Change orders are an unavoidable reality in industrial and heavy civil construction. Scope adjustments, unforeseen conditions, and owner-driven modifications all trigger them. Change orders disrupt schedules, introduce financial risk, and—when mismanaged—erode profit margins. Many contractors focus on negotiating the value of a change order, but far fewer recognize that approval timing is just as critical.
Delays in processing and approving change orders create hidden costs that often go untracked. These delays can significantly impact your project’s bottom line. This article breaks down the financial and operational risks of delayed change orders and outlines best practices to protect your margins.
The Real Cost of Delayed Change Orders
Change orders are an inevitable part of construction projects, but when they aren’t approved in a timely manner, they can create serious financial and operational consequences for contractors. While many companies focus on negotiating the value of change orders, the timing of approval is just as critical. A delayed change order means additional costs without guaranteed reimbursement, leading to cash flow strain, scheduling conflicts, higher material prices, legal disputes, and reduced profit margins. Understanding these hidden costs is essential for mitigating risks and ensuring that change orders remain a profit opportunity rather than a financial burden.
1. Cash Flow Disruptions
Cash flow remains the top reason construction companies fail, and delayed change orders can quickly destabilize a contractor’s finances. Contractors often must pay for labor, materials, and equipment long before the change order receives approval. When payment lags, the contractor ends up financing the work out-of-pocket, stretching working capital and making it harder to pay subcontractors, suppliers, and vendors on time. Floating costs build fast. Companies may rely on credit lines, delay payments, or pause other projects simply to stay afloat.
- Change orders often require additional labor, materials, and equipment before they are formally approved.
- If payment for a change order is delayed, the contractor is essentially financing that work out-of-pocket.
- Delays in change order approval create a “floating cost” that eats into working capital, impacting the ability to pay subcontractors, vendors, and suppliers on time.
2. Productivity and Scheduling Issues
A delayed change order can stall progress and create costly inefficiencies. Crews and equipment sit idle, increasing labor and equipment costs with no productive output. If subcontractors must demobilize and return later, the additional setup costs may never be recovered.
Approval delays can also disrupt the critical path. This leads to compressed schedules, overtime, and potential liquidated damages. If milestone-based payments are tied to the stalled work, contractors may struggle to trigger the next invoice, deepening the financial pressure.
- A change order that isn’t approved in time can bring work to a halt, creating idle time for crews and equipment.
- If a subcontractor has to remobilize due to approval delays, additional costs for labor and equipment setup may not be recoverable.
- Late approvals can disrupt the critical path of a project, leading to compressed schedules, overtime, and increased risk of liquidated damages.
3. Material Cost Increases
Material pricing in construction is highly volatile, and any delay in change order approvals can expose contractors to rising costs. If an order for steel, concrete, or other materials is held up while waiting for approval, market fluctuations may drive prices higher—often within weeks. In many cases, contractors must absorb these unexpected increases, eroding their profitability. Additionally, if material availability shifts due to supply chain constraints, contractors may face lead time delays, requiring them to source alternative materials at a premium cost.
- Many change orders involve additional materials, and any delay in approval means exposure to price volatility.
- In fast-moving markets, waiting weeks for a change order to be approved can lead to higher material costs, with contractors often forced to absorb the difference.
4. Disputes and Legal Risks
Poorly documented or delayed change orders often escalate into disputes. Owners may claim that extra work was unauthorized or outside the original contract. Without clear records, contractors struggle to recover costs or enforce contractual remedies.
Weak tracking also increases the chance of missed notices, back-charges, or claims. In extreme cases, these issues can lead to litigation.
Contractors often absorb these increases, which erodes profitability. Supply constraints can also change availability or lead times, forcing contractors to buy alternative materials at higher costs.
- If change orders are not processed efficiently, disputes over scope creep, extra work, or non-payment can arise.
- Owners may argue that work was unauthorized, leaving contractors in a difficult position if documentation isn’t airtight.
- Poor change order tracking can result in missed opportunities to recover costs through contractual mechanisms.
5. Erosion of Margins
Change orders should improve profitability. But slow approvals turn them into liabilities. Hidden costs—idle labor, rising material prices, and lost productivity—quietly cut into margins. A change order that looks profitable on paper can turn into a break-even or loss item once delay-related costs hit.
To protect margins, contractors need fast approvals, disciplined cost tracking, and strong contract language.
- Change orders are a key opportunity to maintain profitability, but if they are delayed, the costs associated with those delays—idle time, lost productivity, material cost increases—cut into the margin.
- Many contractors assume they will make money on change orders, but without an efficient approval process, they often end up being break-even or even loss-making items.
Best Practices to Protect Your Margins
1. Implement a Real-Time Change Order Tracking System
- Use construction management software (like JobSight360) to centralize change order requests, track approval status, and document additional costs in real time.
- Require digital sign-offs from both the owner and contractor before proceeding with extra work.
2. Set Clear Contract Terms for Change Order Timelines
- Negotiate upfront contract language specifying the time frame for change order approval.
- If the owner exceeds the approval deadline, include provisions that allow you to proceed with work on a time and materials basis.
3. Standardize the Change Order Request Process
- Develop a template for change orders that includes:
- Description of the change
- Cost and time impact
- Supporting documentation (drawings, RFIs, site photos)
- Ensure that field personnel understand how to initiate change orders quickly.
4. Track the Cost of Change Order Delays
- Assign a cost to change order delays and include it in project financial reporting.
- If a change order remains unapproved beyond a certain threshold, escalate it with formal notice to protect your right to recover costs.
5. Leverage Technology for Faster Approvals
- Use digital signature tools to reduce paperwork bottlenecks.
- Automate notifications and reminders to keep approvals moving.
6. Proactively Manage Owner Expectations
- Discuss potential scope changes early and communicate the cost/time impact of delayed approvals before they become a problem.
- Hold regular change order review meetings to prevent bottlenecks.
Conclusion: Change Orders Are Inevitable, But Delays Don’t Have to Be Costly
Managing change orders effectively isn’t just about winning the negotiation—it’s about ensuring that delays don’t erode profitability. By implementing clear processes, leveraging technology, and holding owners accountable to approval deadlines, contractors can reduce financial risk and protect their margins.