April 27, 2016

Three Rules for Every Change on Every Construction Project

A construction contract without a changes clause is like a boat without a captain. The boat will never reach its destination, and the construction project will never reach proper completion. The changes clause protects owners against scope and price increases without written permission and protects contractors against unfair directives without appropriate increases in time and price.

Is the Changes Clause All the Protection I Need?

The over-simplistic answer is yes. If you are vigilant in following the changes clause, it will be enforced: for more than 100 years, U.S. courts (including the Supreme Court of the United States) have enforced changes clauses to bar claims for extra work that were not authorized in accordance with the contract. See, e.g., 1 Bruner & O'Connor Construction Law §§ 4:3 and 4:38, citing, Plumley v. U.S., 226 U.S. 545 (1913).

The better answer is maybe. Parties to construction contracts have a habit of authorizing extra work without formal written approval, and “the modern trend is to allow recovery for authorized extra work, even if not documented by a formal writing, in order to keep the project moving.” 1 Bruner & O'Connor Construction Law § 4:38. Courts have used a variety of separate legal grounds to uphold claims for extra work even when it was not authorized under the changes provision, including: 1) waiver, 2) formation of a separate express, oral or implied contract, 3) unjust enrichment, and 4) breach of the implied duty of good faith and fair dealing. See 1 Bruner & O'Connor Construction Law § 4:39.

The Anti-Waiver Clause Will Protect Me, Right?

In an effort to resist the modern trend, industry contract drafters have started including “anti-waiver” clauses in their contracts. See 1 Bruner & O'Connor Construction Law § 4:40, n. 1, quoting the AIA Document A201-2007 at § 13.4.2:

No action or failure to act by the Owner, Architect or Contractor shall constitute a waiver of a right or duty afforded them under the Contract, nor shall such action or failure to act constitute approval of or acquiescence in a breach there under, except as may be specifically agreed in writing.

These provisions have had little impact on appellate courts due to the “overriding principle that any contract clause may be modified or waived expressly or impliedly by persons with requisite contracting authority.” 1 Bruner & O'Connor Construction Law § 4:40, citing, .e.g., Wisch & Vaughan Const. Co. v. Melrose Properties Corp., 21 S.W.3d 36 (Mo. Ct. App. S.D. 2000).

The Three Rules

Based on our review of the case law referenced above, we have identified three best practices when faced with changing circumstances and no written change order:

  1. Do not stop working. Contracts typically require a contractor to proceed with performance of ordered work pending a resolution of any disputes over adjustments to the schedule and the contract price. And as a general rule, a contractor’s unexcused refusal to perform constitutes a material breach of a contract. See, e.g., 1 Bruner & O'Connor Construction Law § 4:49.
  2. Give notice right away. If it is not clear whether the owner has “ordered” a particular change, it is advisable for the contractor to provide notice to the owner that it deems a set of circumstances as calling for extra work. See 1 Bruner & O'Connor Construction Law § 4:41. This notice allows the owner to consider whether a contract change has occurred, and by directing the contractor to proceed with the work after such notice, a constructive change order may be deemed to have been issued in the absence of a formal change order. Id.
  3. Document the change. Where contracts require written orders before changes that may affect the contract price or schedule, contractors should attempt to obtain a written order before proceeding with the changed work. However, if that fails, contractors should do what they can to document their communications and the directives they are given so they can later establish the potential waiver of the contract’s requirements for written change orders or other circumstances meriting relief.

The material contained in this communication is informational, general in nature and does not constitute legal advice. The material contained in this communication should not be relied upon or used without consulting a lawyer to consider your specific circumstances. This communication was published on the date specified and may not include any changes in the topics, laws, rules or regulations covered. Receipt of this communication does not establish an attorney-client relationship. In some jurisdictions, this communication may be considered attorney advertising.

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