Verbal change orders — actions speak louder than words
Question: We are a general contractor specializing
in ground up construction of chain restaurants. The project
owner is an out-of-state corporation, one who ultimately sells
the property and improvements to a franchisee once the project
is completed. Typically, during the construction phase the
franchisee periodically inspects the jobsite and observes
progress. The corporate owner has a local project manager
who acts as the owner’s representative and we deal directly
with him for everything. Our contract, as is typical with
most contracts we enter into, requires change orders to be
in writing and must be signed before any of the work is performed.
It is spelled out in the contract that if we are to get paid
for these extras, we must follow the procedure.
On this particular project, the franchisee was more involved
than he should have been. Initially, he would arrive and make
suggestions for simple things, which we were willing to do,
but told him that he must first have the project manager issue
a change order to make it official. We got change order documents
for some of the work and those are not in dispute. But things
got a little sloppy and we just ended up with a lot of verbal
approvals from the project manager, with the paperwork following
a week or so later. These are not in dispute either. As the
project started to take on a recognizable form, the franchisee’s
change requests increased in frequency and intensity.
To make matters worse, the project got delayed because of
an equipment delivery problem, which was no fault of ours.
The project manager asked us to help him get back on schedule
by performing numerous changes requested by the owner without
waiting for the written change order documents. He assured
us that he would create the necessary paperwork to match the
completed changes after things settled down.
Then, as the project got back on schedule, we even started
getting email change requests from the franchisee, which we
forwarded to the project manager. If the project manager was
at the jobsite, he would sometimes tell our foreman to go
ahead with the franchisee’s extras. A couple of times,
our crew first went ahead and did the extras because the work
was ready to go forward, and then showed the project manager
what they had done and he seemed okay with it. Now the project
is nearly over and we were told that we were not going to
get any additional money for the changes requested by the
owner or the franchisee because we didn’t get it in
writing ahead of time.
The project manager told us his corporate management won’t
budge on this, despite our good faith efforts to follow the
project manager’s directions. We feel we got tricked
by the project manager, whether it was intentional or not,
and we are out approximately $75,000 for the extra work. The
whole situation doesn’t seem right, but we did sign
a contract and we did knowingly go against the contract terms.
Do we deserve payment, or should we let it go and chalk it
up to a hard lesson learned?
Answer: Your story is one that I am sure
many readers can identify with. First, you need to understand
the difference between true “change orders” and
“extra work”. A change order alters the original
contract by increasing, decreasing, modifying or eliminating
some aspect of the contracted work. True “extra work”
means work that is outside of, and entirely independent of,
The parties did not originally contemplate “Extras”
when they made the contract and not controlled by the contract.
In reality, it is not often clear-cut and the words are used
interchangeably in the industry. An example of a true extra
may be if your scope of work did not include landscaping,
and the owner came to you later and asked you to do that work.
Agreements to do true extras may be considered separate contracts.
If the extra work is successfully argued to be a new agreement
and not part of the original contract then it would not be
subject to the contract’s written change order procedure.
Also, many contracts expressly allow an owner to add to, or
expand, the scope of work relating to the project. So, in
the example above, a contract with that type of language may
allow the addition of the landscaping under the original contract.
But, even if you are dealing with true change orders, all
hope is not lost. While it makes life easier to get all change
orders in writing before you do the work (even if the contract
does not require it) there may be two strong arguments that
you should be paid despite the lack of written change orders.
First, the project manager’s suggestion to temporarily
suspend the written change order requirement can be considered
a modification to the contract’s change order procedure.
A written contract can be modified orally if the parties carried
out the oral agreement.
In your case, you both agreed to do
the work before the change order papers were prepared. And,
both parties carried out the oral agreement to modify the
procedure — he verbally ordered the changed work, and
you performed the changes without the paperwork. Second, the
project manager’s conduct may have waived the owner’s
right to enforce the written change order requirement for
the franchisee’s changes. It is established in construction
law that the parties, by their conduct, can waive the written
change order requirement by assenting to a change in the contractor’s
work. In your favor are the emails that you received and forwarded
to the project manager. Thus, he was aware of the change requests
made in advance of your performance. And, then he either gave
a verbal approval for the work to be done, or viewed the work
that was done after it and accepted it without complaint.
So, in effect, you could argue that his conduct (approving
the work before or after it was done) showed assent to the
changed work and thus, waived the requirement for written
change orders. Unfortunately, many contractors don’t
realize that these, as well as other laws, exist. They think
they have no rights if they fail to get written change orders
when required by contract. If you want to get paid, you need
to firmly stand up for your rights and offer to resolve the
matter, perhaps suggest mediation. If they do not agree, let
the owner and franchisee know that you are not afraid to file
a lawsuit to collect. Throughout this process, you need to
keep in mind the deadlines for recording a mechanic’s
lien and then foreclosing on it, which you will want to do
along with any breach of contract type lawsuit you may file.
• • •
Disclaimer The information in this article is based upon California
law and is for general information only. Any information or
analysis presented here is intended solely to inform and educate
the reader on general issues. Nothing presented or referenced
to, regarding facts, documents or applicable laws, constitutes
legal advice. Before acting or relying on any information,
including any information presented here, consult with a qualified
attorney for your specific situation.
Scholefield holds an active PE license in Colorado, an undergraduate
engineering degree from the University of Florida, and received
her JD from the University of San Diego. Source Code: 20080418tca
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