The average construction dispute in North America hit $60.1 million in 2024, a 40% increase from the previous year. The primary cause? Change in scope.
Change orders are inevitable. Every project has them. But poor change order management turns routine modifications into profit-destroying disputes.
Industry-wide, construction rework and delays cost $177 billion annually. Much of that stems from five preventable mistakes that contractors make repeatedly.
Here’s what goes wrong and how to fix it.
Mistake #1: Documentation Failures
The Paper Trail Problem
Verbal agreements aren’t enforceable. Work done without written approval risks non-payment. Yet contractors keep accepting verbal instructions and starting work before paperwork is signed.
The numbers tell the story:
- 48% of all construction rework is caused by poor communication and inadequate project data
- The average T&M ticket takes 24 days to become a change order request
- The majority of construction litigation stems from change order disputes, not defects in work
A typical escalation pattern: a $2,500 unapproved change that wasn’t documented clearly gets bundled with other unapproved changes. The 24-day administrative lag creates a 10-20% schedule delay. The contractor faces a cash-flow crisis and files a claim. The owner sees incomplete documentation and disputes the claim—turning a minor change into major litigation.
How to Fix It
- Require written change orders before any work begins—no exceptions
- Use digital tools to capture real-time documentation with timestamps and geotags
- Include photos, field notes, and detailed descriptions for every change
- Establish a daily documentation review process
- Create a standardized template for all change order requests
Companies using digital documentation tools report a 61% reduction in document errors. That’s 61% fewer opportunities for disputes.
Mistake #2: Pricing and Markup Errors
The Hidden Cost Trap
Most contractors think change orders boost profit. Then they uncover the hidden costs that cut margins.
The reality: standard markups of 10-15% rarely cover actual expenses.
Consider these numbers:
- Average electrical contractor overhead is 19.16%—but contracts often limit markups to 10-15%
- 30-40% of change order cost may be demolition and rework that contractors forget to bill
- Schedule extensions cost $8,000-15,000 per week on mid-sized projects—often buried in overhead
- A 20% markup only produces a 16.7% margin (confusing markup with margin is the #1 pricing mistake)
Hidden costs from disruption, coordination, and productivity loss systematically destroy margins while remaining invisible to traditional job costing.
A Real Example
In a commercial office renovation, change orders showed $13,000 profit on paper. Reality: the change orders lost $45,000. Costs were scattered across job cost codes, so the PM thought changes were profitable. But the base contract would have been fine—change orders destroyed profitability.
How to Fix It
- Track all soft costs including PM coordination time, disruption, and ripple effects
- Calculate true overhead percentages before accepting contract markup limits
- Price changes based on true costs, not wishful thinking
- Negotiate markup provisions before signing contracts
- Use digital tracking to capture hidden labor and material costs
Mistake #3: Approval Process Delays
The Cash Flow Killer
Slow approvals create a cascade of problems. Delayed payments. Unauthorized work. Disputes that can halt entire projects.
The timeline problem:
- Average time from T&M ticket signing to change order request submission: 24 days
- Average time for specialty contractors to price T&M tickets: 30 days
- Typical contract notification deadlines: 5-10 days
- Federal agency change order approvals: can take months or years
Missing notification deadlines can result in rejected change orders or unpaid work. Performing work without a signed change order is the most critical error, it often leads to payment denial.
A Real Example
A data center project executed change orders totaling over $200K without proper client approval, to keep the project moving. Disputes escalated. The client halted payment for two months. Subcontractors couldn’t be paid. The project devolved into animosity and difficulty getting workers on site.
How to Fix It
- Establish strict timelines for review and approval in the contract
- Set up automated notifications for approaching deadlines
- Never proceed with change work until written approval is received
- Use digital workflows to speed approval cycles from weeks to days
- Build approval contingency time into project schedules
Mistake #4: Scope Creep Mismanagement
The Budget Destroyer
Uncontrolled scope changes account for nearly 80% of cost overruns. Projects with scope creep can cost up to four times preliminary estimates.
The statistics are alarming:
- 52% of all projects experience scope creep
- 85% of projects experiencing scope creep exceed their initial budgets
- Average cost overrun from scope creep: 27%
- Scope creep is the #1 cause of construction disputes globally at 38.8% of projects
The pattern is predictable: small changes accumulate. Each one seems manageable. But cumulatively, they blow budgets and timelines.
High-Profile Examples
Denver International Airport’s automated baggage system had over 2,000 design changes. The project finished 16 months late and 250% over budget.
Boston’s Big Dig saw costs balloon from $2.56 billion to $14.6 billion, largely due to scope changes and underestimated risks.
How to Fix It
- Define scope in precise detail with measurable criteria and deliverables
- Establish a formal change control process that evaluates every modification
- Require written approval for all scope changes before work begins
- Track scope changes against original budget and timeline
- Conduct regular scope reviews with all stakeholders
Mistake #5: Communication Breakdowns
The Relationship Wrecker
Poor communication is the primary reason projects fail one-third of the time. It can turn minor changes into major litigation.
The impact on project success:
| Communication Level | On Time | On Budget | Meet Goals |
|---|---|---|---|
| Minimally Effective | 37% | 48% | 52% |
| Highly Effective | 71% | 76% | 80% |
More than half of all project budget risk is due to ineffective communications. Fragmented communication, emails, texts, calls, in-person conversations, leads to missed updates and delayed decisions.
A Real Example
A project manager verbally instructed a foreman who verbally instructed workers the day before execution but didn’t visually train them. The safety officer didn’t receive the order. The safety department couldn’t inspect. Communication breakdown led to process failures that cascaded through the project.
How to Fix It
- Establish a single source of truth for all project communications
- Implement communication checkpoints throughout the project lifecycle
- Document all conversations, decisions, and approvals in writing
- Use digital platforms that provide unified visibility for all stakeholders
- Foster early and frequent communication with all project parties
The Solution: Digital Change Order Management
All five mistakes share a common thread: they stem from manual, fragmented processes that can’t keep pace with project realities.
Digital change order management addresses each failure point:
- Documentation: Real-time T&M tracking with timestamps, geotags, and photos creates instant, defensible records
- Pricing: Digital cost tracking captures hidden labor and material expenses that manual methods miss
- Approvals: Automated workflows reduce the 24-day processing delay to days or hours
- Scope Control: Centralized change tracking shows cumulative impact against original baseline
- Communication: Single platform visibility eliminates fragmented information silos
The construction software market is projected to grow from $9.87 billion in 2024 to $21.03 billion by 2032, driven largely by contractors seeking to eliminate these costly failures.
Frequently Asked Questions
What is change order management?
Change order management is the process of documenting, pricing, approving, and tracking modifications to the original construction contract scope. Effective management includes standardized documentation, clear approval workflows, accurate cost tracking, and communication protocols that keep all parties aligned.
What are the most common change order mistakes?
The five most costly mistakes are: (1) inadequate documentation, (2) pricing errors that ignore hidden costs, (3) approval delays that exceed contract deadlines, (4) uncontrolled scope creep, and (5) fragmented communication. Each can lead to disputes, delayed payments, and litigation.
How much do change orders typically cost?
Change orders typically represent 10-25% of total contract value. However, hidden costs from disruption, coordination overhead, and productivity loss often exceed the line-item price by 30-40%. The average construction dispute reached $60.1 million in 2024.
How can contractors avoid change order disputes?
Require written change orders before starting any work. Use digital documentation with timestamps and photos. Establish strict approval timelines in contracts. Track all costs including hidden soft costs. Maintain a single communication platform visible to all stakeholders.
What is the best way to track change orders?
Digital T&M tracking software that captures labor, materials, and equipment in real-time provides the most defensible records. Key features include mobile access, timestamp and geotag verification, photo documentation, automated markup calculations, and integration with accounting systems.
Key Takeaways
- Documentation: Get everything in writing—verbal agreements lead to disputes
- Pricing: Track true costs—standard markups rarely cover hidden expenses
- Approvals: Never start work without signed authorization—payment denial is common
- Scope: Control creep—80% of cost overruns stem from scope changes
- Communication: Use one platform—fragmented information causes 50% of budget risk
- Solution: Digital tracking eliminates the 24-day processing delay and creates defensible records
Change orders will always be part of construction. The contractors who profit from them are the ones who manage documentation, pricing, approvals, scope, and communication with discipline and digital tools.
