Losing Money on Change Orders? The Hidden Costs and Smart Fixes

Change orders are a fact of life in construction. Projects evolve, designs shift, and what’s “final” rarely stays that way. But while change orders may feel routine, their impact is anything but simple. They can be a great way for a subcontractor to boost profit, yet they’re also one of the biggest, and least recognized, profit drains in the industry.

If you don’t have a boat named Change Order and find yourself wondering why something that looks profitable on paper often leaves less cash in your account, this article is for you.

Too often, subcontractors quietly absorb the hidden costs of change orders, eroding their margins without even realizing it. This article breaks down the true financial impact, why change orders are often underpriced, and the strategies subcontractors can use to protect profitability.

What is a Change Order?

A change order is a formal modification to the original construction contract that adjusts the agreed-upon scope, cost, or schedule. It typically reflects work that needs to be added, removed, or revised to meet project requirements and ensure the final build aligns with updated plans or conditions. Depending on the extent of the change, it can substantially impact the project’s overall budget and timeline. (Learn more here)

Good to know: In many government contracts, and some private ones, there are strict caps on the size and cost of change orders. These limits are designed to control project budgets and require additional approvals if a change exceeds a set dollar amount or percentage of the original contract. 

When Change Orders Go Wrong

Even when everyone agrees to a change, things can still fall apart in the paperwork.

Take this real-world example: a general contractor approved a change order for a subcontractor, but never sent the formal documentation to the project owner for months. The subcontractor had completed the work, expecting payment to follow. Four months later, with no funds released, they had to bypass the General Contractor and reach out directly to the owner.

It became a messy, uncomfortable situation for everyone...and it all came down to a breakdown in documentation and communication.

Change orders often seem simple, but they can balloon into dozens of emails, revised drawings, updated pay apps, and approval chains. Every extra step adds risk, time, and cost.

A simple, well-documented change order can be a profit center. But a poorly managed one can drain margin, stall cash flow, and strain relationships.

The Hidden Costs of Subcontractor Change Orders

Behind every change order lies a tangle of admin work, delays, and risks that often don’t make it onto an invoice. Here’s why so many subcontractors lose money:

• Fear of damaging relationships: Many hesitate to charge the full amount, worried about straining ties with the general contractor or owner.
• Complex approvals: Unclear approval chains push subcontractors to perform work “at risk,” leading to delays or disputes.
• Weak documentation: Without detailed records of changes, subcontractors lose leverage when billing.
• Overlooked admin time: Hours spent on estimating, updating schedules, and chasing paperwork rarely get billed.
• Schedule disruption: Even small changes ripple through workflows, lowering productivity and increasing labor costs.

Industry data shows that the change orders hit roughly one-third of all projects and can shave 10–15% off subcontractor profit. On a $1 million job, that’s up to $150,000 gone before anyone notices. 

The Real Profit Impact

Change orders don’t just raise costs, they reduce efficiency. Every surprise scope adjustment interrupts planning and puts pressure on both labor and management. Here’s a breakdown of how those hidden costs affect subcontractor profitability from Eric Hempler with Main Street Ledger:

The result? Subcontractors end up subsidizing projects without realizing it. The key is to plan for change orders, not just react to them.

How to Protect Your Profitability

Keeping change orders under control isn’t about luck; it’s about process. For general contractors and owners, the goal is to avoid unnecessary costs. For subcontractors, the key is to ensure every extra hour and material cost is documented, approved, and billed properly.

Here’s how to keep control:

1. Document Everything

Keep detailed logs from day one: emails, field notes, timecards, and material receipts. Detailed documentation transforms change order negotiations from opinions into evidence and helps you secure full payment sooner.

2. Get Written Approvals First

Do not start work without written authorization. Even a brief signed acknowledgment can prevent costly disputes later. Protect yourself by ensuring approvals are digital, timestamped, and archived.

3. Clarify Your Markup Policy

Establish markup rates for time, materials, and overhead before starting the project. Include them in your contract and communicate them clearly to both general contractors and project owners.

4. Track Change Order Performance

Use job costing tools to track how change orders affect project and company-wide profitability. Insight into which projects consistently generate unexpected changes helps you bid and price more effectively in the future.

5. Submit in a timely fashion

Don’t wait. Submit your change orders as soon as possible after the work is completed. The longer you wait, the harder it is for the GC or owner to recall the details, and the slower your payment will be. 

How Constrafor Helps Subcontractors Thrive

Even with the best documentation and markup policies, cash flow challenges can still threaten profitability. That’s where Constrafor comes in.

Faster Payments with the Early Pay Program

Approved change orders often take weeks, or months, to translate into payment. Constrafor’s Early Pay Program solves that by providing immediate liquidity on approved invoices. That means no more floating payroll or material costs while waiting for payment, freeing up working capital so subcontractors can stay on schedule and solvent.

Streamline with Construction Software

Constrafor’s technology turns change order management from a paperwork burden into a transparent, trackable process. Our digital tools help subcontractors:

• Submit and approve change orders online, eliminating manual bottlenecks
• Track profitability by job and by change order in real time
• Maintain documentation trails automatically for easier dispute resolution

This not only saves time but also empowers subcontractors to make smarter financial decisions that directly boost their profit margins.

Take Control of Your Change Orders

Change orders don’t have to be a profit-killer. With proper documentation, policies, and smart financial tools, subcontractors can turn a major headache into a manageable, and even profitable, part of their business.