Change Orders: Protecting Yourself When Scope Changes

A homeowner asks for something extra. The crew is already on site, the work is small, and stopping to paper it feels absurd. That is how most change order disputes begin, and California law is not sympathetic to the practical logic. On residential work, Business and Professions Code section 7159(d) requires the change to be in writing and signed before the work starts — the same rule that governs the original contract. This guide, reviewed by Jayson R. Elliott, covers the rule, what the order has to say, and how the payment restrictions interact with it.

Three things every change order must state The scope of the extra work or change. The cost to be added to, or subtracted from, the contract. The effect the order will have on the schedule of progress payments. Plus: in writing, signed by both parties, before the work begins. An order missing the payment-schedule element is the most common defect — it is easy to state scope and price and forget that the payment schedule moved.

This is the part contractors are least likely to have mapped, because the payment restrictions live in a different section from the change order rule.

Section 7159.5(a)(3) provides that if a down payment will be charged, the down payment shall not exceed one thousand dollars or 10 percent of the contract amount, whichever amount is less.

Read “whichever is less” carefully, because it is frequently read backwards. On a twenty-five thousand dollar remodel the cap is one thousand dollars, not two thousand five hundred. On a six thousand dollar job the cap is six hundred dollars. The thousand-dollar figure is a ceiling, not an entitlement.

The practical pressure this creates is real and the statute does not relieve it. A contractor who must order custom materials before mobilising is financing that from working capital or supplier credit, not from the deposit.

Section 7159.5(a)(4) provides that if, in addition to a down payment, the contract provides for payments to be made prior to completion of the work, the contract shall include a schedule of payments in dollars and cents specifically referencing the amount of work or services to be performed and any materials and equipment to be supplied.

That requirement — a schedule in dollars and cents, tied to identified work — is the reason a change order has to state its effect on the payment schedule. A change that alters the price without altering the schedule leaves the contract with a schedule that no longer matches it.

A contractor furnishing a performance and payment bond, a lien and completion bond, or a bond equivalent or joint control approved by the registrar covering full performance and payment is exempt from paragraphs (3), (4) and (5) — that is, from the down payment cap, the payment schedule requirement, and the no-payment-ahead-of-value rule. Such a contractor need not include the down payment statement, the progress payment details, or the Mechanics Lien Warning that section 7159 otherwise requires, and may accept payment prior to completion.

Where the contract provides for the contractor to furnish joint control, the contractor may not have any financial or other interest in the joint control.

This is worth evaluating rather than dismissing. For a contractor whose residential work is capital-intensive, bonding the job is a lawful route to a payment structure the down payment cap otherwise forecloses. It is a commercial decision with a cost, but it is a real option and it is in the statute.

Note what the exemption does not reach: the writing-and-signing timing rule in section 7159(d). Reading section 7159(d)’s sentence structure, the reference to section 7159.5(a)(8) qualifies the requirement to include the listed contract elements, not the requirement that the contract and any change be in writing and signed before work begins. A bonded contractor still signs the change order first.

This page is written for contractors, and many arrive at it after the work is done. The honest answer is that the position is worse than it would have been, and that it is fact-specific.

What can be said generally: a compliance failure under these sections is a licensing exposure as well as a commercial one, since both sections sit in the Contractors State License Law. Multiple practitioner sources and CSLB’s own published materials describe violations of the section 7159.5 payment restrictions as grounds for disciplinary action and as punishable as a misdemeanour. This page does not state penalty figures, because the published figures encountered were not current enough to rely on.

What should not be assumed is that late paperwork is fatal to recovery, because the Legislature addressed the point directly. Business and Professions Code section 7159.6 governs extra work and change orders, and subdivision (c) provides that failure to comply with the requirements of that section does not preclude the recovery of compensation for work performed based upon legal or equitable remedies designed to prevent unjust enrichment.

Read what that does and does not do. Under section 7159.6(a), an extra work or change order is not enforceable against a buyer unless it sets forth the scope of work encompassed by the order, the amount to be added or subtracted from the contract, and the effect the order will make in the progress payments or the completion date. So a non-compliant change order does not enforce as a contract term. Subdivision (c) then says that failing to comply does not by itself close off compensation sought on unjust-enrichment grounds instead.

Those are different routes to payment with different requirements and different measures of recovery, and whether one is available on particular facts is a question for counsel with the file. But a contractor who has been told that missing paperwork means they simply cannot be paid has been told something the statute does not say.