Without knowing the type of contract you have with your builder it is somewhat difficult to advise you.  Do you have a fixed cost contract with allowances?  Or do you have a cost plus percentage contract?  Either way, it is always advisable to document in writing anything that affects the price - up or down.  For instance, with a fixed cost with allowances contract, I think most builders will allow you to use money saved on one item to be applied to another.  Example:  Money saved on electrical could be applied to plumbing if you exceed your allowance on plumbing.  Cost plus percentage contracts should be based upon actual receipts.  That is, it does not matter where the money is spent as long as receipts can prove the actual expense.

Ideally, change orders should be prepared and agreed to before the change.  If this is not possible, then they should be prepared immediately after the change while everyone still remembers the details.

The guys above have it right. And, without knowing the details of the arrangement you have with your builder it sounds like he is playing it straight with you; keeping you abreast of the finances of the job as things progress. I know this cost under-run thing sounds unfair, but I can tell you that builders as a rule end up eating a lot more cost overruns than they end up enjoying the benefits of under-runs. Further, for every builder who does very well and makes a really good living for he and his family there is another 99 who are just struggling along – especially now a days – and those are the better ones who have actually managed to stay in business. 

I understand that these type of issues can get emotional being that having a home built is one of the largest, if not the largest expenditure of your life but you need to try and focus on the big picture of getting the house you want as opposed to some cookie cuter mass produced code minimum box. Problems/cost over runs,/delays are all just part of the building process. For example, on my current job I have had something like 6 separate delays since I submitted for permits a month ago. Each delay means more interest paid to the bank on money loaned for the project. Do you think this is going to affect the price of the homes? I’ll give you a quick no, and further say that it is coming directly out of our profit – as meager as it is.  And I still fon't have a complete foundation.  Yesterday we hit a soft spot in the "engineered pad", so over excavation is gonna cost.  More fun to follow in... copious amounts.... 

Just to add another perpective:  If you do have a lump sum or fixed price contract, the contractor should complete the specified scope of work for that price.

If, however, the owner requests a change to that scope of work, then the price should be adjusted (upward OR DOWNWARD) accordingly.  If an item is deleted or reduced, the owner should receive credit.

If the contractor requests a change such as a substitution for a specified product, then the owner should have the option to say yes or no.  The responsibility should be on the contractor to provide justification (less cost to owner, faster, easier for contractor. etc.).

A problem usually arises when the contractor requests additional money for something the owner does not perceive a change in scope.

Anyone (contractor or owner) that enters into a project without a clearly defined scope of work and a well defined contract is inviting trouble.

Both sides have a moral obligation to be fair.

Bruce