You need to enable JavaScript to run this app.
By Travis Yule — CEO & Founder, Full Send Funding
An unsigned change order is cost with no revenue: revenue × change-order share × lag ÷ 365, or $148,000 permanently unbilled at 10% change work on a 90-day lag.
In one sentence: An unsigned change order is a cost with certainty and a revenue with none — a standing balance of annual revenue × change-order share × approval lag ÷ 365, carried at the contractor's cost of capital with no interest running, that a surety discounts out of working capital.
A change order is not revenue until somebody with authority signs it, and it is a cost from the day the crew starts. Between those two dates it is neither a receivable nor a claim. It is work you have paid for that nobody has yet agreed to pay you for, and on most jobs it is the largest unfunded position a contractor carries after retainage.
The usual framing gets this backwards. Contractors talk about change orders as upside: extra scope, priced with margin, the part of the job that repairs a tight bid. The pricing may well be good. But the money arrives at the end of a sequence — direction, performance, notice, pricing, negotiation, signature, billing, payment — and every step of that sequence is on somebody else's calendar. From the day the changed work starts until the day the signed change order appears on a payment application, you are financing your customer's decision-making at your own cost of capital, with no interest running and no lien or bond right that reliably reaches it.
That interval has a size and a price, and both can be calculated. The size is annual revenue × the share of work that arrives as changes × the approval lag in days ÷ 365. The price is that balance times your cost of capital. For a $4,800,000 subcontractor with ordinary change-order volume and an ordinary approval lag, the balance is about $160,000 permanently outstanding and the carrying cost is roughly a tenth of the company's net profit. The rest of this article shows the arithmetic, the paperwork that shortens the lag, the way an unsigned change order distorts a WIP schedule, and what a surety and a funder each do when they find one.
A change order is a written modification to the contract, signed by a party with authority to bind the owner, that alters the scope and states the adjustment to price and time. Every word in that sentence carries weight, and the most expensive one is signed.
Until signature, the changed work has three properties that decide everything downstream.
It is a cost with certainty and a revenue with none. Labour has been paid weekly. Material has been bought. Equipment has been rented. Every one of those is a booked, cash-out expense. The offsetting revenue exists as a proposal, and a proposal is a number the other party has not yet agreed to.
It is not a receivable, so nothing that protects receivables protects it. An approved payment application is a debt the prompt payment statutes attach interest to. A lien secures the value of labour and material furnished — but a lien on an unsigned change is a lien on a disputed amount, and the practical value of that is the cost of litigating it. Nothing in the financing market lends against a change order proposal at anything close to face value, because the counterparty has not confirmed it owes the money.
It is on the other side's clock. Direction to proceed is instant; the paper follows at the pace of the owner's representative, the architect, the general contractor's project manager and whoever above them controls the budget. On a federal job the regulations direct the contracting officer to negotiate the adjustment "in the shortest practicable time"[4] — a standard with no number in it.
The consequence is that a change order lives in the worst category on the balance sheet: money spent, revenue unrecognized or unrecognizable, and a collection path that does not start until the paper exists.
A change reaches a contractor by one of three routes, and the route determines the risk, not the dollar amount.
A directed change is the clean case. The owner or the general contractor issues a written instruction to change the work, the contractor prices it, and a signed modification follows. On federal construction the Changes clause gives the contracting officer the right to order changes within the general scope by written order,[1] and the regulations distinguish a unilateral change order — signed only by the government — from the bilateral modification that later fixes the equitable adjustment.[3] The exposure here is purely timing: the work is authorized, the price is not, and the gap between the two is the approval lag.
A constructive change is the dangerous case. No written order exists. A representative interprets a drawing, rejects a submittal, insists on a sequence, or tells the superintendent to "just do it and we'll sort it out" — and the work changes without anyone calling it a change. Federal construction contracts handle this explicitly: any other written or oral order from the contracting officer that causes a change is treated as a change order, provided the contractor gives written notice stating the date, circumstances and source of the order and that it regards the order as a change order.[1] Two further conditions carry the real cost. No adjustment is made for costs incurred more than 20 days before that written notice, except where the change stems from defective specifications;[1] and the contractor must assert its right to an adjustment within 30 days of receiving a written change order or furnishing its own notice.[1] Miss the notice and the first three weeks of the change are yours. Miss the assertion window and, absent the agency's indulgence, so is the rest.
There is a second trap inside the constructive change, and it is about authority rather than timing. On federal work only contracting officers acting within the scope of their authority may execute modifications, and other government personnel are directed not to act in a way that leads a contractor to believe they can bind the government, or to direct work that should be the subject of a modification.[2] The regulation is written as a restraint on government staff. Its effect on a contractor is that direction from an inspector, a resident engineer or a project manager is not, by itself, direction from the government — which is why the same regulation tells a contractor who believes a change has occurred to notify the government in writing as soon as possible, so it can evaluate the change, direct further performance and plan for its funding.[2] Private contracts import the same structure through their general conditions: the owner's representative usually has authority to order minor changes not involving cost or time, and nothing else.
A disputed change is the third route, and it is where the first two end up when notice was late or authority was unclear. The work is done, the owner says it was in scope, and the amount moves from the change-order log to a claim. The federal machinery for that is the Contract Disputes Act: a claim over $100,000 must be certified, and the contracting officer must, within 60 days of receiving a certified claim, either decide it or say when a decision will come.[6] Interest on an amount found due runs from the date the contracting officer receives the claim[7] — not from the date the work was performed, not from the date the proposal was submitted. Every day of approval lag before a formal claim exists is uncompensated by statute.
Differing site conditions sit alongside all three and carry the strictest notice of all: the contractor must give written notice promptly, and before the conditions are disturbed.[8] A crew that digs through the unexpected rock and photographs it afterwards has already disturbed the evidence the clause requires.
Because work is continuously changed and change orders are continuously signed, the exposure is not one change order at a time. It is a standing balance, replenished as fast as it is released — the same structure as retainage, and derived the same way.
Change-order work permanently unbilled = annual revenue × change-order share × approval lag ÷ 365
Change-order share is the fraction of a year's revenue that arrives as changes rather than as base contract. Approval lag is the days between the date changed work is directed or begun and the date a signed change order makes it billable.
At 10% change-order work on $6,000,000 of revenue, a 90-day approval lag keeps $148,000 of performed work permanently unbilled; halving the lag releases half of it without winning a job.
Annual revenue × change-order share × approval lag ÷ 365, at $6,000,000 of annual revenue, shares of 5% and 10%, and lags of 30 to 180 days, rounded to the nearest $1,000. Steady state, assuming changed work is directed and signed continuously. The revenue, shares and lags are stated assumptions, not survey figures — no public dataset for change-order approval lag exists.
Two readings from that chart.
The lag is the lever, not the share. Change-order volume is set by the job — a renovation of an occupied hospital runs high, a warehouse shell runs low, and there is little a contractor can do about it. The lag is set by the contractor's own paperwork discipline and by what the contract requires of the other side, and both are negotiable. Halving a 120-day lag on 10% change work at $6,000,000 of revenue releases $98,630 of permanent working capital — $6,000,000 × 10% × 60 ÷ 365. Nobody has to win a job to get it.
This balance is invisible on the balance sheet. Retainage receivable is a line item. Unapproved change orders are, depending on the accountant, a note, a component of costs in excess of billings, or nothing at all. A contractor can look at a set of financial statements that reconcile perfectly and never see that — at 10% change work and a 90-day lag on $6,000,000 — $148,000 of last year's work was paid for before anyone agreed to pay for it.
There is no public dataset for change-order approval lag. The federal government is the one owner large enough to produce one: the regulations require agencies to record and maintain data on the time taken to definitize equitable adjustments on construction change orders,[4] and when the Government Accountability Office asked the two largest federal construction buyers for it in 2019, one could not provide the data and the other produced more than 62,000 changes finalized between January 2013 and August 2018 but did not regularly monitor how long they took.[5] The same report noted a definitional gap that every private contractor will recognize: contractors regard the process as beginning when they submit their request for equitable adjustment, and the government may not start measuring until later.[5] If the largest construction owner in the country cannot say how long its own approvals take, no private survey will. The shares and lags in this article are stated assumptions, and any reader can substitute their own.
An electrical subcontractor bills $4,800,000 a year at a 4% net margin, so the business earns $192,000 before the owner's compensation. Change orders run 9% of revenue — $432,000 a year of changed work — which is ordinary for a trade whose scope is redrawn every time an owner moves a wall. From the date changed work is directed to the date a signed change order arrives averages 75 days. The signed change goes on the next monthly application, which adds 15 days on average, and the general contractor pays that application in 45 days.
The unbilled balance. $432,000 × 75 ÷ 365 = $88,767 of changed work permanently performed and unbilled.
The billed-but-unpaid balance. $432,000 × (15 + 45) ÷ 365 = $71,014 of changed work billed and awaiting payment.
Together: $159,781 of change-order work outstanding at any moment, from cost to cash. That is 83% of the company's annual net profit, sitting in the interval between a superintendent's instruction and a cheque.
What it costs to carry. The company covers it the way most do — supplier terms stretched, distributions deferred, a line drawn. Put the whole $159,781 on a line at 11%: $17,576 a year, or 9.2% of net profit, spent financing the customer's approval process. Nothing was disputed, nothing was lost, every change was eventually signed and paid in full.
The notice bar, on federal work. Now suppose one of those changes is a $60,000 constructive change on a federal job, performed over 40 days at a uniform $1,500 a day, and the written notice goes in on day 36 — the project manager thought the resident engineer's direction was authority enough. Costs incurred more than 20 days before notice are excluded from the adjustment,[1] so the first 15 days of work, $22,500, are unrecoverable regardless of how well the rest is documented. That is 11.7% of the company's annual profit lost to a letter that was three weeks late.
And the lag stretches with the job. If the owner's approval process slows from 75 days to 150 — a change of architect, a budget review, a general contractor waiting on its own owner — the unbilled balance doubles to $177,534 and the total outstanding rises to $248,548. The company did not take on more work. It took on a slower customer.
Retainage sits on top of all of this: the signed change order is paid less 10%, and the retainage on it is released on the base contract's schedule, not the change order's. A subcontractor with both positions should read the retainage problem alongside this — the two balances stack, and both grow in proportion to revenue.
An unsigned change order is a negotiation. A well-documented one is a negotiation the contractor is winning before it starts. The package below is what turns a verbal instruction into a billable line, and each element is worth stating because each is routinely missing from the change orders that stall.
Everything on that list is cheap. The cost of not having it is the approval lag on the chart above, plus whatever fraction of the change is eventually conceded to close the file.
Public contracts are where the approval lag has statutory shape, and knowing the shape converts a request into a citation. This is information, not legal advice; the statute and the contract control, and a construction attorney in your state should read yours.
On federal construction the sequence runs: written change order or written notice of a constructive change;[1] no recovery of costs more than 20 days before notice, defective specifications excepted;[1] assertion of the right to adjustment within 30 days;[1] negotiation of the equitable adjustment in "the shortest practicable time", with the agency recording how long definitization takes;[4] execution as a bilateral modification once the price is agreed;[3] and, if it is not agreed, a certified claim above $100,000 that the contracting officer must decide or schedule within 60 days,[6] with interest running from the date the claim is received.[7] The whole architecture is built around the contractor's notice. A contractor who gives it on time is inside a system with deadlines; one who does not is outside it. The wider federal payment cycle — proper invoices, progress payments and the flow-down clock — is covered in government contracts and the payment cycle nobody budgets.
State public work varies, and the variation is the point. California, as one example, requires a public entity to review a claim sent by registered or certified mail and, within 45 days, issue a written statement identifying the disputed and undisputed portions; any undisputed portion must be paid within 60 days of that statement, and a public entity that fails to issue the statement has the claim deemed rejected in its entirety.[10] That section carries a sunset date, so confirm it is still in force before relying on it. Other states have different windows or none. The practical move is the same everywhere: find out whether the public owner you are working for is under a statutory response deadline, and put the date on the change-order log.
Private work has no statutory clock at all. The approval lag there is entirely a function of the general conditions — the notice period, the owner's representative's authority, whether a construction change directive lets the owner order work with the price to be fixed later, and whether the pay-when-paid or pay-if-paid clause above you reaches change-order payments as well as base contract. That last question decides whether a slow owner is your general contractor's problem or yours, and the difference between the two clauses is one conditional word.
The WIP schedule is where an unsigned change order does its quietest damage, because it forces the accountant into a choice that produces a wrong answer whichever way it goes.
Take a job bid at $1,000,000 with an estimated cost of $900,000 — a 10% gross margin. Halfway through, the owner directs a change that costs $80,000 to perform and is proposed at $100,000. The change is performed and unsigned. Base cost to date is $500,000, so cost to date is $580,000; the estimate to complete now totals $980,000; and $560,000 has been billed. The schedule can treat the change in one of three ways.
Inputs: original contract $1,000,000; original estimated cost $900,000; base cost to date $500,000; changed work performed at a cost of $80,000 and proposed at $100,000, unsigned; billed to date $560,000. Cost to date is therefore $580,000 and estimated total cost $980,000 in every column. Percent complete is cost to date ÷ estimated total cost under the cost-to-cost method; revenue earned is percent complete × revised contract value; under-billed is earned less billed. The columns differ only in what enters revised contract value: nothing, the change at its $80,000 cost, or the change at its $100,000 proposed value.
Read the three columns as three stories about the same job.
Excluded is the conservative reading: the cost is in the schedule and the revenue is not. Gross margin collapses from 10% to 2%, and a surety or a lender reading the schedule sees an 8-point fade on a job that is actually on budget. Fade is read across jobs as a finding about estimating or execution, and this reading manufactures it out of paperwork.
At full value is the aggressive reading: the proposed $100,000 goes into revised contract value as if signed. The margin recovers to 10.9%, and the job now shows a $91,020 under-billed asset — of which $59,183 is nothing more than the change order the owner has not signed. If the owner eventually approves $70,000 rather than $100,000, the profit that was recognized on the difference reverses in the period of the signature. That is how a contractor books a profitable year and restates it into a loss.
At cost only is the middle road most sureties will accept: the change enters contract value at its cost, with no margin, until it is signed. The job's margin reads 9.3%, the under-billing is $79,184, and nothing has been recognized that a signature could take away. The margin on the change arrives when the change does.
None of the three is true. The truth is unknown until the owner signs, which is the whole reason the reading matters: whoever is looking at the schedule is being asked to price an uncertainty the contractor has not resolved. The mechanics of over- and under-billing, and why a lender reads under-billing alongside the margin trend rather than on its own, are in what a WIP schedule tells a lender — and unapproved change orders are the first cause that article lists for a chronic under-billed position.
For tax purposes the same question has a rule attached. The percentage-of-completion regulations define total contract price as the amount the taxpayer reasonably expects to receive, including holdbacks and retainages, and bring a contingent amount — an amount in dispute among them — into contract price as soon as the taxpayer can reasonably predict it will be earned.[11] The word doing the work is reasonably; a change order log full of proposals the owner has never acknowledged does not meet it, and one full of signed directives with agreed scope and disputed price may.
A surety reads the change-order log before it reads the profit and loss, and it reads it for three things.
Volume against the base contract. A job whose approved changes are 25% of the original contract is a different job from the one that was bonded, and a surety will want to know whether the bond penalty has moved with it and whether the contractor's capacity was ever sized for the job it became.
The unapproved balance, aged. Every dollar of unsigned change work is a dollar of cost the surety may end up funding if the contractor cannot, so the surety-adjusted working capital calculation discounts or excludes it. A contractor whose under-billings are substantially unapproved change orders will find that surety-adjusted working capital is well below the balance sheet figure, and that bonding capacity — sized at a multiple of working capital — has fallen ten or twenty times as far. Change orders the contractor regards as certain are, to the surety, receivables with no obligor.
The pattern. A contractor who is chronically slow to submit change-order pricing is telling the surety something about its project management. A contractor whose changes are chronically disputed is telling it something about its notices or its relationships. Either pattern is read as character and capacity, and no balance-sheet repair lifts it.
The document a surety most wants to see is the change-order log with dates in every column. A contractor who cannot produce it is asking the surety to assume the worst reading of the WIP schedule, and the surety will.
Speaking for how we look at it, because construction is underwritten differently from a restaurant and the change-order log is part of why.
We do not lend against the proposal. An unsigned change order is not a receivable and we do not treat it as one. It is a cost already in the bank statements — visible as payroll and supplier debits that the deposits have not yet answered — and the question we are asking is whether the deposits will answer it, on a rhythm the business can service in the meantime.
We size on revenue and bank activity, not on the log. Funding runs at 80% to 150% of average monthly revenue, and where a construction file lands inside that range depends on deposit rhythm, existing positions and the quality of what is above the contractor. A signed change-order log with a short lag moves a file up the range because it explains an under-billed position; a long list of unsigned proposals does not, because it explains a cost with no dated collection path.
The lag tells us what shape the money should take. A contractor whose changes sign in 45 days and pay in 45 more has a 90-day timing gap, and a four-month term matches it. A contractor whose owner runs 150 days to signature and whose general contractor pays in 60 is carrying a seven-month position, and capital on a four-month term means refinancing the same gap twice, with an origination cost each time. Terms here run from four months to three years for exactly this reason; the right one is the one the lag sets.
The payment rhythm should match the draws. A subcontractor paid in large applications three to five weeks apart should be on a weekly rhythm, not a daily one, even where a daily debit is affordable on paper. The bad week is the one after a slow application.
Two things we do not do that matter more in construction than anywhere else. We file no UCC-1 lien against the funded business, and our agreements contain no confession of judgment. A blanket lien sits directly across the receivables — including the change-order receivables — that a surety and a bank both expect to look at, and what a UCC-1 actually does to the next facility is worth understanding before signing anything that includes one.
What we require is what construction working capital always requires: three or more months in business, $10,000 or more a month in revenue, three to four months of bank statements or a linked account, and a soft credit pull only. A decision comes back within 24 business hours. Construction financing runs from $5,000 to $10 million.
In order of how often the ask succeeds.
The percentage of change work on a job is not on this list, because it is not a lever. It is set by the owner's decisions about the building.
Capital is the right answer to a timing gap and the wrong answer to almost everything else that looks like one, and unsigned change orders can be either.
Not right if the change was never noticed. A constructive change with no written notice inside the contract's window is not a slow receivable. On federal work its first 20 days are already gone,[1] and on private work its whole value depends on the owner's goodwill. Borrowing against it postpones the discovery that it is not coming.
Not right if the direction came from someone without authority. Work done on the say-so of an inspector or a junior project manager, without written confirmation from the party the contract names, is a dispute waiting for a signature that may never arrive. The fix is a letter, not a facility.
Not right if the under-billing is really overrun. A WIP schedule can show costs in excess of billings because changes are unsigned, or because the base contract is over budget and the contractor is calling the overrun a change. Only the first is a timing gap. The second is a margin problem, and capital adds a payment to it.
Not right if the pattern is chronic across jobs. One slow owner is a timing gap. Every owner slow is a process — pricing submitted late, logs not maintained, notices missed — and the cure costs nothing but a change in how the office runs. Financing it instead means paying to carry a lag that could have been shortened for free.
Not right at any term that does not match the lag. A seven-month position on a four-month product is two originations, and a contractor who has already stacked a second position on top of the first is past the point where a third helps — the mechanics of that apply to construction with particular force because draws are lumpy and debits are not.
Where the change is directed, noticed, priced and logged, and the only thing missing is a signature on a known owner's known timeline, the gap is a genuine one and financing it on a matched term is what working capital is for.
A change order is a cost from the day the work starts and revenue only from the day it is signed, and in between it is an unfunded receivable — not a receivable at all, in law or in the financing market. The exposure is a standing balance, annual revenue × change-order share × approval lag ÷ 365, invisible on the balance sheet and carried at the contractor's cost of capital with no interest running against the owner. On federal work the whole system turns on written notice: 20 days of cost are lost before it, 30 days are allowed to assert the adjustment after it, and interest on a claim runs only from the day the claim is received. An unsigned change order forces a WIP schedule into a wrong reading whichever way it is booked — manufactured fade if excluded, phantom profit if included — and a surety discounts it out of working capital while a funder reads it as a cost the deposits have not yet answered.
The levers, in order: price the change the week it is directed, put the dated log on every application, negotiate a response deadline and provisional billing at bid time, and finance only the gap that is documented, on a term the lag actually sets.
To talk through a specific position — a change-order log that has outrun the cash, or a job whose under-billing is mostly unsigned paper — call 518-312-0382 or check what you would qualify for. It takes about a minute and uses a soft credit pull only.
The figures in this article are derived, not surveyed. The approval-lag chart is annual revenue × change-order share × approval lag ÷ 365 at $6,000,000 of revenue, shares of 5% and 10% and lags of 30 to 180 days, rounded to the nearest $1,000. The WIP table applies the cost-to-cost method to one job with stated inputs — a $1,000,000 contract, $900,000 original estimated cost, $500,000 base cost to date, an unsigned change performed at $80,000 and proposed at $100,000, and $560,000 billed — and differs between columns only in what enters revised contract value. The worked year uses a $4,800,000 electrical subcontractor at a 4% net margin, 9% change-order share, a 75-day approval lag, 15 days to the next application, 45 days to payment, and the outstanding balance carried at 11%. Every published value is recomputed from those inputs by the site's arithmetic audit before publication, and any input can be replaced with a reader's own.
The change-order shares, lags and margins are typical ranges from construction practice and from the firm's own underwriting of contractors. They are not measured industry averages and none is claimed: there is no public dataset for change-order approval lag, and the Government Accountability Office's 2019 review found that the two largest federal construction buyers did not regularly monitor how long their own contract changes took.[5] The legal framework is stated from the primary texts cited — the Federal Acquisition Regulation's construction Changes clause, Part 43 on contract modifications, the Differing Site Conditions and Notification of Changes clauses, the Contract Disputes Act's claim and interest provisions, and California's public-contract claim statute as one state example. State law otherwise varies and is described in general terms only. The tax treatment of contingent contract price is stated from the Treasury regulations under section 460.[11]
The surety and funder readings are the firm's own account of practice: how sureties in general treat unapproved change orders in the working-capital adjustment, and how Full Send Funding reads a construction file. A contractor's actual treatment is set by its surety, its CPA and its contracts.
No. A receivable is an amount the customer has agreed it owes. An unsigned change order is a proposal: the cost of the work is certain and booked, the revenue is a number the other party has not accepted. Prompt-payment statutes attach interest to approved amounts, not proposals, and lenders do not advance against a change-order proposal at face value. It becomes a receivable on signature and billing.
A change to the work that happens without a formal change order — an interpretation, a rejected submittal, a directed sequence, or a verbal instruction that in fact alters scope, cost or time. On federal construction it is treated as a change order only if the contractor gives written notice stating the date, circumstances and source of the order and that it regards it as a change, and costs more than 20 days before that notice are not recoverable.
Multiply annual revenue by the share of work that arrives as changes, then by the average days from direction to signed change order, and divide by 365. That is the changed work permanently performed and unbilled. Multiply it by your cost of capital for the annual carrying cost. A $4,800,000 subcontractor at 9% change work and a 75-day lag carries $88,767 unbilled; at 11% that is $9,764 a year before the billed-but-unpaid balance is counted.
The cost is always in the schedule; the question is what enters revised contract value. Excluding the change collapses the job's margin and manufactures fade. Including it at full proposed value recognizes profit a signature could take away. The reading most sureties accept is to include it at cost only, with no margin, until it is signed, so nothing recognized can reverse. Your CPA and your contracts control.
Written notice within the contract's window; the owner's direction in its own words, attached; daily labour, equipment and material records coded to the change from day one; a priced proposal in the owner's format submitted inside the assertion window; schedule impact stated with the cost; photographs before any site condition is disturbed; and a dated change-order log attached to every payment application.
Generally not at face value. An unsigned change is cost the surety may end up funding if the contractor cannot, so the surety-adjusted working capital calculation discounts or excludes it. Because bonding capacity is sized at a multiple of working capital, a contractor whose under-billings are mostly unapproved changes can find capacity has fallen ten or twenty times as far as the change-order balance.
Yes, where the change is directed, noticed, priced and logged and the only thing missing is a signature on a known timeline — that is a timing gap, which is what working capital is for. It is the wrong tool where notice was missed, where direction came from someone without authority, where the under-billing is really a base-contract overrun, or where slow approvals are chronic across every job. Match the term to the lag.
Yes. Federal construction sets 20-day and 30-day notice and assertion windows, directs negotiation in the shortest practicable time, and gives the contracting officer 60 days to decide a certified claim or schedule the decision, with interest from the claim's receipt. Some states set response deadlines for public entities — California requires a written statement within 45 days and payment of undisputed amounts within 60 days after it. Private work has no statutory clock; the general conditions set it.
Travis Yule founded Full Send Funding in 2021 and leads it from Middle Grove, New York. He writes about working capital from the underwriting side of the table — what the numbers actually have to say before a business gets funded.