More than 35% of construction projects incur cost overruns as a result of loosely controlled change orders. Where time and profit margins are thin, controlling these changes effectively is paramount. Knowing how to document, price, and communicate each change with digital tools and a consistent process, a difference between profit and loss can be maintained.
What is a Change Order in Construction?
Change order refers to an official request to alter the scope of an original construction contract.
This may encompass:Â
- Adding and/or eliminating work
- Changing the timeline
- Increasing and Decreasing Costs
Change orders are extremely prevalent and sometimes inevitable. Nevertheless, if left unmanaged, they can ruin your project budget and client trust.
Comprehending change orders is essential for construction management. They can create flexibility, but discipline is also essential.
For contractors, change orders usually indicate changing needs for the project or preferences for customers. But without them being documented and priced properly, change orders can result in delays, cost blowouts, or even litigation. An effective change order process can be the difference between a successful project and a financial catastrophe.
For example, a homeowner may decide mid-project to upgrade flooring or add smart lighting, a seemingly small decision that changes scope, materials, and schedule. Each such modification becomes a formal change order that must be documented and priced.
A clear and standardized change order process in construction projects ensures every adjustment is priced, approved, and recorded, minimizing disputes and financial surprises.
Why Poorly Managed Change Orders Hurt Budgets and Client Relationships
Even minimal adjustments can escalate into major problems:
- Budget overruns resulting from inaccurate cost estimates
- Delays in project schedules
- Disputes regarding approval processes
- Disappointed customers who are blindsided by expenses
The majority of change order problems are due to a lack of communication and adequate documentation. When changes are communicated verbally and without proper paperwork, it becomes easier for disputes to arise. Besides, change orders can act as a source of tension between your project team and client if expenses are not explained clearly enough. Therefore, clarity and openness are imperative. Clients become more cooperative when informed of the necessity for change and how it influences their investment.
Digital change order management software can now be used by contractors to approve, price, and share information in real-time, avoiding most of these misconceptions. Using good construction project management software helps in managing change orders easily.
Common Causes of Change Orders
Most construction change orders stem from preventable gaps in planning, design, or communication. Here are the most frequent causes contractors encounter:
Knowing your most common triggers puts you ahead
- Design Changes
- Unforeseen site conditions
- Regulatory/code compliance
- Material availability problems
- Coordination conflicts among trades
- Mistakes and omissions on plans/specs
- Client-driven upgrades or design changes after work has begun
In most instances, change orders are due to misaligned expectations or imprecise details on the original contract. Site inspections can identify soil, utility line, and structure problems that were not anticipated.
Changes due to code and permitting requirements can also create the need for modifying designs. Identifying these risks before construction allows contractors to control change expectations and decrease unanticipated change costs later on.
According to FMI’s 2024 Construction Report, over 56% of change orders arise from design inconsistencies or late-stage scope clarifications.
Step-by-Step: How to Handle Change Orders Like a Pro
1. Set Expectations Early
Include explicit change order language within the contract. Ensure your client is aware of:
- What qualifies as a change
- How will it be priced
- The approval process
No work shall be allowed to continue until the change order is signed.
Start this conversation at project kickoff. Teach clients that change orders are normal and not reflective of bad planning. Establish an open process for soliciting, reviewing, and approving change orders. Provide examples from everyday life so they can see how and why change orders are implemented. The clearer your process is, the less resistance you will get when change happens.
2. Use a Standard Change Order Template
Consistency fosters trust and accelerates approval. You should have on your change order form:
- Description of the transformation
- Impact on cost and time
- Reason for the change
- Signatures of All Parties
Sample Change Order Template:
Project Name: __________________________
Change Order #: ________________________
Date Issued: ___________________________
Original Contract Amount: _____________
Net Change This Order: ________________
Revised Contract Total: ______________
Extension of Time (if any): __________
Detailed Description of Change:
_________________________________________________
Reason for Change:
_________________________________________________
Approved By (Contractor): ________________
Signed By (Client): ____________________
Date Approved: __________________________
Utilizing templates also prevents you from omitting essential details. Properly formatted change orders protect both you and the client. It becomes a record of decisions and keeps “he-said, she-said” disputes at bay. Project management software today provides customizable change order templates for you to incorporate within your own workflows.
Utilizing a top construction management software platform with integrated change order templates guarantees that each cost variation and client approval is automatically documented and archived in a single main dashboard.
3. Communicate Transparently and Promptly
Inform the client promptly when a change is needed. Be simple and straightforward in your communication, and state clearly any possible charges.
Sample Script:Â
“Hi [Client], we found [issue] on today’s site check. This can potentially mean we need to adjust the scope. I’ll forward a breakdown soon so you’re able to see and sign it off on before going ahead.”
Customers like to be informed ahead of time. Don’t surprise them by presenting an invoice when it’s complete. Keeping them informed promotes trust and avoids confusion. Get in the routine of summarizing alterations on-site and reinforcing them with written reports. This keeps everyone on the same page.
Transparent pricing creates trust and leads to faster client approval. Always share line-item details through your change order form or digital tool.
4. Document Everything
Maintain thorough records, including:
- Emails
- Meeting Minutes
- Drawings or sketches
- Cost Breakdowns
Why it matters: Documentation is your key defense if and when a legal or financial disagreement arises.
Keeping accurate paperwork also defends your margins. Change orders usually create schedule delays or scope revisions, affecting several trades. Keeping detailed records allows you to defend added expenses when necessary, or make it easy for others to see how certain delays were justified. Utilize a centralized document repository for storing all correspondence.
Digitally documenting every change with photos, files, and client signatures reduces administrative time and strengthens your proof of work.
5. Price Change Orders Fairly and Transparently
Subdivide labor, materials, and overheads. Customers need to know how much they’re paying. Be accurate and avoid inflated figures and vagueness.
Pro Tip: Provide options whenever possible, i.e., “Base tile: $800” versus “Premium porcelain: $1,300.”
Being completely open with regard to pricing and allowing options makes customers feel more in control. Present detailed breakdowns for each component of the change order so that customers can make rational decisions. Don’t quote like it’s a guess — detailed breakdowns raise acceptance and lower resistance.
Transparent pricing creates trust and leads to faster client approval. Always share line-item details through your change order form or digital tool.
6. Stick to Your Process, No Exceptions
If you bypass formal approvals once, you will create an open door for repeated scope creep. All change needs to go through the proper procedure.
Create accountability within your team. Make sure all from foremen on up to office admins understand how crucial change order documentation is. Even tiny adjustments, such as changing cabinet handles, need to follow the same formal process. Such discipline keeps you from having disputes and unpaid labor.
Tools That Simplify Change Order Management
Recommended Tools:
123worx – Simplifies project documentation and integrates cloud financials. 123worx streamlines documentation, integrates cloud-based financials, and allows real-time approvals, making it ideal for small to mid-sized contractors.
Procore – Automates and tracks change orders. Procore’s change order module is best suited for large firms managing multiple subcontractors and project portfolios.
Buildertrend – Ideal for client-facing approval of change orders. Procore’s change order module is best suited for large firms managing multiple subcontractors and project portfolios.
CoConstruct – Mobile approvals and custom pricing. CoConstruct offers mobile-friendly approvals and flexible templates for construction renovators. It offers mobile-friendly approvals and flexible templates for small remodelers.
Most change order disputes occur due to miscommunication or a lack of visibility. These tools allow you to automate tracking, notify your client instantly, and keep approvals centralized. They also enable attaching files, photos, and digital signatures, making compliance and visibility easier than ever.
While each platform serves a different audience, 123worx provides one of the most balanced, contractor-focused solutions for change order documentation and budget control.
Best Practices to Preserve Your Client Relationship
Effective Communication During Construction Change Orders
- Be understanding: Clients can become overwhelmed. Guide them through adjustments gently.
- Always get sign-off: Never act on a verbal agreement.
- Offer alternatives: Whenever you can, give the client a choice.
- Follow up: After finishing, verify whether the client is satisfied.
Don’t forget your tone is just as important as your process. Present bad news (such as a price rise) in terms of client benefit. “This change increases safety,” or “this choice increases durability”, indicates you’re looking out for them. Be service-oriented.
Example: When a general contractor used proactive weekly updates to review pending changes, their approval rate increased by 40% – reducing delays and misunderstandings.
Legal Aspects and Contract Clauses for Construction Change Orders
Change orders are legally binding contract modifications. If unsigned, they can be unenforceable. Important legal advice:
- Include change order provisions within your contract
- Don’t ever post-date or post-approve work
- Streamline approvals by utilizing digital signatures.
And consult your attorney on major changes. One improperly negotiated change order can create delay, breach, and non-payment legal claims. An attorney can preview your contract terms to make sure your protection is air-tight. Proactivity is less expensive than going to court.
Always ensure your construction contract includes change management provisions – it’s essential for avoiding future disputes.
How to Avoid Change Order Disasters?
Proactive Change Order Management Practices
- Review the plans thoroughly before mobilization
- Conduct a pre-construction walk
- Obtain clarifications from the architect/engineer
- Procure long-lead materials early
- Educate your team on how to recognize scope changes
Create a change order log too; an ongoing list of pending, accepted, and rejected changes keeps stakeholders on notice. Review this list on a weekly basis during your project meetings so surprises are prevented. Prevention begins with planning; however, it is implemented through monitoring.
Change order prevention begins with planning – but true control comes from consistent monitoring through digital tracking tools.
Turning Change Orders Into Strategic Advantages
Not all change orders are negative. Managed properly, change orders can become revenue-building possibilities. A responsive contractor who provides change orders with clarity, cost possibilities, and timely service is visibly ahead of competitors. Customers can reward this flexibility with repeated business for years to come.
Utilize change orders to highlight:Â
- Your technical proficiency
- Your responsiveness
- Your capacity for adapting to new project requirements
Customers will appreciate how well you handle surprise shifts, which may make them come back to you.
Forward-thinking contractors now use AI-driven project management and real-time reporting tools to convert change orders into client loyalty opportunities.
FAQs About Change Orders in Construction
Q1: Is it possible to charge a markup on a change order?
Yes. Adding markup for overhead and profit is standard. Just be upfront.
Q2: What if a client refuses to sign a necessary change?
Stop work on that portion and communicate in writing. Do not continue without clearance.
Q3: How can I avoid scope creep?Â
Adhere to a strict change order procedure. Educate your staff to highlight even “small” changes.
Q4: Are verbal change orders enforceable?Â
Legally questionable. Always acquire written and signed contracts.
Q5: Is digital change-order tracking available?Â
Absolutely. Use tools like Procore, Buildertrend, or 123worx.
Q6: Which software is best for managing change orders?
Tools like 123worx, Buildertrend, and Procore offer digital change order management features, helping contractors track costs, communication, and approvals efficiently.
Final Thoughts: Mastering Change Orders = Mastering Project Control
When properly executed, change orders can fortify trust and enhance profitability. Process, communication, and documentation are key. Avoid letting scope creep destroy your margins.
Train your staff, document consistently, and handle change orders with discipline. Your future self and your customers will appreciate it.
Mastering the construction change order management process allows contractors to safeguard profits, timelines, and client trust — transforming challenges into strategic opportunities.
As a Vice President at 123worx, Construction Management Platform, Bharat Rudra has worked with hundreds of business executives searching for best-suited software for their construction business with a wide array of requirements. Bharat takes pride in helping construction businesses solve their business and project management challenges. Feel free to reach Bharat if you have any questions. You can find him on LinkedIn or reach him at brudra@123worx.com
