A Construction Change Directive Is Won With a Cost Code

A construction change directive is a written order to perform changed work before the owner and builder have agreed on its price, its schedule impact or both. The work starts now and the money gets argued later. The builder wins that argument only if the directed work is tracked under its own cost code from the first hour, separate from base scope. Costs that land in the base budget blend with everything else on the job, and blended costs cannot be proven.

What a change directive actually is

On AIA-based contracts the mechanism sits in A201, Section 7.3. The owner and architect sign it, and the builder does not have to. It directs a change in the work and may propose a basis for adjusting the contract sum and time, or it may leave both open. The builder is required to proceed promptly either way.

Other standard forms have the same device under different names. Many residential contracts have no named directive at all. Even so, a signed written instruction that says "proceed, price to follow" does the same job and creates the same exposure. The label matters less than the condition: scope is fixed in writing, money is not.

• Change order: scope, price and time are agreed and signed by both parties. Dispute risk is low because the number is settled before the cost is spent.
• Change directive: scope is in writing, price and time are open, and the owner side signs. Dispute risk depends entirely on the builder's cost records.
• Verbal instruction: scope is loose, price and time are open and nothing is signed. Dispute risk is high and memory is the only record, which is why verbal change orders fail on memory even when nobody is acting in bad faith.

A directive is better than a verbal instruction because the scope is on paper. It is worse than a change order because the builder has spent money with no agreed number to bill against. Everything after the directive arrives is about closing that gap with evidence.

Why the price argument is decided on day one

When the parties cannot agree on a lump sum or unit price, the adjustment usually defaults to the cost of the work plus whatever markup the contract allows. Under A201 the architect determines that amount from the builder's itemized accounting and supporting data. The builder carries the burden. If the accounting is thin, the number is cut.

Here is how the evidence breaks down on a normal job. A framing crew logs eight hours under the framing code, and three of those hours were the directed header change. The lumber for the change arrives on the same delivery ticket as base-scope material. A sub does the extra work and bills it as part of the monthly draw. Three weeks later the project manager estimates the directive cost from memory. The owner's rep asks for timesheets, and the timesheets say framing.

At that point the builder is negotiating over a guess, and guesses get discounted. The owner does not need to prove the builder wrong. The owner only needs to point out that the builder cannot show the number is right.

Open the cost code before the first shift

The fix is mechanical and takes about fifteen minutes. If your codes follow a consistent cost code structure, a directive is just a new bucket hung off it. Do this the day the directive is received, in this order:

1. Number the directive to match the paper, such as CCD-04, and use that number everywhere: timesheets, invoices, logs and photos.
2. Create a cost code for it. Use one code with cost types, or split codes (CCD-04 labor, material, equipment and subcontract), depending on how your books are set up.
3. Set the budget to zero or to the owner's proposed amount. The code is a tracking bucket first and a budget line second.
4. Brief the foreman the same day. Timesheets need the code before anyone swings a hammer on the changed work.
5. Tell every affected sub in writing to invoice directed work separately and reference the directive number. A blended sub invoice is as hard to untangle as a blended timesheet.
6. Tell whoever codes accounts payable which vendors and deliveries belong to the directive, and to split shared tickets by line.
7. Write a daily log entry for every day directed work happens, even if it is one line.

Moving costs out of base scope later is a reallocation. An owner's rep treats reallocations as reconstructions, and reconstructions are the first thing challenged. Parking directed work in the base budget also distorts the job's own numbers. Base scope looks over budget when it is not, or a real base overrun hides behind directive cost. Either way the builder loses visibility on the job and credibility on the claim.

What to record under the directive's code

The code is only as good as what lands in it. Each category needs a source document that someone outside the company can check.

• Labor: names, dates, hours and the task performed, not a crew total. Burden rates come from the contract or from your standard rate sheet.
• Material: invoices and delivery tickets, split by line where a delivery was shared. Record returns and credits too.
• Equipment: rental days from rental invoices, or owned-equipment hours at the contract rate.
• Subcontractors: separate invoices referencing the directive number, with their own backup attached.
• Supervision and general conditions: extra superintendent weeks or site costs, but only where the schedule shows the directive extended the job.
• Daily log: what was done, by whom, any instruction from the owner's rep, and dated photos of the work before it is covered.
• Disruption to base work: note in the log when base crews stopped, waited or were resequenced because of the directive. This is the hardest cost to prove and the one most often dropped.

Track deletions honestly as well. If the directive removed work, the owner is owed a credit. A builder who records only additions invites an audit of everything.

Markup, time and getting paid while the price is open

Overhead, profit and fee on directed work are usually set by the contract. Where they are not, the same logic as any change applies: settle scope before rate, then argue markup on a cost base nobody can dispute. A clean cost code makes the markup conversation short because the base under it is fixed.

Time is separate from money and has its own deadline. Most contracts require written notice of a time impact within a set number of days. Missing that window can waive the extension even if the cost is paid in full. Send the schedule impact as soon as it is known and tie it to the directive number.

Do not wait for the final price to bill. Under A201 the builder can request payment for directive work in progress, and the architect makes an interim determination of the amount. Bill monthly from the directive's code with its backup attached. Each approved interim payment becomes a record that the costs were real and accepted at the time.

When to sign the directive and when not to

In the A201 framework, a builder who signs a construction change directive is signalling agreement with its proposed adjustment to price and time, and the directive becomes a change order. If the proposed number is right, sign it and the dispute is over.

If the number is wrong, do not sign, and do not stop work. Refusing to proceed on a properly issued directive is typically a breach in its own right. Instead, send a short written response within the contract's notice period. State that you are proceeding as directed, that you do not accept the proposed adjustment, and that all costs are being tracked under code CCD-04 and will be submitted with backup. That letter, plus a clean code, is the whole case.

Where BuilderSolve fits, and where it does not

The software keeps directed work separate without a spreadsheet on the side. Estimates are built line by line on a shared rate library, so a directive can carry its own line items and cost code from the start. Change orders keep an audit trail of every edit and approval. Budget vs. actual shows the directive's bucket apart from base scope, and daily logs attach to the job. The client portal lets the owner see the running cost instead of hearing about it at the end. The AI assistant can draft the change order, the daily log entry or the schedule shift from field notes. A person approves or rejects every draft, and nothing posts on its own.

There are limits. The platform reads QuickBooks one way, and QuickBooks stays the book of record, so accounts payable still has to code directive invoices correctly there. Purchase orders are in development and not shipped. Material commitments for directed work are tracked at invoice, not at order.

For builders who are short of people rather than software, the services side does the work itself. The operations team opens the code, briefs the subs and chases separate invoices. The finance team codes AP and assembles the monthly backup. It is priced against the roles it replaces, at roughly 60% less than hiring them.

What to do this week

Pull your current contract and find the directive clause, the notice period for time and the markup terms. Reserve a numbering range for directives in your cost codes, such as CCD-01 through CCD-99, so nobody invents one under pressure. Write a one-paragraph field instruction for foremen and a one-paragraph letter for subs, and keep both ready to send. The next directive will arrive mid-job with a crew standing by. The builder who opens the code before that crew starts is the one who gets paid for the work.

Common questions

What is a construction change directive?

It is a written order, signed by the owner and usually the architect, that requires the builder to perform changed work before price or time is agreed. On AIA contracts it sits in A201 Section 7.3. The builder must proceed. The cost is settled later, usually from the builder's documented cost plus allowed markup, which is why separate cost tracking matters from day one.

Do I have to do the work if I disagree with the change directive price?

Yes, in most contracts that include a directive clause, refusing to proceed is a breach. Do the work but do not sign the directive. Send a written response within the notice period saying you are proceeding, that you reject the proposed adjustment and that costs are being tracked under a named cost code. Then submit itemized backup.

What happens if I sign a change directive?

Under AIA A201, a builder's signature on a change directive signals agreement with the proposed adjustment to contract sum and time, and the directive becomes a change order. Sign only if the stated price and time are acceptable. If either is wrong or missing, leave it unsigned and reserve your position in writing.

How is a change directive priced if the owner and builder can't agree?

It usually falls back to the actual cost of the work plus the overhead and profit the contract allows. The architect or owner's representative decides from the builder's itemized accounting. Timesheets, invoices, delivery tickets and daily logs coded specifically to the directive form that accounting. Blended costs get estimated, and estimates get reduced.

Can I bill for change directive work before the price is final?

Yes, under A201 the builder can request payment for directive work in progress, and the architect makes an interim determination of the amount due. Bill monthly from the directive's own cost code with backup attached. Each approved interim payment also strengthens the final claim, because it shows the costs were accepted at the time they were incurred.