“Do Change Orders Need to be In Writing?” and Other Things That Might Surprise You.
[This article was written by Wendel Rosen’s Construction Practice and appeared in The Wendel Report: Construction and Infrastructure Update, August 2016.]
You’ve likely heard it before or maybe you’ve even said it yourself: “Go ahead and get started, we’ll get you a change order later.”
The only thing is, “later” never happens, and after you’ve finished performing the work you find yourself in a fight over whether you’re entitled to get paid for the work you performed.
So, do you need a written change order to get paid for extra work you performed? Read on, you may be surprised.
First things first. What is a change order?
A change order is a term commonly used in the construction industry and is simply an amendment to a construction contract. More specifically, it’s an amendment which affects the scope of work by either changing, deleting, or adding additional work and which often, but not always, also affects the cost and/or time for completion of that changed work.
Sometimes a distinction is made between “change orders” (COs), which are also known as “construction change orders” (CCOs), and “change directives” (CDs), which are also known as “construction change directives” (CCDs). A change order is an amendment to a construction contract which is mutually agreed to by the parties. A change directive, on the other hand, is an amendment to a construction contract which is issued unilaterally by or on behalf of a project owner. A change directive is usually issued when changes to the scope of work and/or the cost or time for completion of that changed work have not been agreed to be the parties, and in order to keep the project on schedule a change directive is issued unilaterally by or on behalf of the project owner, with any adjustments to cost and/or time to be decided later or by alternate means set forth under the construction contract.
In addition, while the terms used vary, with some people calling them “change order requests” (CORs) and others calling them “proposed change orders” (PCOs), change order requests are typically used when a change order is being requested by a contractor and is usually accompanied with supporting documentation justifying the need for the change order, proposed pricing, and any changes to the project schedule.
Do change orders need to be in writing?
It depends in part on your construction contract. If your contract is silent as to whether written change orders are required as a condition of getting paid for your work, then a written change order isn’t necessary, although it’s still good practice to use written change orders to help avoid disagreements over scope, pricing and project completion. If your contract is silent as to whether written change orders are required, and you later get into a dispute over whether you are entitled to get paid for changed work, there are several legal theories that can be pursued to get paid, including:
- Breach of Contract: Depending on the language in the construction contract you may be able to pursue either a breach of written contract claim or breach of oral contract claim. A breach of written contract claim, which has a four (4) year statute of limitations in California, would apply if there is language in the contract which can be reasonably interpreted to require that extra work be paid. A breach of oral contract claim, which has a two (2) year statute of limitations in California, would apply in the absence of written language but instead on the verbal (i.e., oral) direction of either the project owner or higher-tiered contractor that extra work be performed and a promise to pay for that extra work.
- Quantum Meruit: Quantum meruit is a legal theory which applies in the absence of a contractual provision governing the payment of changed work and is an equitable remedy intended to compensate a party for the reasonable value of work he, she or it has performed.
- Unjust Enrichment: Unjust enrichment is a legal theory which, like quantum merit, applies in the absence of a contractual provision governing the payment of change work, but unlike quantum merit, is intended to prevent one party from gaining the benefit of work performed by another party.
So, what if the contract requires that change orders be in writing?
If your construction contract requires that change orders be in writing, as most construction contracts do, then they should be. However, even if your contract requires that change orders be in writing, you may still be able to get paid for work performed without a written change order under two possible legal defenses:
- Waiver: Waiver is an equitable defense which looks at whether a party waived enforcement of a written change order requirement either in writing, orally, or through conduct.
- Estoppel: Estoppel is an equitable defense which looks at whether a party should be prevented (i.e., estopped) from enforcing a written change order requirement. Unlike waiver, which looks at the intent of the party relying on a written change order requirement, estoppel looks at whether a party should be prevented from enforcing a written change order requirement because it would be unfair to enforce such a requirement on a party who has detrimentally relied on the other party’s promise to pay for extra work. It is presently unclear whether estoppel is a recognized defense in California to a written change order requirement.
Note: Waiver and estoppel are not equitable defenses available against a public entity on the public policy grounds that such defenses are outweighed by the need to protect and limit a public entity’s contractual obligations.
Can issuing too many change orders (or significant change orders) effect a claim for extra work?
Yes. There may be situations where the number or scope of changes on a project exceeds what either party anticipated at the time they entered into their construction contract. In such situations, agreed to contractual provisions may not adequately compensate a contractor, for example, for overhead, and a contractor may be permitted to look beyond the contract’s terms for a remedy. In California, courts apply one of two different legal doctrines to such situations, abandonment and cardinal change, which differ based on the damages recoverable:
- Abandonment: Abandonment applies to private works contracts only. Under the abandonment doctrine a contractor is entitled to recover its total costs (less payments received) for work done before and after the contract was abandonment.
- Cardinal Change: Cardinal change applies to public works contracts only. Under the cardinal change doctrine a contractor is only entitled to breach of contract damages for the additional work causing the cardinal change.