Change orders on construction projects are inevitable, as unforeseen site conditions arise and design adjustments, scope modifications, and other client-driven changes occur. While these can lead to cost overruns, delays, coordination issues, compromised project quality, and litigation, they don’t have to.

Having formalized change order processes, procedures, and forms is critical to protecting all parties from financial, schedule, and legal risks. Implementing a structured environment with proactive plans and processes can help you mitigate risks associated with change orders and improve project controls.

Challenges

Change orders are often a source of stress for project owners and contractors alike. Miscommunication, scope ambiguity, unassigned responsibility, and lack of timely approvals are some of the most common issues with change orders. Specifically, projects can suffer from:

• Unauthorized work, such as when contractors proceed with changes before formal approval, making it difficult to control costs or hold parties accountable.
• Incomplete or vague change order requests, which create confusion about the scope and pricing, or do not fully itemize the estimated costs, leading to disputes.
• Delays in reviewing and approving change orders can stall the project, impacting the critical path and overall timeline.
• Disputes over cost allocation, such as disagreements on whether a change is owner-directed, a design omission or error, or contractor-caused, can escalate into costly claims or litigation.

These challenges can often be mitigated by having a clearly defined change order process, implementing internal controls that promote transparency and repeatable processes, and conducting change order assessments throughout the project life cycle.

The Change Order Process

A formalized change order process ensures that modifications are adequately documented, reviewed, and approved before work proceeds. This transparency helps maintain clear communication among all parties, establishes accountability, and provides a verifiable audit trail that can be crucial in resolving disagreements.

Moreover, a disciplined change order procedure enables project owners to control budget overruns and schedule impacts by requiring detailed cost estimates and time extensions tied to each change. It also helps prevent scope creep by clearly defining what constitutes a change and helping to ensure that only authorized modifications are implemented. Ultimately, adhering to a formal change order process safeguards the project’s financial health and timeline, mitigates the risk of costly disputes, and promotes a collaborative environment where all stakeholders understand and agree upon the evolving project requirements.

To ensure project change orders are adequately supported, thorough and well-organized documentation is essential. Key documents in a change order submission typically include:

• Potential change order or change order request documentation. This initial document outlines the proposed change, including a detailed description of the work to be added, deleted, or modified; a clearly-stated reason for the change, and the responsible party. Supporting documentation might include requests for information (RFIs), bids or quotes from subcontractors or material and equipment suppliers, and projected labor schedules.
• Fully itemized estimated cost breakdown and pricing proposal. This is a detailed cost estimate from the contractor or subcontractor, itemizing labor, materials, equipment, subcontractor costs, overhead, and profit associated with the change. This should be transparent and include supporting documentation from third parties such as material suppliers and subcontractors in order to avoid disputes.
• Supporting drawings and specifications. Any revised or additional drawings, sketches, or specifications that illustrate the scope and nature of the change are critical. These help all parties visualize and understand the modification and coordination efforts required.
• Schedule impact analysis. This documentation shows how the change will affect the project timeline, including any proposed extensions or acceleration measures. This helps the owner assess potential delays or associated additional costs.
• Correspondence and approvals. This includes signed cover sheets, emails, letters, meeting minutes, or other communications that demonstrate agreement or negotiation between the owner and the contractor, architect, and other stakeholders. Formal signatures or approvals on the change order form confirm authorization.

Maintaining this comprehensive documentation not only facilitates clear communication and informed decision-making but also provides a defensible record in case of disputes or audits, ultimately protecting the owner’s interests throughout the project lifecycle.

Control-Related Enhancements

To further combat the challenges created by change orders, as an owner or a developer, you can implement several controls:

• Establish a clear, written change order policy. Define roles, responsibilities, and required documentation up front in the project contract. The contract should mandate that no additional work proceeds without a fully executed change order.
• Use standardized forms and templates. This ensures consistency in documenting change requests, cost estimate breakdowns, and approvals to reduce ambiguity.
• Implement a centralized tracking system. A digital platform or project management software can log all change orders, monitor their status, and flag overdue approvals, improving transparency and accountability.
• Require detailed scopes and cost justifications. Contractors should provide comprehensive descriptions and itemized pricing, enabling thorough evaluation.
• Set strict timelines for review and approval. Establish deadlines for contractor change order submission and owner and architect responses to change requests to minimize delays in project progress.
• Conduct regular change order review meetings. Bring together key stakeholders to discuss pending changes to resolve issues early and foster collaboration.

What’s a Third-Party Change Order Review?

A third-party change order review involves an independent assessment of project change orders submitted by contractors on a regular basis throughout the project life cycle. This review validates that documentation is complete, changes are adequately substantiated, and compliant with contractual requirements.

A third-party or independent reviewer can help enhance the change order process, leading to improved project controls, enhanced transparency among relevant parties, and real-time assessment of budget increases and schedule extensions. Additional benefits may include:

• Risk mitigation. Early detection of and risk management strategies for potential errors, fraud, or mismanagement.
• Better project management. Allows project team members to focus on construction while having a third-party evaluate the scope and impact of changes, enabling more effective planning, scheduling, and coordination.
• Contract compliance. Verifies that change orders comply with contract terms and conditions, resulting in fewer disputes and easier financial closeout at project completion.

We’re Here to Help

To learn more about the change order process and how independent change order reviews can benefit your organization, contact your firm professional.

Additional Resources

• Construction Practice
• Capital Projects Advisory Services