Change order matters
Most construction contracts require that changes to the original scope of work be approved in writing. Despite this fact, there are many instances where the parties do not follow the terms of the contract and do not document changes properly.
The parties may not be able to keep up with the required documentation or they may not realize what the contract requires to properly affect a change. However, one of the more common issues that owners and contractors face is whether a purported change is an “extra”. In such cases, costly disputes often arise.
WHAT IS AN EXTRA?
An “extra” is work that is not included within the original scope of work as specified within the contract documents. While extra work may arise for a number of different reasons, it often happens because the owner adds elements to the project. Contractors sometimes assert that extras arise from clarifications. In any event, where the amount or type of work that needs to be accomplished increases, the cost to complete that work can also go up.
HOW ARE EXTRAS PROPERLY DOCUMENTED?
In most construction contracts (including the CCDC 2 Stipulated Price Contract) extras are required to be documented by way of written change orders. More often than not, change orders will specify the scope of the change and the corresponding adjustment to contract price (or, alternatively, a method by which such an adjustment can be made). Adjustments can also be made to the contract time, if any is needed. Change orders require the consent and agreement of the parties, and are not to be confused with change directives—written instruction by a consultant, signed by the owner, to proceed with a change.
WHY DO CHANGE ORDERS MATTER?
In the absence of written change orders, claims by contractors for additional compensation are not easily made. To receive compensation, contractors must prove the following:
- that the extra work they performed is not within their original scope
- the work performed was done at the request of the owner
- the owner promised or represented that further payment would be forthcoming
- the owner waived any contractual provisions requiring changes to be made in writing, or otherwise acquiesced to the change by ignoring those provisions
In considering such issues, the courts will look to the conduct of the parties. Their conduct is often scrutinized over multiple days of trial, through direct and cross-examination. In some instances, adverse findings as to credibility are made.
In recent cases that have come before the courts, the critical issue for examination was whether the owner knew that the work it had requested would increase the cost to the contractor. Where the conduct of the parties indicates that the owner was aware that extras would result in increased cost, the owner may not be able to rely on a contract provision that requires changes to be made in writing in order to refuse additional payments. In these circumstances, the courts often find that the owner has waived the contract provisions requiring written change orders.
However, where the owner has previously rejected the assertion of extras and has stated that additional funds will not be forthcoming, the situation for contractors becomes fraught with risk. Where this occurs, and where the contractor nonetheless performs the extra work without protest, contractor claims have been denied. In these cases, the rationale for rejecting the claim is that performance of the work constitutes an admission by the contractor that the work performed was within the original scope of the contract.
To the extent possible, extras should be documented by change orders that detail the change in scope, price and project time. Where disagreements arise that prevent change orders from being issued because the owner disagrees that the purported work is, in fact, an extra, a contractor may have to perform and may have to do so under formal protest, indicating, among other things, that it disputes the conclusion of the owner and the contractor should maintain its position as to scope and pricing.
This article is provided for general information only and may not be relied upon as legal advice. Matthew Swanson is an associate at Borden Ladner Gervais LLP (BLG). Blair Rebane is a partner with the firm. Send comments to email@example.com.