A common dispute handled by construction attorneys is the contractor or subcontractor attempting to recover for change order work when there is no written, signed change order. A majority of construction contracts do provide that change orders must be in writing and signed by the owner in order to be valid and payable. Similarly, most subcontracts have the same requirement as between the general contractor and the subcontractor. A contractor should insist on a written, signed change order to perform work, whether or not it’s in the contract.
It is not uncommon for contractors and subcontractors to be directed to perform change order work on the promise of a written, signed change order. The contractor should insist on a written, signed change order prior to commencing work or ordering materials, however. There is at least one practical approach a contractor can follow, as well as various legal arguments available, to attempt to recover for change order work that is not evidenced by a written, signed change order.
Keep in mind that these arguments can be made in attempt to get around the signed change order requirement. Most of the time an owner or general contractor is going to have the stronger argument in arbitration or litigation if there is a contractual requirement for a written, signed change order that cannot be produced. The following theories may bring relief of this requirement to the contractor or subcontractor not being paid.
Use of a confirmation letter or email combined with a legal theory known as “promissory estoppel” may work in the place of a promised written, signed change order when a contractor is directed to do change order work. The confirmation letter or email should confirm the request to perform change order work for a certain price and confirm that a written, signed change order has been promised, but that the contractor has been directed to proceed. Most importantly, it should state that reliance upon the owner’s promise to provide a written, signed change order and to pay for the work to be done; that the contractor will proceed with the change order work requested. The letter closes with a request that if any part of the contractor’s understanding is incorrect that the owner should advise the contractor in writing immediately.
The theory is that absent a written response by the owner to the contractor, the contractor can use the letter plus the promissory estoppel theory to recover for change order work. The promissory estoppel defense/cause of action seeks to enforce a promise when the following four elements exist: (1) a promise; (2) foreseeability of reliance thereon by the promisor; (3) substantial reliance by the promisee to his detriment; and (4) injustice can only be avoided by enforcing the promise.
A concept similar to the promissory estoppel is that of equitable estoppel, which may arise if five factors are satisfied: (1) there was a false representation or a concealment of material facts; (2) made with knowledge, actual or constructive, of those facts; (3) to a party without knowledge, or the means of knowledge, of those facts; (4) with the intention that it be acted upon; and (5) the party to whom it was made must have relied on the misrepresentation to his prejudice. The theory is that a person who by speech or conduct induces another to act in a particular manner should not be permitted to adopt an inconsistent position, attitude, or course of conduct.
Another possible argument is that the owner waived the right to have the change order in writing and signed. A waiver is an intentional relinquishment of a known right or intentional conduct inconsistent with claiming that right. If, for example, the owner, or owner’s representative, such as an architect, has actually directed the contractor to perform the change order work in some type of writing, there may be a waiver. Another example may be a practice of paying for oral change order work in the past.
In certain situations, the contractor may argue that the owner was the first to breach the contract, or was already in breach of contract prior to performance of the change order work. Say that the owner had already failed to pay an application on time when the contractor performed change order work. There is a concept in law that a party breaching a contract may not thereafter rely on or enforce the contract. It is a well-established rule that a party to a contract who is himself in default cannot maintain a suit for its breach.
Probably the most common argument for those faced with a written, signed change order requirement with which they have not complied is under the theory of quantum meruit. To recover under quantum meruit, a claimant must prove that: (1) valuable services were rendered or materials furnished; (2) for the person sought to be charged; (3) which services and materials were accepted by the person sought to be charged, used and enjoyed by him; (4) under such circumstances as reasonably notified the person sought to be charged that the plaintiff in performing such services was expecting to be paid by the person sought to be charged. Typically, recovery under quantum meruit is not available when there is an express contract. Because of a unique treatment in Texas of construction contracts, there is an exception to the foregoing under Texas law; construction contracts are treated differently from virtually all other contracts in that substantial performance, rather than absolute performance, of the contract is the standard.
Finally, for the desperate contractor or subcontractor trying to argue their way around the lack of a written, signed change order, there may be an argument available that the work was new work that fell outside the contract, rather than change order work. This is a fact-specific, case-by-case argument. ■
About The Author J. Paulo Flores is a shareholder in the firm of Ford Nassen & Baldwin P.C. and resident in the Dallas office. He serves as both a mediator and arbitrator for the American Arbitration Association on its construction, commercial law disputes, and large-cases panels. Mr. Flores also served as an associate municipal judge for the City of Dallas for more than five 5 years. He can be contacted at email@example.com.
Modern Contractor Solutions, October 2014
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