Change orders in construction are inevitable; unexpected site conditions arise, clients request mid-project revisions, or design oversights come to light as work progresses. While some level of change is normal, an excessive number of change orders can quickly derail timelines, inflate budgets, and strain relationships between teams. In fact, a study found that change orders can decrease the average profit margin from 25.8% to 22.8% for smaller construction projects. For home builders, that margin can fall from 15% to 12.6%.

In this article, we’ll take a closer look at change orders, their impact on construction projects, and how they differ from related terms like purchase orders and change requests. Most importantly, we’ll share actionable strategies to help you minimize these costly changes, keep projects on track, maintain your budget, and foster stronger collaboration.

What are change orders in construction?

Change orders are formal documents that outline any modification to a construction project’s original contract. This can involve alterations to the project scope, budget adjustments, schedule revisions—or all three. Typically, change orders include a description of the change, the reason for it, and any implications on cost and schedule. 

Change orders also clarify responsibilities (e.g. who will perform the new work) and require approval from all relevant stakeholders, such as the owner and general contractor, to ensure everyone agrees on the revised terms before proceeding.

Let’s see what a typical change order template looks like:

How do change orders work?

Change orders typically begin when a prime consultant identifies a necessary modification on behalf of the client, often following a proposed change (more on these later). The prime consultant gathers input from the general contractor to accurately price the change before submitting it to the owner for approval. After that, the change order requires approval signatures from both the owner and the general contractor to formally amend the contract. Once approved, the revised scope, cost, and schedule become part of the official project agreement, and the team proceeds accordingly.

How can change orders impact a project?

Change orders in construction can have a ripple effect on the following:

• Scope: Changes can widen or narrow the breadth of work, sometimes requiring additional expertise or materials.

• Budget: Costs often increase if labor, materials, or extended timelines are needed. However, if you implement value engineering — a process frequently used in the construction administration phase — you may reduce costs while maintaining functionality and quality.

• Timeline: Change orders can delay completion, especially when they involve rework or extra coordination. (However, any schedule impact is typically outlined on the change order itself and can sometimes be negotiated to minimize or offset delays.)

  
  

Change orders vs. instructions vs. directives vs. PCOs

In construction, you’ll often hear different terms to describe different aspects of modifying a project. Let’s break down the most common change documents and how they relate to change orders. 

What is a change instruction?

A change instruction is a formal directive issued by the architect or prime consultant that authorizes a GC to proceed with a change to the work before the final cost or schedule impact is fully agreed upon. It is typically used to avoid project delays while pricing is still being determined. Once the details are finalized, the change instruction is usually followed by a change order to formally update the contract.

What is a construction change directive?

A construction change directive is used by an owner to direct the general contractor to proceed with a change immediately, even if the final cost or time impact isn’t fully agreed upon. This unilateral instruction is sometimes necessary to avoid project delays. Unlike a change order, which requires approval from both sides, a change directive is a mandatory change that a GC has to abide by.

What is a PCO in construction?

A Proposed Change Order (PCO) serves as the “pricing and quotes” stage for a potential adjustment to the work before it officially becomes part of the contract. These documents detail the proposed change, outlining specific effects on price, timeline, and work scope, providing all parties an opportunity to review and negotiate. Once everyone signs off, a PCO transitions into a formal change order.

What is the difference between a change request and a change order?

A change request is a proposal that suggests a potential alteration to the project like shifting the scope, updating materials, or adjusting deadlines. It’s a way for stakeholders to highlight an idea or necessity without immediately committing resources or amending the contract. Whereas, change orders in construction are a legally binding agreement that modifies the original contract once all parties approve the change. A change request starts the conversation about what might need to be altered, and the change order makes it official.

What is the difference between a PO and a change order?

A purchase order (PO) is a document used by a buyer to procure materials, equipment, or services at a predetermined price and quantity. In contrast, a change order amends the original construction contract by adding, removing, or modifying work. While a PO deals primarily with resource acquisition and often remains separate from the core project scope, a change order directly adjusts the project’s overall budget, timeline, or specifications. In short, a PO confirms what you’re buying; a change order redefines what you’re building.

Why do change orders happen?

Below are the most common causes of change orders in construction:

1. Design errors and omissions: When design drawings lack detail or contain errors, GCs and subcontractors may struggle to interpret them correctly, leading to discrepancies that must be resolved through change orders. GCs may also need to use change orders to clarify missing or ambiguous construction specifications, increasing the likelihood of delays.

2. Unforeseen site conditions: No matter how well a site is studied before construction begins, unexpected conditions can arise once excavation or structural work starts. Issues like poor soil quality, unrecorded underground utilities, or the discovery of hazardous materials can disrupt planned workflows. Because these conditions often can’t be fully anticipated in pre-construction studies, change orders become necessary to modify the scope or approach to construction.

3. Client-driven changes: Clients often request design modifications, material changes, or scope adjustments once construction is underway, often driven by changes in priorities or evolving project goals. For instance, the owner might issue a change order to replace standard finishes with premium materials, switch to higher-end flooring, or change the layout of key areas to accommodate new business needs.

4. Regulatory or code changes: Construction projects must comply with local building codes and safety regulations. When new requirements are introduced by governing authorities after a project has started, GCs must adjust the work to ensure compliance. This often requires issuing change orders to modify structural elements, update fire protection systems, or alter accessibility features.

   
   

Change order disputes & how to manage them

Disputes over change orders are common in construction, but understanding the root causes and implementing effective strategies can help general contractors and owners resolve them efficiently.

1. Unclear documentation

Misunderstandings often occur when change orders are poorly documented, leaving room for different interpretations about the scope, cost, or timeline. This can happen if changes are communicated informally or if critical details, such as cost estimates or approval signatures, are missing.

How to manage this dispute: Ensure all changes are thoroughly documented in writing. Provide detailed descriptions of the work, costs, and timelines, and use formal communication tools like emails and meeting minutes to record decisions and approvals. This minimizes ambiguity and provides a clear reference for all involved parties.

2. Poorly managed change order process

A disorganized or inefficient process for tracking change orders can result in missed approvals, delays, or misunderstandings about which changes have been formally agreed upon. Without a central system, change orders can pile up, causing confusion and disputes over the project’s progress and budget.

How to manage this dispute: Implement a streamlined process for submitting, tracking, and approving change orders. Use a construction administration platform to manage change documents, track the status of each change order, store all related files, and handle approvals in real-time. 

3. Unfair negotiation

Disputes often arise when either party feels that the terms of a change order are unfair or unreasonable. This can be due to misunderstandings, pressure tactics, or one party feeling that their needs are not being addressed fairly. 

How to manage this dispute: Foster an open and transparent negotiation process. Ensure everyone fully understands the implications of the proposed change, and focus on finding mutually beneficial solutions. If disagreements persist, many contracts include provisions for neutral third-party mediation to help resolve the conflict without resorting to litigation.

4. Cost discrepancies

Disagreements over costs can lead to disputes if the cost breakdown for the change order isn’t clear or if the owner feels the general contractor’s estimates are too high. This is often due to incomplete or vague cost breakdowns or misunderstandings about what’s included in the cost estimate.

How to manage this dispute: Always provide a detailed, itemized breakdown of costs, including materials, labor, overhead, and any additional charges. Reviewing supplier quotations carefully helps ensure that pricing is fair and reflects current market rates. It’s also a good idea to compare the proposed pricing to industry standards to confirm that it aligns with typical costs.

How to reduce change orders

Change orders are a given on any project, but the right strategies can help keep them to a minimum. 

Here are our top tips to reducing change orders:

1. Thorough pre-construction planning

Before breaking ground, invest in comprehensive site investigations and design validation. For example, leverage building information modeling (BIM) for 3D visualization and for clash detection between architectural, structural, and MEP systems. You can also organize a pre-construction workshop with key stakeholders to review findings and align on contingency plans. This upfront investment can identify risks that, if left unaddressed, might trigger significant change orders later.

2. Clear contract documentation

A well-crafted contract sets clear expectations and reduces room for interpretation. Instead of relying on boilerplate language, work with experts to develop a contract that specifies the scope of work in detail, including measurable criteria and deliverables. For example, specify precise project milestones, quality standards, and performance benchmarks that leave little room for ambiguities. This clear documentation helps ensure all parties have a shared understanding of the project boundaries, reducing the likelihood of unnecessary changes.

3. Coordination during the design and CA phases

Poor coordination during both the design phase and construction administration phase is a frequent trigger for change orders. During the design phase, misalignment between architects, engineers, and general contractors can lead to design errors or clashes between different systems (such as MEP and structural components), which may only be identified during construction, leading to costly revisions. Similarly, in the CA phase, unclear communication or delays in responding to requests for information (RFIs) can lead to change orders.

To counter this, establish a structured, regular meeting schedule that includes progress reviews and proactive risk assessments. Use tools like Part3 to centralize and streamline how changes are managed. By storing all change orders, pricing documents, and payment certificates together, Part3 ensures quick and easy access for all stakeholders, reducing the risk of lost documents. The platform also allows you to invite consultants and team members directly into the change process, ensuring alignment on changes.

4. Subcontractor compliance program

Usually, GCs are responsible for ensuring that all subcontractors and their deliverables meet or exceed the contract requirements. To do so, it’s important that you have a subcontractor compliance program that includes thorough vetting, regular check-ins, and clear expectations for subcontractor performance. Make sure that subcontractors are adhering to the scope and fulfilling federal and local regulatory requirements. Verify that proper documentation is in order, and ensure that all changes to the work are tracked and reviewed. Without verification or oversight, GCs may assume subcontractors are meeting these requirements, leading to delays or issues that can trigger time-based change orders.

Streamline your change orders with Part3 

Managing change orders in construction doesn’t have to be complicated. Part3 simplifies the entire process, helping you stay on top of changes, keep your project on track, and avoid costly disruptions. 

With Part3, you can:

• Save time by storing all change orders, quotes, and payment certificates in one place for easy access.

• Keep your budget on track by automatically updating contract values in real-time as changes are made.

• Ensure instant alignment and approval by inviting consultants and stakeholders directly into the change process.

• Quickly generate and manage change orders with pre-filled data and professional cover pages, so you can focus on the work that matters.

• Ensure a smooth approval workflow by tracking real-time revisions, approvals, and signatures.

Get a demo to discover how Part3 transforms change order management.