaw as an “unforeseen condition,” that’s a sign to push back and ask for documentation.

How Change Order Pricing Actually Gets Calculated

A legitimate change order breaks down into three components: labor, materials, and markup. Materials should be priced at actual cost, with a receipt or supplier quote attached. Labor is calculated using the contractor’s stated hourly rate multiplied by an estimated hour count, and that rate should match what’s listed in your original contract, not a new number that appears mid-project.

Markup on change orders typically runs 10 to 20 percent above cost, covering overhead and profit. This should also match the markup structure in your original agreement. If your contract specifies 15 percent overhead and profit on the base scope but a change order shows 30 percent, ask why. There’s rarely a good reason for the number to double.

For any change order over $2,000, request a line-item breakdown rather than a lump sum. A lump sum of “$4,800 to relocate electrical panel” tells you nothing. A breakdown showing 8 hours of electrician labor at $95/hour, $1,200 in materials, and 15 percent markup lets you actually evaluate whether the number is reasonable.

The Paper Trail You Need Before Work Continues

Never let a crew proceed on additional work based on a verbal agreement, even from a contractor you trust. Verbal changes are the single most common source of billing disputes on commercial jobs. The fix is procedural, not personal.

Require every change order to be submitted in writing before work starts, not after it’s finished.
Include a description of the work, the cost breakdown, and the impact on the project schedule (change orders often extend the completion date, and that should be documented too).
Get your signature or your project manager’s signature on the document before the crew touches the affected area.
Keep copies in a dedicated folder, physical or digital, separate from your general contract file. On a project with a dozen change orders, this saves hours when reconciling the final invoice.

If a contractor tells you there isn’t time to do the paperwork because the crew is already on site, that’s a red flag, not a reason to skip the process. A five-minute delay to get a signature is cheaper than a disputed $6,000 line item at closeout.

Common Ways Change Orders Get Overpriced

A few patterns show up repeatedly in commercial projects, and knowing them helps you spot inflated numbers before you sign.

Double-counting mobilization. If a crew is already on site for the base scope, a change order shouldn’t include a full new mobilization fee unless it requires equipment or trades not already present.
Rounding up hours. Watch for change orders that round every task to the nearest full day (8 hours) when the work realistically takes 3 or 4.
Bundling unrelated work. A change order for a plumbing fix shouldn’t also include unrelated cosmetic touch-ups unless you specifically requested both.
Retroactive pricing. Some contractors submit change orders weeks after work was completed, when it’s harder for you to verify what was actually done versus what was billed.

Cross-check labor hours against the daily field reports if your contractor provides them. If a change order claims 20 hours of carpentry but the field report for that period shows the carpenter on a different task, that’s worth a direct conversation before payment.

Building Contingency Into Your Budget From the Start

The realistic way to handle change orders isn’t to try to eliminate them. It’s to plan for them financially. For renovations of existing buildings, budget a contingency of 10 to 15 percent of the total contract value. For ground-up construction on a clean site with recent geotechnical data, 5 to 10 percent is more typical.

Set this contingency aside in a separate line of your project budget and track it against actual change order costs as they come in. If you’re at 8 percent of a 10 percent contingency by the halfway point of the project, that’s a signal to review upcoming work more carefully, not a reason to panic, but a reason to ask more questions before approving the next request.

Before your next project starts, ask your contractor for a written change order policy that specifies how pricing, markup, and approval will work, and get it attached as an exhibit to your main contract. This turns a source of ongoing disputes into a documented process both sides already agreed to.