WHEN CAN CONSTRUCTION CONTRACTORS & SUBCONTRACTORS RECOVER FOR EXTRA WORK OR CHANGES TO THE WORK WITHOUT WRITTEN, SIGNED CHANGE ORDERS?

Oral or written requests to perform extra work outside the scope of the original written contract, or requesting a change to the work described in the contract, drawings or specifications are common on construction projects, but typically are reduced to writing and handled by a written Change Order signed by the parties for a fixed dollar amount and fixed days extension of the contract completion date, BEFORE the extra work or change to the work is performed.

Those ChangeOrders, when signed constitute or become a formal amendment to the contract or subcontract between the parties, typically adding to or changing the scope of work and the total dollar amount of the contract or subcontract, and often also changing the deadline for completion of the work - or the contract time - due to the effect of the changed or extra work on the costs of the job and on the time needed (or the Critical Path) for the completion of the project.

Contracts and subcontracts often state that the contractor or subcontractor is not entitled to ANY additional money or any additional time to complete the project if a written Change Order is not signed by the parties BEFORE the extra work or changed work is performed.

These provisions are typically strictly enforced by the Courts, so it is very risky for a builder to do extra work or changes to the work without a written Change Order signed in advance BEFORE the work is done!

Some contracts and subcontracts may also provide that if the parties are unable to agree on the price, time extension, or other terms of a proposed Change Order (“PCO”) in advance, the superior party may issue a written “Change Directive”, ordering the builder to perform the extra work or changed work, and requiring the contractor or subcontractor to keep daily records of the material and labor costs caused by the change, and the effect on the contract time. Under these provisions, the builder then usually must make a written “Claim” under the claims provision of the contract for the extra costs and time involved.

If good contemporaneous cost and time records are kept by the contractor or subcontractor, sometimes the parties will thereafter be able to agree on the amount of this claim and convert it into an agreed signed Change Order after the fact.

However, sometimes in the rush to get the job done the owner or general contractor may verbally request that changes be made or extra work performed, without issuing a written formal Change Order or Change Directive.

This is NOT good practice for any party, and often leads to later disputes or even litigation. However, sometimes these oral or verbal changes may be considered to be modifications to the written contract if the requested work has been completed or performed, or fully “executed” in legal parlance. See, Ferelli v. Weaver, 210 Cal. App. 2d 108, 115 (1962).

§ 1698. Modification of written contract:

“(a) A contract in writing may be modified by a contract in writing.

(b) A contract in writing may be modified by an oral agreement to the extent that the oral agreement is executed by the parties. . . .” (Emphasis added).

Civil Code § 1698

Under these authorities, even if the contract or subcontract contains an express requirement that all changes to the contract must be made in writing and signed as a Change Order or Change Directive - as usual in many or most construction contracts - the Courts have held in a number of cases have held that contractors may nevertheless recover for the reasonable costs of that extra work where the parties, by their conduct in ordering and performing extra work without a written Change

Order or Change Directive, may have effectively “waived” the contract requirements for written Change Orders.

This legal exception is even reflected in a California Jury Instruction. C.A.C.I. § 4522. However, the general rule of law is that “waiver” of the written change order requirement must be proven by “clear and convincing evidence”, or more than a mere preponderance of the evidence (51%), but less than beyond a reasonable doubt. Ibid; Ukiah v. Fones (1966) 64 Cal.2d 104, 107–108.

This is thus a higher - or more difficult - burden of proof at trial than in most breach of contract or civil cases!

But in the case of residential “Home Improvement’ or remodeling contracts, the law or statute applicable to such otherwise highly regulated private consumer protection contracts under Bus. & Prof. Code § 7159 - while requiring written change orders on such projects - also expressly allows a contractor to recover for the value of the extra work without a written change order.

“(a) An extra work or change order is not enforceable against a buyer [or property owner] unless the change order sets forth all of the following:

(1) The scope of work encompassed by the order.

(2) The amount to be added or subtracted from the contract.

(3) The effect the order will make in the progress payments or the completion date. (b) The buyer may not require a contractor to perform extra or change-order work without providing written authorization.

(c) Failure to comply with the requirements of this section does not preclude the recovery of compensation for work performed based upon legal or equitable remedies designed to prevent unjust enrichment. . . . .”(Emphasis added).

Bus. & Prof. Code § 7159.6.

Subsection (c)’s reference to “unjust enrichment” usually means that a contractor may recover the reasonable cost or value of the work in the marketplace, NOT the actual or excessive costs plus excessive markups for overhead or profit.

However, for these exceptions to apply, the extra work request must usually come from someone with substantial authority in the company or organization requesting the extra work, not just field personnel such as a foreman, inspector, architect, engineer or project superintendent.

Nevertheless, these exceptions to the Change Order requirements likely only apply to private construction contracts between two private parties that are not located on public property. Because government or public projects are highly regulated under the law and are subject to competitive bidding and other restrictions, these exceptions to the written change order requirements likely DO NOT apply in most cases.

“California cases uniformly refuse to apply special rules of law simply because a governmental body is a party to a contract,” in an effort to convince us the law of contract modification in the private sector applies equally to public contracts. While ordinary contract rules apply to public contracts in some contexts, the Supreme Court has explained that “public works contracts are the subject of intensive statutory regulation and lack the freedom of modification present in private party contracts.” (Amelco Electric v. City of Thousand Oaks (2002) 27 Cal.4th 228, 242 [115 Cal. Rptr. 2d 900, 38 P.3d 1120], italics added (Amelco).)”(Emphasis added).

P&D Consultants, Inc. v. City of Carlsbad, 190 Cal. App. 4th 1332, 1343 (2010) In all cases, because of the difficulty of proof at trial, because of the higher burden of proof at trial, and because of the risks and costs of possible future litigation, it is obviously best to get a formal written request, Change Directive or Change Order signed by the other party to the contract or subcontract BEFORE performing anyextra work or making changes to the plans or contract scope of work.

If a written Change Directive is given by the owner or general contractor and there is no agreement beforehand on the costs of the extra work ordered or extra completion time needed, care must be taken to carefully document every day on a daily basis the extra labor hours and materials costs needed to perform the extra work or changes to the work, so that you can prove the actual costs of that work should a dispute over the actual cost later arise, in Court, arbitration, mediation or otherwise.

And always make sure that the Change Order or Change Directive claim includes a provision extending the contract time period or completion date by X days, if the change or extra work will have an effect on the time to complete the project.

Unless the contract or subcontract contains a provision allowing the other party to force or direct you in writing to do the extra work pursuant to a Change Directive, on a time and materials basis (or similar language), you cannot otherwise be ordered or forced to do extra work or make changes to the work without a signed written Change Order being agreed to in writing and signed BEFORE the extra work is done.

On some projects where there a large number of Change Orders or Change Directives issued, such that the basic nature of the project has changed substantially and/or the individual costs of and time effect of each change becomes extremely difficult or impossible to calculate, the Courts may find that the other party has “abandoned” the original contract or subcontract, and allow the contractor to recover the total costs of the contractor’s or subcontractor’s work on the entire project, plus some reasonable amount for overhead and profit, or the ‘reasonable value” of its work on the entire project.

“Under the abandonment doctrine, once the parties cease to follow the contract's change order process, and the final project has become materiallydifferent from the project contracted for, the entire contract--including its notice, documentation, changes, and cost provisions--is deemed inapplicable or abandoned, and the plaintiff may recover the reasonable value for all of its work.” (Emphasis added).

Amelco Elec. v. City of Thousand Oaks, 27 Cal. 4th 228, 239 (2002).

However, again, because public construction contracts are competitively bid and otherwise subject to much regulation, this “abandonment” doctrine and total cost recovery does not apply to public works construction projects.

So the lesson here is, in general, do NOT do extra work or make changes to the work based on oral demands, requests or threats, and always insist on a written Change Order or written construction Change Directive.

While there are legal doctrines or precedents which might save you if the case goes to Court, it is best to try to avoid that route and get requests and agreements regarding extra work and changes to the work in writing, BEFORE extra work or change in the work is performed!!.