Project owners often attempt to increase the scope of the agreed-upon work after the contract has been signed. In an effort to get along, unsuspecting contractors may agree to perform the work without first executing a change order or creating other documentation that reflects the increased scope. Whether under a lump sum, time and material, or cost-plus contract, failing to get a signed change order first could have drastic consequences.
Most, if not all, construction contracts contain provisions requiring written change orders as a precondition to a contractor obtaining an increase in the contract price or contract time to cover the additional work. For example, prime contracts often contain language stating that:
“No extra work or changes under this contract will be recognized or paid for, unless agreed to in writing before the work is done or the changes made.”
Thus, when the owner and contractor have not agreed, in writing, to a price adjustment before the extra work is performed and a dispute arises regarding the value of the additional work, an owner may try to hide behind the terms of the contract and refuse to pay for the extra work. Arguments often made by owners to avoid liability for extra work and to enforce these types of clauses include: (1) that the price was never agreed upon; (2) if we knew the price, we would have told you not to proceed; and (3) that this wasn’t extra work, which is why there was no change order.
Based upon empirical evidence, courts generally buy into an owner’s argument and will enforce these sorts of contract clauses. Further, courts often presume that an experienced contractor knows how to follow the contract and that the contractor is proceeding at its own risk if it chooses not to follow the contract. While there are some legal arguments that attorneys can use to argue against enforcement of these clauses – such as waiver due to a course of conduct where the change order process is repeatedly disregarded – the contractor should avoid having to make these arguments in the first instance.
The general contractor may also be on the hook to pay a subcontractor for extra work even though the owner is not legally obligated to pay the contractor. The best way to avoid this result with certainty is to insist that the change order process in the prime contract is followed by the parties. In addition, the contractor’s subcontract should have language limiting the contractor’s liability when the owner fails to pay, such as a pay-if-paid clause.
In short, while getting along may be important, don’t be fooled into ignoring your contract. Insist that the contract terms are followed, especially the change order provisions, otherwise you may be left holding the bag.
If you have any questions or need assistance, please contact one of Woods Aitken’s Construction Attorneys. For additional construction news, tips, and updates, we encourage you to view our Construction E-brief archives.