CONTRACTS — CHANGE ORDERS

CHANGE ORDER ACCOUNTING, DONE RIGHT.

QUICK ANSWER

A change order touches four systems: pricing (full burdened cost plus overhead plus margin — not field-guess T&M), the contract record (executed COs adjust contract value the day they're signed), the WIP schedule (approved COs enter revenue; unapproved COs enter cost with disclosed treatment), and billing (the CO appears on the next pay app, not whenever someone remembers). Most subcontractors run none of the four consistently — which is why 40–60% of commercial profit fade traces straight to change orders. The system that fixes it runs on a 48-hour clock.

EVERY UNPRICED CHANGE IS A DONATION. HERE'S THE FULL ACCOUNTING TREATMENT, FIELD TO WIP.

BY JOSH LUEBKER Published: June 2026 Updated: June 2026

THE FOUR SYSTEMS

WHAT HAPPENS TO A CO, STEP BY STEP.

SYSTEM 01 — PRICING

Full Burden, Real Overhead, Stated Margin

A CO priced at raw labor and material is a CO priced at a loss. The correct stack: labor at fully burdened rates (taxes, comp, benefits, small tools), material with handling, equipment at real ownership-and-operating cost, subcontracted scope, then overhead at your honest rate, then margin at your target. Supervision, re-mobilization, and schedule impact are line items, not favors. A CO is a small job; price it like one.

SYSTEM 02 — THE CONTRACT RECORD

Executed COs Move Contract Value the Same Day

The original contract plus executed COs equals current contract value — and that number drives the SOV, the billing ceiling, and the WIP. Subs that batch CO entries quarterly run jobs against stale contract values for months: billing looks ahead of contract when it isn't, percent complete computes wrong, and the job's real size is a mystery. The rule is same-day entry: signed CO in hand, contract value updated, SOV line added before the next pay app cycle.

SYSTEM 03 — WIP TREATMENT

Approved Is Revenue. Unapproved Is the Judgment Call.

Executed COs flow into contract value and earned revenue at percent complete — clean. Unapproved-but-performed change work is where books go wrong: the cost is real and already in the job, but booking the revenue before approval inflates the WIP with money you may never see. The disciplined treatment: carry the cost, book revenue only to the extent recovery is probable and documented, and disclose pending COs as a separate WIP line your bank and surety can see. A WIP stuffed with optimistic unapproved COs is the fastest way to lose a surety's trust.

THE PROTOCOL

48 HOURS FROM CHANGE TO PAPER.

The accounting only works if the paper exists, and the paper only exists with a deadline. The CFOS change order protocol: every changed condition, directed extra, or revised drawing becomes a written, priced change order within 48 hours of discovery. No batching for month-end. No waiting until the GC asks. No verbal-approval limbo past two days.

Field flags the change the day it appears — photo, daily log entry, one-line description

PM prices it within 48 hours at full burden, overhead, and margin

CO submitted in writing with cost backup — even if the GC directed it verbally

Unsigned COs chased on a standing weekly list; nothing performed past 30 days without written status

Executed COs entered same-day: contract value, SOV, next pay app

One civil contractor’s first CO audit under this protocol surfaced $310K of performed-but-unbilled change work. The protocol isn’t administrative overhead. It’s margin recovery with a deadline.

WHERE CO ACCOUNTING BREAKS

THE CO LEAK, BY TRADE.

Electrical: Death by Forty Small Changes

Electrical COs come in $800–$3,000 increments — directed device moves, revision deltas, T&M tickets approved verbally at the panel. Forty of them on a nine-month job is $30K–$50K, and none of them feel worth the paperwork in the moment. The 48-hour protocol exists precisely because small COs compound and memory doesn't.

Civil & Sitework: The Quantity CO

Civil change work hides in quantities — rock clauses, unsuitable soils, plan-versus-field dirt. The accounting requirement is survey-grade documentation tied to unit prices, reconciled monthly between field quantities and billed quantities. The CO that isn't measured isn't collectable.

Concrete: The Design-Change Cascade

One structural revision cascades through formwork, rebar, embed layout, and pour sequencing — and the re-work cost scatters across cost codes where nobody totals it. Concrete CO pricing has to capture the cascade, not just the visible scope line.

SWPPP & Multi-Site: The Directive That Never Lands

Multi-site trades take direction by text message — move this, add that, respond tonight. Each directive is a micro-CO that dies undocumented. The same-week documentation rule (crew hours, materials, photos, who directed it) converts texted scope into billable paper.

WHAT CHANGES WHEN THIS IS FIXED

CO DISCIPLINE, ON THE RECORD.

$310K

Found in one change order audit. A $7.1M civil contractor's first CO audit under the 48-hour protocol surfaced $310K of performed, unpriced, unbilled change work sitting in job costs as silent fade. Documented, priced, submitted, and substantially recovered — margin that was already earned and almost donated.

40–60%

Of commercial profit fade traces to COs. Across SPM engagements, unbilled and underpriced change orders are the single largest driver of bid-to-final margin fade. Fixing CO accounting isn't one improvement among many — it's the biggest lever on most jobs, which is why it's installed in the first 60 days.

48 Hours

The deadline that makes recovery automatic. COs submitted within the same billing cycle get paid. COs argued eight months later get negotiated down — recovery on muddy, late paper runs roughly 60 cents on the dollar. The deadline converts collections fights into routine pay app lines.

Frequently Asked Questions

Carry the cost in the job — it's real and it happened — but be conservative on the revenue side. Book unapproved CO revenue only to the extent recovery is probable: written direction exists, pricing was submitted timely, and the GC's conduct supports payment. Anything weaker stays as cost with the pending CO disclosed separately on the WIP schedule. Banks and sureties read a WIP line of pending COs as normal construction; they read earned revenue propped up by hopeful unapproved COs as a contractor cooking the percent complete. The first builds credibility. The second ends bonding relationships.

Yes — executed COs adjust the contract value the day they're signed, which flows through earned revenue, percent complete, and over/under-billing math on the next WIP. Pending COs get their own disclosed line: scope, amount submitted, status. A WIP that ignores COs understates contract value and makes healthy jobs look overbilled; a WIP that books unapproved COs as revenue overstates earnings. The monthly WIP reconciliation — every job, by the 10th — is where CO status gets trued against reality.

Everything the original bid would have included for the same scope: fully burdened labor (not raw wages), material with handling and escalation, equipment at real cost, subcontracted work, supervision time, re-mobilization if crews return, schedule impact if the change extends duration — then your honest overhead rate, then your target margin. The most common CO pricing failure is treating it as a favor priced at cost. A CO is a small job won at 100% win rate with zero bid cost. It should be your most profitable work, and at most subs it's the least.

Confirm in writing immediately — a same-day email stating the direction, scope, and that you're proceeding under it converts a verbal directive into a written record. Then submit the priced CO within 48 hours, keep performing under protest language if the contract requires it, and track every hour and material receipt against that specific change. Check your notice clauses: most subcontracts have CO notice windows (often 7–21 days) that extinguish your claim if missed. The subs that recover on disputed COs are the ones whose paper is boring, contemporaneous, and complete. The ones that lose are working from a foreman's memory.

It's installed, not figured out. During the 60-day setup SPM builds the CO pricing template at your real burden and overhead rates, the 48-hour workflow your PMs run, the contract-value and SOV discipline in ControlQore, and the WIP treatment your bank and surety see. The monthly close then audits CO status on every active job, so nothing performed goes stale. Your PMs spend less time on COs than they do now — the difference is the paper exists and the money lands.