Change Orders Definition & Best Practices: What Smart Contractors Know
Smart contractors know that change orders definition matters more than ever, with expectations for these submissions rising into 2024. We understand how one poorly handled change order creates cascading problems – delayed payments, escalating costs, and legal headaches that hit subcontractors especially hard.
Mismanaged change orders destroy projects. Budget overruns, schedule delays, legal battles, and damaged relationships with owners become inevitable. Every construction business needs proven change order management systems for financial stability and operational success. Most contractors struggle with documentation and tracking, which is why mastering change order best practices determines project outcomes.
We’ll show you what change orders really are, why disputes happen, and how experienced contractors manage them successfully. You’ll also discover how smart technology streamlines change order tracking and stops costly disputes before they start.
Change Orders Definition
Construction projects require flexibility when original plans meet real-world conditions. Change orders provide the formal framework that keeps projects moving while protecting everyone involved.
Definition and purpose of change orders
A change order modifies your original construction contract after signing. This formal document creates mutual agreement between owner, contractor, and architect to alter original terms without starting a new bidding process. The AIA A201™ General Conditions defines a change order as “a written instrument prepared by the Architect and signed by the Owner, Contractor, and Architect stating their agreement upon all of the following: the change in the Work, the amount of the adjustment in the Contract Sum, and the extent of the adjustment in the Contract Time”.
Change orders do more than update contracts. They provide essential flexibility when construction realities demand adjustments while creating clear documentation that protects all parties. Each change order specifies exactly what work changes, the cost impact, and how the timeline adjusts.
When and why change orders are issued
Change orders address situations that couldn’t be reasonably anticipated during initial planning. These modifications become necessary throughout project lifecycles for various reasons.
Common scenarios requiring change orders include:
- Owner-directed modifications to project scope or features
- Unforeseen or differing site conditions discovered during construction
- Unexpected underground obstructions or concealed building conditions
- Discovery of hazardous materials affecting work progress
- Weather delays and events beyond the contractor’s control
- Labor disputes, shipping delays, or material availability issues
- Design document errors or ambiguities requiring correction
Change orders aren’t just for correcting mistakes, despite this common misconception. They frequently optimize projects through value engineering or address unavoidable external factors that arise during construction.
Types of change orders: additive, deductive, and time-only
Construction contracts recognize three main change order types:
Additive change orders expand work scope, potentially extending schedules and increasing materials and costs. An average of 35% of projects experience at least one major change during construction.
Deductive change orders eliminate design elements or reduce work scope, typically decreasing contract prices and sometimes shortening schedules. These handle minor scope reductions.
Time-only change orders adjust project timelines without changing costs or scope. This often-overlooked type creates scheduling impacts that can trigger claims, back charges, or forfeited extension rights if handled too late.
Some contracts also include administrative change orders for administrative adjustments like correcting contract errors or providing clarifications.
Common Causes of Change Order Disputes
Change orders turn into battlegrounds between project stakeholders, creating friction that derails timelines and budgets. Recognizing these dispute triggers helps contractors stay ahead of problems.
Scope creep and unclear project scope
Poorly defined project scope ranks among the top causes of construction disputes. Scope creep—gradual, unauthorized expansion of requirements—happens when scope definition stays ambiguous or unrefined. Clear boundaries must be established at project start, or contractors face a constant stream of small changes that exhaust contingency funds. Take specialty flooring instead of stained concrete – seemingly minor additions like this can double or triple costs, straining budgets.
Pricing disagreements and payment delays
Pricing fairness disputes and authorization questions create major headaches. Even with proper change order approval, payment issues emerge from disagreements over labor rates, material costs, or profit margins. Contractors finance changed work upfront but face significant payment delays, straining cash flow. Small invoicing errors alone can cause weeks-long payment delays.
Schedule impacts and sequencing issues
Change orders disrupt carefully planned workflow sequencing. Schedule disagreements stem from different assessments of how modifications impact project timelines. These disruptions create cascading effects on trade coordination, reducing productivity and adding costs as crews work out of sequence. Disputes also emerge when contractors request schedule extensions that owners consider excessive.
Lack of documentation or verbal approvals
Many changes happen through verbal instructions, regardless of contract language requiring written approvals. Disputes escalate when, after work completion, higher-level parties deny compensation citing lack of signed documentation. One industry report found that documentation problems are among the most prevalent causes of conflict. Pennsylvania courts generally uphold oral change orders as enforceable despite contract requirements for written approvals.
Unforeseen site conditions
Unexpected site conditions—underground obstructions, hidden structural issues, contamination—represent major dispute triggers. Roughly 75% of projects encounter some level of unanticipated conditions, primarily soil issues requiring removal or treatment. Conflict centers on financial responsibility—whether contractors should have discovered issues during pre-bid inspections or if owners misrepresented site conditions.
Contract interpretation conflicts
Vague language and loosely defined contract terms create fertile ground for disagreements. Disputes involve whether specific work falls within original scope or constitutes billable changes. Contracts frequently lack clarity on risk allocation, leaving uncertainty about responsibility for unexpected conditions or additional costs. This ambiguity becomes particularly problematic when project owners and contractors have different understandings of what constitutes “included work” versus legitimate change orders.
Best Practices for Managing Change Orders
Successful change order management starts before your first project modification. We’ve developed proven practices that maintain project stability and prevent expensive disputes.
Define scope and process in the contract
Clear contract terms prevent change order conflicts before they start. Review contracts thoroughly and eliminate vague clauses that create additional work. Include specific language detailing how changes get initiated, reviewed, approved, and priced. This upfront work helps resolve ambiguities and catch errors that trigger costly modifications later.
Use written documentation for all changes
Document every change in writing, even when contracts don’t require it. Use standardized forms like AIA G701 that capture essential details including contract references, cost adjustments, and schedule impacts. Maintain a detailed change order log tracking each modification’s status, costs, and schedule effects.
Agree on costs before starting extra work
Never begin change order work without signed approval. This rule prevents situations where you finance modified work upfront only to face payment disputes later. Include detailed cost breakdowns covering labor rates, materials, and schedule adjustments.
Maintain open communication with all parties
Provide regular updates to all stakeholders about change order status. Transparency builds trust and helps avoid surprises that damage relationships. Raise potential changes immediately, discussing likely impacts on costs, productivity, and scheduling.
Train your team on change order procedures
Regular training sessions ensure team members understand contract expectations, recognize potential scope changes, and properly document modifications. Ensure staff know how to use any change order management software your company relies on.
Technology Makes Change Order Tracking Simple
Technology solves the change order management problems that plague most contractors. Digital solutions eliminate the manual processes that create disputes and payment delays.
Benefits of construction change order tracking software
Change order tracking software delivers measurable results for contractors:
- Automated workflows cut manual work and eliminate errors that slow approvals
- Standardized templates capture every detail you need for proper documentation
- Digital approvals speed up timelines – projects see 33% faster approvals
- Accurate cost tracking prevents money from slipping through the cracks
- Better documentation protects you when disputes arise
Contractors using these tools save up to 16 hours monthly on change order management.
Real-time updates and centralized documentation
Cloud-based platforms give everyone instant visibility into change order status. You get centralized tracking that manages every modification from start to finish. Real-time alerts notify team members about pending approvals, cost changes, and schedule impacts.
Centralized systems maintain detailed audit trails of all modifications, complete with timestamps and approval records.
Tools that deliver results
Several platforms address specific change order challenges:
Clearstory creates collaborative logs that improve transparency between contractors, subcontractors, and owners.
Buildertrend updates schedules and budgets automatically when change orders get created.
Siteline generates pre-filled change order forms that match general contractor requirements.
eSUB, Knowify, and Buildern provide tracking features with cost impact analysis.
These platforms reduce payment delays significantly – some users receive payments three weeks faster.
Conclusion
Change orders happen on every construction project, but smart contractors know proper management protects profits and project success. We’ve shown you how these modifications provide necessary flexibility while creating risks when handled poorly. The difference between successful projects and failures often comes down to how well teams manage these changes.
Effective change order management starts with solid contract preparation and continues through consistent documentation practices. Most contractors struggle because they react to changes instead of building systems to handle modifications efficiently. Standardized procedures minimize disputes and maintain strong client relationships.
Documentation serves as your strongest protection against payment delays and disputes. Clear communication channels with all project stakeholders prevent misunderstandings before they become costly conflicts. Your team’s ability to spot potential change order situations early allows for proper planning and pricing negotiations before work begins.
Technology offers the biggest opportunity for improvement in change order management. Digital platforms centralize documentation, speed up approvals, and provide real-time visibility that paper processes cannot match. Contractors who adopt these tools gain competitive advantages through faster approvals, better financial tracking, and stronger documentation.
We believe change orders are critical business processes that deserve careful attention, not administrative hurdles. Proper change order management protects profits, strengthens client relationships, and reduces legal risks. Your construction business will succeed when you implement these best practices consistently across all projects.
Leave the complex change order management to the experts. Focus your time and efforts on what you do best – building great projects.
