Change order management is an integral part of construction projects, ensuring scope, cost, and schedule adjustments are handled effectively. Properly managing change orders minimizes risks, secures payment, and keeps projects on track.
In this guide, we’ll walk you through the fundamentals of change orders, what to include, and how to implement them successfully.
What Is Change Order Management?
Change order management refers to the process of handling modifications to the original construction contract. These adjustments may impact the project’s scope of work, timeline, or budget.
Change orders arise for various reasons, including:
Requests for additional work by the client.
Adjustments due to unforeseen site conditions.
Regulatory or code compliance updates.
A well-documented change order process protects contractors from disputes, ensures payment for extra work, and clarifies expectations for all stakeholders.
Key Elements of a Construction Change Order
Every change order should include the following essential details:
Project and Contact Information:
Contract number.
Project name and address.
Contact details for all parties involved.
Dates of the Change:
Date of submission.
Notification date of the change.
Expected approval date.
Work Description:
Detailed explanation of the added or omitted work.
Reason for the change (e.g., site conditions, client request).
Updated Schedule:
Impact on the project timeline.
New completion dates.
Cost Adjustments:
Breakdown of labor, materials, and other costs.
Total cost impact on the original contract.
Revised Contract Value:
Original contract amount.
Previous change orders (if any).
New total contract value after the change.
The Change Order Process
Initiate the Change Request:
Notify the client or project owner of the required change as soon as possible. Follow the timeline stipulated in the original contract to avoid disputes.
Prepare the Change Order Form:
Use a standardized form, such as the AIA G701 or ConsensusDocs 202/795, or create your own. Include all relevant details to streamline the approval process.
Submit for Approval:
Send the completed change order to the client for review. Be prepared to provide additional documentation, such as photos or cost breakdowns.
Await Approval:
Work should not begin until the change order is signed. In some cases, a written directive may be issued to proceed while awaiting formal approval.
Update Records:
Save approved change orders with project documents for future reference. Maintain a clear paper trail to resolve potential disputes.
Tips for Effective Change Order Management
Get It in Writing: Always document changes and secure signatures before beginning additional work. Verbal agreements can lead to disputes and unpaid work.
Be Detailed: Provide a thorough explanation and supporting evidence to justify the change. This clarity expedites approvals and builds trust with clients.
Match Payment Applications: Ensure the change order aligns with the project’s billing schedule and contract format to avoid delays in payment.
Follow Contract Terms: Adhere to the change order process outlined in the initial agreement to protect your rights.
Avoiding Common Change Order Pitfalls
Missed Deadlines:Failure to notify the client promptly about changes can result in rejected claims. Stay proactive and communicate early.
Incomplete Documentation:Vague or missing details can delay approvals or lead to disputes. Use photos, diagrams, and itemized costs to support your case.
Unapproved Work:Starting work without formal approval risks non-payment. Ensure all parties sign off before proceeding.
Why Change Order Management Matters
Managing change orders effectively ensures:
Contractors are paid fairly for additional work.
Clients maintain realistic expectations about project costs and timelines.
Disputes are minimized through clear documentation and communication.
By following best practices, construction professionals can turn change orders into an opportunity to strengthen client relationships and protect their bottom line.
Conclusion: Mastering Change Order Management
Change order management is a critical skill for construction professionals, ensuring projects stay on track despite unexpected adjustments. By following a clear, organized process and maintaining thorough documentation, contractors can navigate changes confidently and effectively.
For more construction accounting and project management tips, explore our resources or contact our team to learn how we can help streamline your business operations.
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