Change Order
A modification to the original construction contract scope, cost, or timeline that affects project profitability and cash flow timing.
What is Change Order?
A change order is a formal modification to an existing construction contract. It adjusts the scope of work, contract price, project timeline, or all three. Change orders occur when site conditions differ from plans, the owner requests modifications, or design revisions are needed during construction.
From a cash flow perspective, change orders create a timing problem: additional work is performed before additional payment is negotiated and approved. A contractor may spend two weeks on changed work before the change order is documented, approved, and added to the next draw request.
Unapproved change orders represent unbilled work and uncollected cash. On active projects with frequent changes, the gap between work performed and change orders approved can represent significant committed costs without corresponding revenue recognition. Track change orders as pending revenue with expected approval timelines, and review unapproved value weekly in project cash meetings. Unapproved work is a loan you extend to the project owner until payment terms catch up.
Why it matters
Change orders performed but not yet approved drain cash without generating draw payments. Construction firms that track pending change order value alongside approved draws have a more accurate picture of project cash position.
Example
A $45K scope change performed in week two is documented in week three, approved in week five, and included in the month-end draw that pays in week seven. Cash is committed for five weeks before collection.
How RunwayCal helps
RunwayCal tracks change orders as pending collections alongside approved draws, so unbilled work appears in project cash projections.
Common mistakes
- 1Performing change order work before formal approval
- 2Not tracking pending change orders in cash projections
- 3Failing to include change order value in retainage calculations
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Track change orders before they drain cash
RunwayCal shows pending change order value alongside approved draws for accurate project cash visibility.
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