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Written Contracts Modified Orally:  Constructive Change




by:
RB PIERCE A Professional Law Corporation - Brea Office

 
July 19, 2011

Written change order provisions are in construction projects so that, among other reasons, (A) contractors know that they will get paid for additional work and (B) owners have an opportunity to evaluate and expressly approve any changes in the original scope of work, including price and time adjustments.

When contractors give timely notice to their owners of contractual changes, whether the owner formally approves a change or simply gives oral instructions to proceed, courts tend to allow equitable adjustments to price and time for the contractor.  Legally, any work that a contractor performed beyond that required by a construction contract, but required by the owner without a change order as required by the contract, is called a constructive change.

To recover for constructive changes, contractors generally must prove three elements:  (1) the contract work scope was enlarged or otherwise altered; (2) the contractor did not volunteer the additional work; and (3) the owner, or its authorized representative, ordered the extra work done, or, due to an owner fault, or fault of its authorized agent, the contractor did work outside the original work scope.

A classic case demonstrating a California contractor’s rights to further payment for further work, even though the construction contract procedure for written change orders was not followed, is Weeshoff Construction Company v. Los Angeles County Flood Control District.  In that appellate case, Weeshoff contracted with the District to perform construction work that closed traffic lanes on Whittier Boulevard every day. 

The Weeshoff contract required Weeshoff to restore the traffic lanes daily, but without temporary paving or resurfacing.  Weeshoff tried to meet this contract requirement by placing hard sand in the lanes each night, and removing it each morning.  However, the District objected.  The District vaguely directed Weeshoff in writing to comply with the contract, but never stated how Weeshoff could possibly do so.  Orally, referring to the traffic lane surfaces, the District’s senior construction “specialist” simply ordered Weeshoff to “fix it.”

Thereafter, the District itself placed temporary pavement on Whittier Boulevard and notified Weeshoff that the District’s costs in doing so would be deducted from the District’s payments to Weeshoff.  Thus, the District did for itself what the contractor was forbidden to do, and the District charged Weeshoff for the District’s self-help.

Then, following the District’s example, Weeshoff laid temporary pavement to restore the street, each afternoon, and removed that temporary pavement, each following morning.

As it threatened, the District charged Weeshoff for the District’s temporary pavement work but refused to pay for Weeshoff’s temporary pavement work.

In the courts, the Court of Appeal affirmed damages to Weeshoff for the extra work that it performed.  It found that, “[I]t is clear that the district, by its conduct, exerted an intentional attempt to affect a contractual change without complying with the change order provision¿We find¿the district did intend to waive the contractual provision requiring a written change order¿”  Accordingly, the Court rejected the District insistence and reliance upon written change orders only to support extra work payment.

Somewhat contrary to first logic, California case law allows a written contract, including one that requires all modifications to be in writing, to be modified orally.  California Civil Code section 1698 also says so expressly.

Other California courts have used various legal theories to support contractors under similar circumstances, including when an owner promised to pay without a change order but later did not do so, when an owner declared that a change order was not needed but later changed its position to require a change order, and when an owner intentionally misrepresented or misinterpreted requirements in the contract, plans, or specifications, upon which misrepresentation or misinterpretation the contractor relied in order to perform the extra work.

In sum, California courts recognize that it is not fair or just for an owner to cause a contractor to exceed the negotiated or bid contractual work scope, for which there were negotiated or bid price and time terms, whether or not contractual requirements for a written change order are met, without an equitable adjustment being made to the price and time terms of the original contract.  Without reasonable compensation, such an owner could profit by its own misconduct and be unjustly enriched by receiving construction improvements without paying for them.

The practical construction management tip from this law is that, on one hand, if an owner, public official, or owner’s representative orders extra work, outside the original work scope, the contractor should request a change order and proceed with the work under written protest.  Under most contracts, the contractor cannot properly refuse an owner’s direction to perform extra work, even if a written change order is not, or cannot be later, negotiated. 

On the other hand, the law rarely requires contractors to accept payment or time changes on extra work if the contractor has not agreed to such payment or time changes.  Generally, when a contractor performs extra work, the contractor is entitled to negotiate or bid specifically for that extra work’s price and time adjustments.  Moreover, if the owner and contractor cannot or do not reach agreement on changed price and time for changed work, to protect the contractor’s rights, the law will impose an equitable adjustment upon the owner.

Ronald B. Pierce is a California attorney and President of RB PIERCE, A Professional Law Corporation, 949.244.9367, www.rbpierceaplc@gmail.com.  He practices construction law, primarily representing contractors.  He is an active member of the Associated General Contractors of California, including its AGC’s Legal Advisory Committee, attending its monthly meetings and annual retreats.  This article in one in a series called “Caveat Contractor ("Contractor Beware"): Lessons in the Law”©.



 

The views expressed in this document are solely the views of the author and not Martindale-Hubbell. This document is intended for informational purposes only and is not legal advice or a substitute for consultation with a licensed legal professional in a particular case or circumstance.
 

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