Work started before a change order was approved: what finance should track

The crew has already installed the additional work, the supplier has billed for material, and the change order is still unsigned. Finance needs to establish what happened without treating an expected negotiation outcome as a completed sale. Open a distinct change record that connects the instruction, incurred cost, proposed price, and current approval status.

AIA distinguishes a change order, where the parties agree on the adjustment, from a construction change directive under its contract structure, which can direct work before cost or time is settled. Informal work with disputed authorization is a further situation. Identify which arrangement actually applies; the absence of a final price does not mean all three situations have the same rights or risk.

Use one change identifier on time entries, purchase orders, delivery tickets, subcontractor records, photos, and correspondence. Link it to the original contract scope and the instruction that caused the work. Explain the difference in plain language: additional outlets, revised excavation depth, substituted material, or another specific change.

Keep requested, directed, priced, agreed, billed, and collected amounts in separate fields. A request for quotation may be evidence of a discussion, but it is not automatically permission to spend. Ask the project manager or contract adviser to resolve unclear authority while the evidence is fresh. Do not bury that issue in a generic unbilled-revenue balance.

Daily labor records should explain the activity, hours, crew, and equipment. Retain deliveries and quantities used, including material taken from stock. If the change disrupted original work, record the disruption separately from the additional installation. Combining them can make both the cost analysis and the commercial discussion harder to support.

Use actual supplier and subcontractor records as they arrive. Where work has occurred but a bill is pending, document the quantity, agreed purchasing terms, and estimate used for the close. Replace that estimate with the actual bill through a visible reconciliation. Adding the invoice without reversing or clearing the estimate counts the same cost twice.

Keep the evidence proportional to the exposure. A small adjustment may need a short record; a material or disputed change may need a detailed daily account. The aim is an understandable record of work performed, not a pile of attachments with no connection to the requested recovery.

Suppose, hypothetically, $18,000 of change costs have been incurred, another $4,000 is expected to finish the work, and the contractor has requested a $30,000 price. The full-recovery scenario leaves $8,000 before any omitted costs. A $24,000 settlement leaves $2,000. The cost-to-complete estimate is the same in both scenarios; the difference is the recovery assumption.

These are management scenarios, not instructions to recognize either amount as revenue. The accounting reviewer needs the contract, authorization evidence, remaining work, entitlement assessment, and relevant reporting policy. A confident project-manager forecast is useful input but does not replace that review.

Avoid reducing recorded cost merely because recovery is uncertain. Keep the economic event and its possible recovery visible. If the company expects a loss or another accounting adjustment, document the applicable analysis rather than hiding the exposure by removing the change from the report.

When the price and time adjustment are settled, connect the signed change to the original pending record. Preserve the submitted amount, negotiated reductions, and final amount so management can see whether the difference came from scope, rate, unsupported cost, or another reason. This history can improve later proposals.

AIA's G701 instructions distinguish previously authorized change orders from directives that have not yet become agreed change orders. Use that distinction to check the contract-value rollforward. A directive later formalized as a change order must not increase the contract value twice simply because both documents appear in the project folder.

At each close, ask for the latest action, next decision date, responsible person, cost still exposed, and forecast treatment. A long list sorted only by dollar amount can overlook a small change approaching a contractual notice or submission deadline. Have the contract owner identify applicable deadlines and required notice methods.

Keep disputed, withdrawn, and rejected changes visible until the financial consequences are resolved. Close the record only after cost, contract value, billing, and any settlement have been reconciled. An operational status of complete should mean the field work is finished; it should not silently declare that every financial question has been answered.