How to Track Change Orders So You Actually Get Paid
- Cost Construction Accounting
- 6 hours ago
- 6 min read
You did the work. You have the receipts. But the owner says they never approved it and now you're $40,000 short on a job you already finished.
This isn't bad luck. It's a tracking problem. And it's costing U.S. contractors billions every year.
Change orders represent 10–20% of total project value on the average commercial job yet most contractors collect only 60–70% of what they're owed. The work gets done. The money doesn't follow. Not because owners are always dishonest, but because sloppy documentation, missing cost codes, and slow invoicing hand them a reason to dispute or delay.
This guide gives you a 6-step system to close that gap, starting this week.
Why Most Contractors Lose Money on Change Orders
The problem isn't the work it's what happens after
Change orders should be pure margin. Extra scope, priced with markup, billed cleanly. In reality, most contractors treat them as an afterthought, something to sort out later, at month-end, or at closeout. By then, it's too late.
When costs aren't coded correctly, your job-cost reports give you a false picture. When invoices sit for 45 days, your cash flow takes the hit. When documentation is missing, owners dispute the bill and you absorb the loss.
What's actually at stake
On a $5M project, 10–20% in change orders means $500K–$1M in extra scope. If you're only collecting 65 cents on the dollar, that's $175,000–$350,000 walking out the door on a single job.
Multiply that across your portfolio and you're not looking at a paperwork problem. You're looking at a profitability crisis.
Know What Counts as a Change Order Before You Start
Not every extra request is billable but more than you think are
Some requests fall within the reasonable interpretation of the contract. Others clearly exceed the original scope and must be priced, approved, and billed as a separate change order.
Train your PMs and superintendents to recognize the difference in real time:
Owner asks for something not shown on the drawings → Change order
Site conditions differ materially from what was represented → Change order
Architect revises specs mid-project → Change order
Minor clarification already covered by contract language → Scope, not a change
The four types you'll encounter most:
Additive: extra work added to scope
Deductive: work removed from scope
Time-and-material: cost plus markup
Lump-sum: fixed price for a defined change
If it's not in writing and signed before you start the work, it's not a change order. It's a gift.
The 6-Step System That Closes the Collection Gap
Step 1: Set the Rules Before Day One
Why this step matters
Without a written policy, every change order becomes a negotiation. With one, the rules are agreed on before conflict ever starts.
What to do
Write a one-page change order policy and attach it to every contract. Cover three things:
Who can request and approve changes
Maximum 7 calendar days from discovery to submission
Required markup (typically 15–20% overhead + 10% profit)
Print it. Hand it to every superintendent on every job. Make it non-negotiable.
Step 2: Capture the Change the Same Day It Happens
Why this step matters
Memory fades fast on a busy job site. By the time you're building the invoice, no one can agree on what was actually directed, when, or by whom. That ambiguity costs you money.
What to do
The moment an owner or architect asks for something outside the original scope, your field team captures it immediately, not at week-end, not at the monthly meeting. That day.
The minimum documentation package:
Timestamped photo (before, during, and after)
1–2 sentence description: "Owner requested relocation of 8 light fixtures per verbal direction on 3/1"
Name of who directed the change + the job number
Log it in your daily field report the same way, every time: what was done, who directed it, hours spent, and materials used. A note like "Installed additional blocking per owner's verbal direction, 4 hours labor, J. Smith" plus photos creates a timestamped record that becomes your evidence when disputes arise.
Store files with naming conventions tied directly to each change order number. Use your phone and a cloud folder. No exceptions.
Step 3: Price It Before You Touch It
Why this step matters
Starting extra work without a priced proposal is how a $3,000 change becomes a $3,000 dispute. The owner approved the idea, not the number. Now you're six weeks in arguing over a bill they claim surprised them.
What to do
Create a simple Change Order Cost Breakdown for every change before work begins:
Labor hours × burdened labor rate
Materials (with supplier quotes attached)
Equipment costs
Supervision and general conditions
Markup
Send the priced proposal within 48 hours. This forces approval of a specific dollar amount and eliminates the "I didn't know it would cost that much" argument later.
Step 4: Get Written Sign-Off Before Work Starts
Why this step matters
Verbal authorizations feel efficient under schedule pressure. They're worthless in a dispute. "Go ahead, we'll handle the paperwork later" has cost contractors millions.
What to do
Use a standard approval form every time description of work, cost breakdown, schedule impact, signature lines. If the owner delays, follow up in writing:
"To avoid impacting the schedule, we will proceed under the proposed terms unless we receive written direction otherwise by Friday."
Send that email. Document everything. Silence typically reads as acceptance, and you've created a paper trail either way.
Step 5: Code Every Dollar in Real Time
Why this step matters
This is the accounting core of the entire system and the most common failure point. When change order costs get dumped into "miscellaneous," your job-cost reports give you a false picture. You lose the ability to spot overruns before they become losses.
What to do
In your job-cost software (QuickBooks, Foundation, Viewpoint, or similar):
Create a dedicated cost code for each change order (e.g., 01-100-CO-001)
Code every invoice, timesheet, and material receipt to that code the day it hits
Maintain a master change order log with columns for: date identified, description, estimated value, status, and date resolved
Run a weekly Change Order Cost Report every Monday morning
Your PM reviews it, confirms costs match the approved amount, and flags anything that doesn't. Fix discrepancies immediately.
What this log does for you
When you see five pending change orders totaling $50,000 sitting unsigned for three weeks, you know exactly where to focus before it becomes a closeout crisis. This log is your early warning system.
Step 6: Invoice Within 3 Days of Approval
Why this step matters
Every day you wait, the work recedes further into the past. Owner memory fades. Your leverage disappears. The longer the gap between approval and invoice, the easier it is to dispute the charge.
What to do
Bill within 3 business days of receiving the signed change order. Every time.
Attach:
The executed change order
Backup documentation (photos, quotes, time cards)
Updated schedule of values if using AIA forms
Send the invoice with a clean cover line: "Change Order 3 – Approved 3/1/26 – $18,450."
Owners pay faster when the paperwork is organized and easy to process. Messy documentation creates a reason, sometimes a real one to delay.
The 7 Deadly Change Order Sins
Most change order losses trace directly to one of these mistakes. Check your current process against this list. If two or three of these apply to your current process, you already know where your money is going.
Waiting until month-end to bill → Bill within 3 days of approval
Dumping costs into "miscellaneous" → Use dedicated cost codes for every CO
No backup attached to the invoice → Always attach PDF documentation
Verbal approvals only → Get it in writing or don't start
Forgetting markup → Build overhead and profit into every proposal
Not noting the schedule impact → Add days affected to every CO
Letting the owner net changes together → Bill every change order separately
Don't Close Out Without a Full Change Order Reconciliation
Before you release lien waivers or accept final payment, reconcile every change order from start to finish:
Verify every approved change was invoiced and paid
Resolve any outstanding disputes before signing off
Compile a complete package requests, documentation, approvals, payment records and keep it in your project file
If a dispute surfaces during the warranty period or years later, that package is your protection.
Your 30-Day Action Plan
Week 1: Write and distribute your change order policy on every active job
Week 2: Train field teams on same-day capture logs, photos, descriptions
Week 3: Set up dedicated cost codes and a master change order log in your accounting software
Week 4: Run your first weekly Change Order Cost Report and bill any pending items immediately
Every change order you track properly is money you already earned.
The contractors who build durable, profitable businesses aren't doing more work than everyone else, they're capturing more of the work they've already done.
If you want help building the cost accounting structure behind a system like this, Construction Cost Accounting works specifically with contractors to get this right. What's the biggest change order headache on your current job? Contact CCA to have a free 30-minute call
Comments