Change Order (CHO)
A Change Order is a written order from a contracting officer directing a change within the general scope of an existing federal contract, usually unilateral on issuance, entitling the contractor to an equitable adjustment.
What Is a Change Order?
A Change Order, commonly abbreviated CHO, is a written order issued by the contracting officer that directs the contractor to make a change within the general scope of an existing federal contract. It is the formal vehicle through which an agency adjusts what was awarded, typically because requirements evolved, conditions changed, or specifications need refinement.
Change orders are usually unilateral when first issued, meaning the contracting officer signs the order without first negotiating an equitable adjustment, and the contractor must continue performance while the parties later negotiate the cost and schedule consequences. Once that negotiation concludes and both sides sign, the change order becomes a bilateral modification that incorporates the agreed price and schedule adjustment. Change orders are distinct from unilateral modifications that simply administer the contract (such as exercising an option) and from a cure notice that warns of default.
Key Characteristics
Change orders have several defining features. They are issued in writing by the contracting officer using a formal contract modification form, typically Standard Form 30.
They direct a change within the general scope of the contract; a directed change outside the original scope generally requires a new procurement rather than a change order. They are usually unilateral on issuance, with the contractor obligated to proceed with the changed work even before the price and schedule have been negotiated.
They entitle the contractor to an equitable adjustment for cost and time impacts, calculated under the Changes clause of the contract. They typically follow the FAR Changes clauses (FAR 52.243-1 through 52.243-7, depending on contract type) and are common in both firm-fixed-price contracts and cost-reimbursement contracts. The clock for filing a request for equitable adjustment generally starts when the contractor receives the change order.
How It Works in Government Contracting
Change orders affect federal contracts at three points in the lifecycle. First, at issuance, the contracting officer drafts an SF-30 modification describing the change and signs it unilaterally.
The contractor must continue performance per the new direction, even if they disagree with the change. Second, during performance, the contractor tracks all costs attributable to the change (extra labor hours, materials, subcontractor adjustments, overhead) using a dedicated job cost code or sub-CLIN to preserve a defensible cost record.
Third, at equitable adjustment, the contractor submits a Request for Equitable Adjustment (REA) under the Changes clause, the contracting officer reviews and negotiates, and the parties sign a bilateral modification that adjusts price and schedule. If negotiations fail, the contractor can convert the REA into a formal claim under the Contract Disputes Act, triggering Defense Contract Audit Agency review and potential litigation. Our 2026 GovCon playbook walks through change-order strategy in more depth.
Real-World Example
A construction contractor holds a $20 million firm-fixed-price contract to build a federal warehouse. Mid-construction, the agency issues a change order requiring the contractor to relocate a planned loading dock to accommodate updated truck routing.
The contractor continues work as directed, opening a new job cost code (CHO-001) to capture the additional concrete, rebar, and labor hours, plus the impact on adjacent work that must be re-sequenced. After 45 days of tracking, the contractor submits a Request for Equitable Adjustment totaling $340,000 with 22 additional calendar days.
The contracting officer's price analyst, supported by DCAA, reviews the REA and counteroffers at $280,000 and 18 days. The parties negotiate to $310,000 and 20 days, sign a bilateral modification, and close the change order. The defensible cost tracking in the dedicated job cost code is what kept the price negotiation grounded in actuals.
Regulatory Framework
Change orders are governed by FAR Part 43, which establishes the rules for contract modifications. The specific Changes clause varies by contract type: FAR 52.243-1 (Fixed-Price), FAR 52.243-2 (Cost-Reimbursement), FAR 52.243-3 (Time-and-Materials and Labor-Hour), and FAR 52.243-4 (Construction), each with the requirement to grant an equitable adjustment for cost and schedule impact.
FAR 43.205 covers the policies governing change order administration. For Department of Defense contracts, the Defense Federal Acquisition Regulation Supplement adds further requirements. Once negotiated, the resulting bilateral modification is documented per FAR 43.301.
Why It Matters for Contractors
Change orders directly affect contractor margin and CPARS performance. A contractor who fails to track change-related costs in real time will struggle to justify an equitable adjustment, leaving cost growth uncompensated.
Conversely, contractors who maintain disciplined cost tracking and submit timely REAs preserve margin and signal procedural maturity. Change orders also affect past performance ratings: agencies note in CPARS whether the contractor handles changes professionally or becomes adversarial.
From the agency side, excessive change orders may signal poor requirements definition and trigger oversight scrutiny. Strategic contractors maintain a change order log alongside their Contract Data Requirements List (CDRL) deliverables, treating each change order as both a financial event and a relationship event. Our piece on AI proposal accuracy and compliance covers how compliance discipline at the bid stage shapes change order outcomes later.
Common Misconceptions
A change order can direct work outside the contract's scope.
It cannot. Direction outside the general scope is technically a cardinal change and may not be enforceable as a change order. The remedy is a new procurement, not an enlarged change order.
The contractor can stop work until the price is negotiated.
Generally no. Under most Changes clauses, the contractor must proceed with the directed change while reserving the right to an equitable adjustment. Stopping work risks default.
Change order pricing is a unilateral agency decision.
It is not. The equitable adjustment is negotiated bilaterally. If negotiations fail, the contractor can convert the disagreement into a Contract Disputes Act claim and pursue formal remedies.
Frequently Asked Questions
What is the difference between a change order and a contract modification?
All change orders are contract modifications, but not all modifications are change orders. A change order is a unilateral direction to alter performance, usually followed by bilateral negotiation. Other modifications administer the contract (exercising options, adjusting period of performance, correcting clerical errors) without directing changed work.
How quickly must a contractor respond to a change order?
Per most Changes clauses, the contractor must proceed with directed work immediately upon receipt. The contractor typically has 30 days from receipt of the change order to assert a claim for equitable adjustment, though this period varies by clause and contract type. Tracking costs from day one is essential.
Can a contractor refuse a change order?
Generally no. Refusing to perform under a change order risks termination for default. The proper response is to perform the changed work, document costs and schedule impact carefully, and submit a Request for Equitable Adjustment to recover the impact. Our guide to capture management software covers how modern platforms support this discipline.
What is a constructive change order?
A constructive change order occurs when the agency directs work (or interprets the contract) in a way that imposes additional work on the contractor, but without issuing a formal SF-30. Constructive changes are common and require careful documentation by the contractor, since they are not formally recognized until the contractor raises them through an REA or claim.
How are change orders priced?
Equitable adjustment is based on the actual or projected cost impact of the directed change, plus profit at a reasonable rate. Contractors usually price using a build-up approach: additional direct labor hours at the contract labor rate, materials at cost, subcontractor adjustments, applicable indirect rates, and a profit factor. The contracting officer's price analyst validates against historical actuals and may engage DCAA for cost audit support.
Related Government Contracting Topics
Contracting Officer (CO): The official with authority to issue change orders and sign equitable-adjustment modifications.
Bilateral Modification: A modification signed by both parties, typically used to incorporate the negotiated price and schedule adjustment for a change order.
Unilateral Modification: A modification signed only by the contracting officer; change orders begin as unilateral modifications before being converted to bilateral.
CDA Claim: A formal claim under the Contract Disputes Act, used when an REA negotiation breaks down.
Cure Notice: A notice from the agency that a contractor is at risk of default; distinct from a change order but sometimes related.
FAR (Federal Acquisition Regulation): FAR Part 43 governs change orders and other contract modifications.
DFARS: DoD supplement to the FAR that adds requirements for change order administration on defense contracts.
Defense Contract Audit Agency (DCAA): The DoD audit organization that reviews change order pricing and incurred costs.
Past Performance: Agencies record how contractors handle change orders in CPARS evaluations, affecting future award prospects.
Contract Data Requirements List (CDRL): The list of deliverable reports under the contract; change orders may add CDRL items.
Indirect Rates: Percentage-based cost rates applied to direct labor and materials when pricing change order impact.
Statement of Work (SOW): The contractual document describing required work; change orders modify the SOW within scope.
How LotusPetal AI Helps
LotusPetal AI's capture and proposal automation platform tracks change orders against the baseline scope of each active contract, calculates impact estimates from a live cost-tracking ledger, and produces ready-to-file Request for Equitable Adjustment narratives. Capture and compliance teams maintain a single source of truth for the cost and schedule impact of every directed change.