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6 Best Practices for Construction Change Order Management
Master change order management to control construction costs. Learn how to evaluate, negotiate, and track change orders on capital projects.
January 2026
Change orders are inevitable on construction and renovation projects. Conditions differ from plans. Owners adjust requirements. Scope gaps emerge during execution. The question isn't whether you'll have change orders—it's whether you'll manage them effectively or let them erode your budget.
A change order is a formal modification to the original construction contract that adjusts scope, cost, or schedule. Change orders can add work, remove work, or modify existing work based on changed conditions or requirements.
Common change order triggers:
Without proper management, change orders become budget leaks that compound into significant overruns.
Change order management begins before construction starts, not when the first change arises. Define the process in your contract and kick-off meetings.
What to establish:
Contract language to include:
When the process is clear upfront, both parties know the rules and disputes decrease.
Verbal authorizations and handshake agreements create disputes. Insist on written documentation for every change order.
Required documentation:
Create a change order log tracking:
Written records protect both parties and enable accurate project accounting.
Not every change order request is legitimate or correctly priced. Review each request with appropriate skepticism.
Questions to ask:
Common issues to catch:
Don't approve change orders you don't understand. Ask questions and request backup documentation.
The time to negotiate change order pricing is before work proceeds, not after. Once work is complete, your leverage evaporates.
Negotiation approaches:
When to push back:
Contractors expect negotiation. Those who accept first-pass pricing leave money on the table.
Change orders fall into different categories that warrant different responses:
Legitimate changes (accept but validate pricing):
Questionable changes (challenge appropriateness):
Scope creep (resist or defer):
Categorizing changes helps you respond appropriately—accepting necessary changes while pushing back on budget erosion.
Individual change orders may seem manageable. The cumulative impact is what kills budgets.
Track throughout the project:
Set thresholds for escalation:
Use tracking data to:
Authorizing work verbally: Verbal approvals create disputes. Always require written authorization before work proceeds.
Accepting lump-sum pricing: Lump sums hide inflated costs. Require detailed breakdowns showing labor, materials, equipment, and markups.
Waiting until project end to address changes: By project end, you've lost negotiating leverage and memories have faded. Address change orders weekly.
Not tracking cumulative impact: Ten $10,000 change orders feel different than one $100,000 change, but the budget impact is identical.
Using contingency for owner-requested additions: Contingency should cover unforeseen conditions, not scope expansion. Fund additions separately.
What's a reasonable change order rate for renovation projects?
Well-defined projects typically see change orders of 5-10% of contract value. Rates above 15% indicate scope definition or contractor issues. Rates below 5% on complex projects may indicate artificially suppressed changes that will surface later.
How do you handle change order disputes?
Start with contract terms—follow the specified dispute process. Document your position and supporting evidence. Attempt negotiation before escalation. If unresolved, options include mediation, arbitration, or litigation depending on contract terms and amounts at stake.
Should change orders require multiple bids?
For significant changes (over $25,000-50,000), consider competitive pricing if feasible. However, the existing contractor often has practical advantages (already mobilized, understands the project) that make competitive bidding impractical for most changes.
How do you prevent contractors from generating unnecessary change orders?
Select contractors with strong track records on change orders. Write clear scopes of work. Conduct thorough pre-construction investigation. Include change order performance in contractor evaluations for future work.
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