As anyone experienced in construction knows, the situation where a project goes exactly as planned, from the beginning to completion, is the rare exception rather than the rule. For this reason, most contract documents provide some means to modify the contract and/or the contractor’s scope of work to facilitate changes needed to achieve the basic objectives of the project. However, it is an unfortunate fact that the required procedures to process a change order are many times not followed in the field, and this usually leads to disputes over the contractor’s entitlement to compensation for “extra” work. Many times, contractors accept verbal representations that payment terms for any additional work will be handled at some future point to avoid any disruptions in the project schedule. Contractors accepting such representations may find the contract language being used later as a defense to compensation for the additional work notwithstanding the earlier verbal understanding, leading to expensive litigation for all involved. Consequently, it is imperative for all parties involved in the construction process to understand the specific requirements to seek compensation for additional work and to follow such requirements to the letter. By not following the procedures for change orders set forth in the contract, all parties run the risk of protracted litigation to sort things out after the project is completed.
One of the most common mistakes is the contractor’s failure to timely provide notice of additional and/or changed work. Most contract documents will require some type of written notice within a limited period of time. Moreover, the required notice may need to be provided to a particular individual and contain specific information to be effective. In addition, there may be a requirement to submit the notice by a particular means, such as certified mail, and the contractor may also be required to submit copies to other parties, such as the architect, owner or other interested party. It is not uncommon for the contract documents to note that any failure to follow such procedures and/or perform any work without a signed change order will constitute a full waiver of any rights to additional compensation, regardless of whether the contractor was directed to perform outside its original scope of work for a project.
Even where notice or a request for a change order is properly given, the risk of waiver may continue depending upon the procedures at issue. Some contract documents will incorporate multiple steps that need to be followed to secure additional compensation, and the failure to meet the requirements of each and every level of the process may constitute a waiver. Different procedures may also apply to particular types of changes, such as a request for additional compensation versus a request for additional time. Further, the time required for these procedures and/or delays in processing the request may make it impractical to avoid performing the additional work as the project will be disrupted. In such circumstances, the construction manager or other upper-tier party may have already disputed the contractor’s position and stated that any delays in performing the work will result in a back charge and/or liquidated damages. If the contractor performs without a signed change order, however, it may waive its rights to seek additional compensation. To avoid this trap, the contractor may be compelled to initiate the claims process, if one is available in the contract documents, containing its own set of procedural requirements. In these situations, special care should always be taken to properly interpret the contract documents which may be drafted to increase the risk of waiver by the contractor.
Where a contractor has not timely or properly followed the change order procedures, it may yet have a valid claim for payment for the work. For example, if the construction manager has previously executed change orders, even though the proper procedures were not followed, and then disputes a later request for a more substantial change order, the contractor may argue that the procedures for the change order were waived by course of conduct. Depending upon the strength of the contract language, the contractor may also be able to reference e-mail communications, letters and project meeting minutes for the proposition that effective notice was provided and that the construction manager or other responsible party, through its acts or omissions, impliedly recognized the request and must consider the claim. Alternatively, if the construction manager previously instructed the contractor to perform through some writing, then perhaps this instruction can be characterized as a field work order or fall within another contract section which may provide the contractor with additional flexibility on when and how to submit its request for additional compensation. Other options may exist depending upon the underlying facts and the contract documents. Of course, it is important for the contractor to react quickly and strategically when faced with this situation, and appropriate guidance from legal counsel may be advisable where contract rights are susceptible to a claim of waiver.
In line with the above, it is critical that all parties understand the change order process before beginning work and have knowledgeable representatives in place to anticipate and react to scope issues as they arise. The mandated procedures to initiate a change order must be followed, and appropriate documentation of all communications and costs associated with the additional work must be contemporaneously generated and maintained. However, even if the contractor has failed to follow the required procedures, there may be potential options available to avoid a claim of waiver or other contractual defenses.