Why change orders erode margins — and how to avoid it
In B2B projects among Swiss SMEs — software development, consulting, technical installations, marketing, interior design — the initial contract rarely covers everything the client will request during execution. A scope change, an unplanned integration, additional coordination hours: every "small" request can turn into unpaid work if it is not formalized as a change order.
A change order (order for modification, or simply an "extra") is the tool by which service providers and clients agree in writing to a variation from the original contract: new deliverables, new timelines, new price. Without this step, the company silently erodes the project margin, accumulates receivables that are hard to collect, and complicates year-end accounting.
This guide explains how to structure change order management in the Swiss context: from contract law to VAT invoicing, through to accounting tracking that allows you to assess the real profitability of each project.
What distinguishes a change order from a simple "extra"
Not every client request is automatically a billable change order. Understanding the difference is the first step to protecting margins:
Within contractual scope
Deliverables already included in the quote or accepted offer. Examples: revisions provided for in the contract, agreed number of meetings, corrections within the limits set out in the contract.
These activities should be performed without issuing a separate change order, but the time spent must still be recorded to monitor budget consumption.
Out of scope — change order
Additional deliverables not provided for in the original contract or that exceed agreed thresholds. Examples: extra functionality in a software project, additional materials in an installation, deadline extensions for reasons attributable to the client.
These require formal documentation, written client approval and a basis for invoicing. Without agreement, recovery of additional compensation is uncertain; under fixed-price contracts the service provider remains bound to the original price (Art. 373 para. 1 CO), unless variations are accepted by the client (Art. 374 CO).
Contractual framework under Swiss law
In Switzerland, B2B projects between businesses are governed by the Code of Obligations (CO). Depending on the nature of the service, the contract for work and services (Art. 363–379 CO) applies — for deliverables with an obligation to achieve a result —, the agency contract (Art. 394–406 CO) — for ongoing or consulting services with an obligation of due care —, or the rules on agency by analogy (Art. 394 para. 2 CO) for non-typical services. This distinction affects who bears the risk of unforeseen costs and how variations should be managed.
Under a contract for work and services, the service provider is obliged to deliver the agreed work for the agreed price. Changes requested by the client after acceptance of the offer constitute a contractual addition requiring a new agreement on deliverables and compensation. The principle "extra = extra paid" should be stated explicitly in the framework contract, with clauses defining the approval process and applicable rates.
Under time-based contracts (agency or ongoing services), hours outside budget follow the same logic: without a written order or traceable email confirmation, the risk of dispute at invoicing is high. The burden of proof of agreement falls on the service provider.
Management process: from identification to invoice
A standardized workflow reduces losses and simplifies accounting. Here are the recommended stages for an SME:
| Stage | Action | Document |
|---|---|---|
| 1. Identification | Determine whether the request is within or outside scope | Internal note / project ticket |
| 2. Estimate | Quantify hours, materials, impact on deadlines and margin | Change order quote (CO) |
| 3. Approval | Obtain written client confirmation before starting | Signed CO, email with "approved" or purchase order |
| 4. Execution | Record hours and costs against the CO project code | Timesheet, expense notes |
| 5. Invoicing | Issue separate or supplementary invoice with reference to the CO | Invoice with CO no. and breakdown of services |
| 6. Closure | Verify collection and actual margin vs. estimate | Project report / income statement by project |
The golden rule: no out-of-scope work without written approval. Even with long-standing clients, a confirmation email with amount and deadline is worth more than an informal phone conversation.
Pricing and margin protection
Change orders are often negotiated under pressure — the project is already underway, the client is in a hurry — and this pushes many SMEs to apply discounted rates or underestimate the real impact. This is one of the main causes of negative margins on complex projects.
To protect profitability, it is advisable to define a rate schedule for extras in the framework contract: hourly rate, urgency surcharge (typically 25–50%), conditions for materials and ancillary expenses. For fixed-price projects, each CO should include a safety margin over the internal estimate, not just the direct cost of hours.
Direct cost
Hours spent × internal hourly cost (salary + social charges + overhead). Includes coordination and client communication time.
Target margin
Minimum percentage on direct cost, consistent with company policy. For extras, many SMEs apply a margin higher than the base contract to compensate for risk and disruption to the plan.
Client price
Direct cost + margin. Documenting the formula in the CO avoids disputes and allows comparison between estimated and actual margin at project close.
Invoicing, VAT and accounting aspects
In Switzerland, additional services agreed through a change order follow the same tax rules as the main contract. If the original service is subject to the standard VAT rate (currently 8.1%), extras also fall under this regime, except in special cases (exempt services or foreign services with reverse charge).
Every invoice relating to a change order must contain the elements required by Art. 26 VAT Act: number and date of the reference CO, clear description of additional services, net amount, VAT rate and total, as well as mandatory supplier and recipient details. If the CO also changes payment deadlines, these must be stated explicitly. For large amounts, it is prudent to issue advance payments or partial invoices linked to CO milestones.
On the accounting side, extras should not be mixed with the base contract line item. Project accounting provides for opening separate sub-accounts or analytical codes for each change order, linked to the parent project. This way the income statement by project shows the real margin, including all variations.
| Entry | Account / item | Timing |
|---|---|---|
| Order approved | Revenue commitment (orders in progress) — optional | Upon CO approval |
| Work execution | Direct costs on project account (6400 / 6500) | As hours and expenses are recorded |
| Invoicing | Service revenue (3400) with output VAT (2200) | Upon invoice issuance |
| Collection | Receivables vs. bank (1100 / 1020) | Upon client payment |
Accounting tracking: what to monitor
Accounting software such as Accountex allows you to link invoices, costs and project codes in a single workflow. For change orders, the goal is to have real-time visibility on three indicators: total contract value (base + approved COs), accumulated costs by project and estimated remaining margin.
Setting up an analytical code for each main project and sub-codes for individual change orders simplifies project closure and reporting to management. At year-end, comparing invoiced COs with approved but not yet invoiced COs (work in progress) is essential for correct revenue recognition under the accrual principle (Art. 958b CO and Swiss accounting standards).
A monthly report highlighting COs awaiting approval, those approved but not invoiced and those disputed by the client allows intervention before receivables become hard to recover.
Common mistakes and how to prevent them
Work first, ask later
The team performs the extra hoping the client will accept the invoice. Without prior agreement, recovery of the receivable is uncertain and the cost remains entirely borne by the company.
Untracked cumulative COs
Dozens of small "yes, that's fine" requests accumulate without numbering. At project close the total surprises the client and generates disputes. Every variation deserves a numbered CO.
Margin not calculated
Invoicing at cost or with a small markup "to avoid an argument". Without a defined minimum margin, extras become the line item that turns a profitable project into a loss-making one.
Accounting not segregated
Costs and revenue from extras end up in the same line item as the base contract. Impossible to analyse profitability and risky in case of audit or dispute with the client.
Operational checklist for every change order
Before starting any out-of-scope work, verify that all points are covered:
- 1The request is clearly outside the scope of the original contract (documented with reference to the contractual clause).
- 2CO quote sent to the client with description of services, price, deadlines and payment terms.
- 3Written approval received (signature, email, purchase order) before work begins.
- 4Project / analytical code created or updated in accounting software.
- 5Hours and costs recorded against the CO, not against the base contract budget.
- 6Invoice issued with reference to CO no., correct VAT and agreed payment terms.
- 7Actual margin compared with estimate at CO closure.
Change orders as a control lever, not an exception
In B2B projects, change orders are not an anomaly to handle "when it happens": they are an integral part of the business model for project-based work. A Swiss SME that treats them with the same rigour as the initial contract — documentation, approval, pricing, invoicing and segregated accounting — protects margins and strengthens the client relationship through transparency and predictability.
Investing in process standardization today means fewer disputed receivables tomorrow, a cleaner year-end close and reliable data for deciding which types of project — and which clients — deserve commercial priority.