Contractor Finance Glossary
What is Change Order?
Also called: scope change
A change order is a documented change to a contract's scope, price, or schedule after work has started, and it is one of the largest and most commonly unpriced levers on contractor margin.
Extra work happens on nearly every job. The margin problem is that crews do the work first and paperwork follows late or never, so the cost lands on the job while the matching revenue does not.
Disciplined change-order capture, pricing the change and getting sign-off before the work proceeds, is one of the fastest margin gains available to a contractor. Unpriced scope creep is invisible on the P&L and shows up only as jobs that mysteriously came in under margin.
How it is calculated
Change-order margin impact = added cost of the scope change minus the approved change-order revenue. When revenue is zero because the change was never priced, the full added cost is a direct hit to job margin.
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