What Is A Change Order In Project Management?

Do you want to know the truth about change orders in project management? In this post, I’m going to share with you the 10 commandments of change orders and how to keep them from derailing your team. You’ll find these principles invaluable, so let’s dive right in.

Short answer: A change order is a written amendment to the construction contract that changes the scope, price, schedule, or all three after the contract is signed. The owner and contractor price, approve and sign it before the change work starts (or the owner issues a construction change directive), and it should cover both the cost and any time extension.

What Is a Change Order?

A change order is a document used to modify the original project agreement. It outlines necessary changes in the scope of work, costs, and schedule. In many cases, construction contracts dictate the change order process. So, whether there’s a design change, unforeseen circumstances, or any reason to adjust the scope, a formal change order process must be followed.

Tip: Don’t start change work until you have written authorization (a signed change order or a construction change directive). Also, ensure that change orders are opened in your project management system to avoid losing track of them.

What Are the 10 Commandments of Change Orders?

Commandment #1: Know Thy Contract

Success with change orders begins with understanding the contract. Know the change order process and the rules that govern it. For the most common contract forms, see AIA contract documents.

Commandment #2: Do Not Give Away Leverage

The owner wants the project, including any changes, completed. You just want to be compensated for the work. Don’t give away your leverage by doing the work without having financial approval in place.

Commandment #3: Know the Point of Release

Know the exact point where you can proceed. Get a signed change order, or a written construction change directive if your contract uses them, before you start, and track the cost from day one.

Commandment #4: Ask for What You Need

When pricing a change order, be specific. If there’s demolition, reinstallation, additional hours, or any associated cost—price it in. Do not assume you can add more later; ask for what you need from the start.

Commandment #5: Time Is Money

Don’t just focus on the financial aspect—ensure you’ve accounted for time. Get the time extension you need, following the contract’s rules, and get both the money and the time approved. It also helps to know who owns the float.

Commandment #6: Surprise Not the Owner

Never assume the owner knows about delays and disruptions. They need information to manage budgets and schedules. Keeping them informed helps with getting fair compensation.

Commandment #7: Be Persistent

Persistence yields results. If something needs to be resolved, stay on it until it’s done. Don’t give up easily when negotiating a change order.

Commandment #8: Negotiate From the Facts

The owner needs you to finish the work. Price it fairly, document everything, and negotiate from the record, not from emotion.

Commandment #9: The Job Isn’t Done Until the Money Is Collected

Unsuccessful managers make excuses, but successful ones ensure profitability. The job isn’t complete until you get paid for the work you’ve done.

Commandment #10: Make It Lawyer-Proof

Ensure all documentation is in the correct format and can stand up in court if needed. Protect your right to compensation by following the proper legal guidelines.

The Reality of Change Orders

There’s a common perception that change orders aren’t great for profitability. The administrative burden can be immense, and trade partners often take on small changes as a favor. When managed poorly, change orders can derail a project with excessive variation. Whenever possible, reduce the number of change orders, as they can create significant variation in a project.

How Do You Keep Change Orders From Derailing a Project?

Change orders can bring chaos, but if managed well, they don’t have to derail your project. Here’s a simple method to keep them in check:

1. Clearly Identify Impacts: As soon as a delay or change occurs, document it in your meeting minutes, daily reports, and legal schedule.
2. Keep the Main Workforce Moving: Make sure to keep the main part of your workforce moving forward. Change orders should not disrupt your primary work. Keep the focus on the main tasks while managing change orders separately.
3. Allocate Specific Labor: If your team doesn’t have the capacity to manage change order documentation and approvals, hire additional resources. Keep your main team focused on the original contract work, and handle change orders separately. I have written more about change management for project engineers.
4. Prioritize the Contract: Always focus on fulfilling your contractual obligations first. Change orders should be secondary in priority to ensure your project team stays on track and avoids distraction.

In short, every change follows the same path: Identify → Notify → Price → Approve → Execute → Bill.

A Real-World Example

John Kaufman, a General Superintendent, once shared a story on our podcast about recovering a project overwhelmed with change orders. By separating the management and labor for the change orders from the main workforce, the project was successfully delivered. The key was maintaining focus and morale while addressing change orders in a systematic way.

If change orders are swamping your team, our project support can help you set up the process, and our Super PM Bootcamp trains PMs to run it.

Final Thoughts

The only time change orders derail a project is when they create unmitigated chaos and variation. By following the 10 commandments, focusing on your contractual obligations first, and keeping your eye on the ball, you’ll avoid those pitfalls.

On we go!

FAQ

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

A change order is agreed and signed by both sides. A construction change directive is the owner’s written order to proceed before the price or time is agreed.

Who approves a change order?

Whoever the contract names, usually the owner (often with the architect) and the contractor.

Should a change order include a time extension?

Yes, if the change affects the schedule. Get the money and the time approved together.