How to Handle Change Orders Without Blowing Up Your Budget

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: 

• 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. 

Why Change Orders Are So Hazardous to Relationships and Budgets?

Even minimal adjustments can escalate into major problems: 

• Overruns on buthe dget resulting from bad change estimations 
• 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. 

Common Causes of Change Orders

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 

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. 

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): ________________

Approved 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. 

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: 

“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. 

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. 

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. 

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 by 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 

Procore – Automates and tracks change orders 

Buildertrend – Ideal for client-facing approval of change orders 

CoConstruct – Mobile approvals and custom pricing 

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. 

Best Practices to Preserve Your Client Relationship

• 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. 

Legal Considerations for 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. 

How to Avoid Change Order Disasters?

• 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. 

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: 

• 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. 

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? 

Adhere to a strict change order procedure. Educate your staff to highlight even “small” changes. 

Q4: Are verbal change orders enforceable? 

Legally questionable. Always acquire written and signed contracts. 

Q5: Is digital change-order tracking available? 

Absolutely. Use tools like Procore, Buildertrend, or 123worx.

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.