01.10.2012 Another Reminder on Change Orders: “Don’t Worry” About Payment for Extra Work Is Not Enforceable
The importance of following change order provisions in a construction contract was emphasized yet again in a recent federal court decision: Carolina Conduit Systems, Inc. v. MasTec North America, Inc.
In this case, Carolina Conduit, a subcontractor, sued the general contractor, MasTec, for the cost of installing additional flowable fill due to a change in the configuration of duct banks. Although the design documents called for the duct banks to be constructed in a vertical configuration, field conditions required that the duct banks be built in a horizontal configuration, necessitating additional flowable fill. Upon this discovery in December, 2008, Carolina Conduit’s president and project manager met with MasTec personnel, who informed Carolina Conduit “not to worry” about the additional fill and costs because plenty of funds were available. Carolina Conduit proceeded to work on the project throughout the following spring. In May, 2009, Carolina Conduit’s president again discussed the extra cost of the duct banks and MasTec’s vice president again advised “not to worry” and that Carolina Conduit would be compensated.
At the close of the project, MasTec refused to pay Carolina Conduit for the extra flowable fill. After suit was filed, MasTec requested the court to grant it summary judgment and dismiss the claim for extra flowable fill. MasTec asserted, among other things, that the parties’ contract contained a provision governing changes to the scope of work: “any additional work outside the original scope of work shall be handled through a change order specifying pricing and/or Unit prices approved by [the Owner].”
In opposing summary judgment, Carolina Conduit argued that the contract’s requirements were ambiguous, and that the parties had modified the contract, either by oral agreement or in their course of dealing.
The court ruled in MasTec’s favor while succinctly stating Virginia law applicable to change order provisions:
Virginia law provides that contractual provisions containing written change order requirements are binding upon the parties to the contract . . . . Contractual provisions requiring written change order requirements maintain order and predictability in the construction business, and are meant to avoid subsequent disagreement and prevent controversy . . . . For this reason, where there is a method under the contract by which a party can insure the recovery of the cost of extra work, that party is not entitled to recovery where it fails to follow that method.
The court held that since Carolina Conduit failed to follow the change order provision, it could not recover any excess cost. The court rejected the argument that the design was ambiguous, again noting that regardless of that assertion, Carolina Conduit did not follow the change order provision.
The court also quickly disposed of Carolina Conduit’s argument that the parties had modified the change order provision. The court determined that MasTec’s statements “not to worry” about additional cost were not sufficient to prove that MasTec had waived the change order requirements. The court also noted that Carolina Conduit submitted multiple change orders during and after the close of the project on other issues which contradicted the argument that the parties had waived the change order provision. Finally, the court noted that Carolina Conduit could point to no instance where MasTec ignored the change order provision; hence, there was no evidence of course of dealing indicating a modification to the change order requirements.
This case marks the second time in a year that a federal court applying Virginia law has ruled against a subcontractor who failed to follow a contract’s change order provision. See Artistic Stone Crafters v. Safeco Ins. Co., see also WM Construction Alert, 10/13/2010, “Stone Crafters, Inc. v. Safeco Insurance: A Reminder of the Importance of Lien Waivers and Change Order Provisions.” View Williams Mullen Alert
General contractors and subcontractors alike must regularly and systematically follow their contract procedures for obtaining change orders and, in the event change orders are refused, must strictly follow the contract’s provisions for preserving and making claims.
For more information about this topic, please contact the author or any member of the Williams Mullen Construction Team.
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