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Most contractors have a solid change order log. It lists every signed change, its value, and when it hit the contract. Accounting trusts it. The owner reconciles against it.
The problem is that the change order log is a list of things that already happened. The decisions that determine whether a change makes or loses money (whether to proceed, how to price it, when to notify the owner) were made weeks earlier, when the change was just a photo, a field note and an uneasy feeling. That earlier thing is the change event, and most of the money is decided there.
The vocabulary, briefly
Different tools and contracts use different names. The underlying lifecycle is the same.
| Term | What it is | Money status |
|---|---|---|
| Change event | Something happened that may change cost, time or scope | Unknown or rough estimate |
| Potential change order (PCO) | The event, priced and organized for submission | Estimated, at risk |
| Change order request (COR) | One or more PCOs formally submitted to the owner | Requested, pending |
| Change order (CO) | Signed by the owner, changes the contract | Approved, billable |
| Construction change directive (CCD) | Owner directs the work before price is agreed | Approved scope, disputed or open price |
On the cost side, the same event often produces commitment changes for the subs and suppliers doing the work. That’s covered in subcontracts and commitment changes.
Why the event matters more than the order
Three things go wrong when changes are only tracked once they’re priced or signed.
Notice deadlines pass. Most prime contracts require written notice of a claim or change within a set number of days after you become aware of it. The exact terms vary by contract. A change that lives in a super’s head for three weeks can lose its entitlement before anyone prices it.
Work starts ahead of paper. It’s common, and often unavoidable, for changed work to start before the change order is signed. The schedule doesn’t wait. That’s fine if the exposure is tracked. It’s dangerous when the cost shows up in job cost with no matching change anywhere, and the PM explains it at the month-end review as “that’s the damper thing, we’re getting a CO for it.”
The forecast is blind. If the cost to complete only includes signed changes, it misses everything in flight. A job with $600,000 of unsigned changes in progress is a very different job depending on whether that money is coming from the owner or out of your margin.
A worked example
- Day 0, change event. The super finds rated corridor penetrations with no fire dampers during ceiling rough-in. A daily log entry with photos is the first record. The PM flags it as a change event with a rough order-of-magnitude estimate. Nothing is priced, but the exposure is now visible on the job.
- RFI-212. The question goes to the design team. The event links to the RFI.
- PCO. The answer confirms added scope. The mechanical sub prices it. With the GC’s costs and markup, the PCO is $86,400.
- COR. Submitted to the owner, with the photos, the RFI and the sub’s quote attached.
- CO #14. The owner signs. Contract, budget, the sub’s commitment and the schedule of values all need to update.
The value of steps 1 to 4 being tracked is not paperwork. It’s that on day 0, the forecast can already say “there’s a likely $70,000 to $90,000 change in flight on HVAC, cost recovery expected,” and the PM can make decisions with that in view.
What goes into the forecast?
This is where practice varies, and where it’s worth being deliberate. There are three common approaches to unsigned changes in the cost to complete and the projected contract value:
| Approach | Cost side | Revenue side | Tradeoff |
|---|---|---|---|
| Signed only | Include costs as incurred | Only signed COs | Conservative on revenue, but costs without revenue show as fade |
| Cost in, revenue when probable | Include expected cost | Add revenue when recovery is probable and estimable | Closer to the economics, needs judgment |
| Everything at face value | Include expected cost | Include all pending at full value | Optimistic, hides disputes |
Accounting guidance on unpriced and unapproved change orders under revenue recognition is specific, and your CPA should set the policy. Whatever the policy, the tracking requirement is the same: you can’t apply any of these rules to changes you haven’t recorded.
A useful exposure log
A change event log that actually gets used tends to have:
- One line per event, opened by whoever finds it, field or office.
- A link to the source: the daily log, photo, RFI, submittal or owner direction.
- A status: open, priced, submitted, approved, rejected, void.
- A rough estimate early, replaced by a real price later. Keep both.
- Cost and revenue sides, so the margin on the change is visible.
- Age, so stale items surface on their own.
- Cost codes, so costs incurred against the event can be compared to its estimate.
Why it’s hard today
In most stacks, change events live in three places. The field captures the condition in a daily log or a photo app. The PM tracks pricing in a spreadsheet or a PM platform’s change module. Accounting only sees the change when it’s signed and someone posts it. Each handoff is a chance to lose the thread, which is why we wrote about the real cost of re-keying a change order.
What we’re building
In os.construction, a change event is a record that starts where the problem is found and carries its source, price, approvals and cost codes all the way to the change order and the pay app. Change events, potential change orders and commitment change orders are live in the app, and approved changes post to the budget. Having the WIP read pending changes is still planned. The details are in change events and potential change orders.
Project Financials and company Accounting have distinct records and workflows. An approved project change is not itself a ledger posting; see where the records meet. If you price change orders with the change order calculator but track exposure in your head, start a free trial.
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