Contractor Finance Glossary
What is Change Order?
Definition reviewed .
Also called: scope change
A change order documents an approved change to contract scope, price or schedule after the contract is signed. Unpriced extra scope adds cost without matching approved revenue.
Extra work can begin before the change is priced or approved. The cost then lands on the job while approval, invoicing and collection remain separate unresolved steps. Track pending, approved, billed and collected status separately. Pending, unapproved change requests remain separate from approved changes.
Compare scope-change cost with approved change revenue on recent jobs. Price and seek approval before proceeding when feasible; emergency work and disputed scope need their own authorization and documentation. An approved but unbilled change is different from a change that was never approved.
How it is calculated
Change gross-profit impact = approved additional revenue minus additional cost of revenue. Cost-minus-revenue is the opposite sign and measures erosion from unpriced scope. Include only appropriately approved/recognized changes in the main contract basis and track pending items separately.
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