One of the most common questions our clients ask is: “Do I have to perform work that I believe is outside my scope just because the project owner directed me to do so?” The answer to this question has enormous potential consequences for contractors, who must choose between performing the requested work- often at significant cost– or refusing to perform the work, and risk backcharges and even termination by the project owner. This article helps contractors understand their rights when responding to problematic requests.
Change, Change, Change
A change is any alteration in the design, method of construction, or scope of a project, as well as the time in which the project must be completed. Most construction contracts contain a “changes” clause that enables the owner to make modifications in the work pursuant to a prescribed set of procedures.
It is important to note that a “changes” clause does not give the owner unlimited discretion to alter the contract work. The purpose of the clause is to enable the owner to correct errors and oversights in the contract documents, and to effectuate whatever changes may be necessary to make the project function in accordance with the original scope of work for which the owner hired the contractor when the contract was signed. The “changes” clause only gives the owner the authority to order changes within the overall scope of the original contract.
The Critical Question: Is the Requested Work Within The Original Scope?
As a matter of right, an owner can order a change within the general scope of the original contract. This means that an owner may issue a unilateral change order, and failure by the contractor to perform the change may constitute a breach of contract. The owner does not need the contractor’s consent to make a change that is within the general scope of the contract, although the owner must follow the contractual provisions in ordering and paying for the change.
The “scope of the contract” in this context is usually defined as the performance contemplated by the contracting parties at the time they entered into the contact, and includes all the work that is reasonably required to complete the job. For example, when a contract expressly provides for the removal and relocation of duct work, the scope of that work also includes the removal and relocation of light fixtures that are physically attached to that duct work and are clearly visible to anyone conducting a site examination. By contrast, when a contract calls for the construction of nine buildings, but the owner orders two additional buildings, the “changes” provision of the contract will not cover the additional work. This would entail a “cardinal change,” which is essentially a material breach of the contract.
If the change ordered by the owner (or general contractor) goes beyond what the contractor (or subcontractor) reasonably could have expected when the contract was executed, the owner cannot just order it be done, and the contractor is within his rights to decline performance. This does not necessarily mean, however, that the contractor should decline performance. Unless the order is clearly outside the scope, the contractor takes a great risk by stopping the work or refusing to perform the requested change, which may cause the owner to assess backcharges or even terminate the contract.
Deciding Whether to Perform Disputed Work
In deciding whether to perform disputed work, the contractor should ask this critical question: Can my company afford to perform the work in question, reserve its rights, pursue the claim, and wait for the claim to go through the courts? If the company would be placed in serious financial difficulty by performing the work without getting paid until the claim is resolved, then the decision not to perform in unavoidable. Otherwise, it is advisable to absorb the loss temporarily, mitigate damages, and pursue payment with all deliberate speed.
The contractor’s right to stop work rather than proceed in the face of a disputed change may be affected by contract clauses that require the contractor to proceed despite ongoing disputes. Such clauses are not absolute, however, and do not apply to substantial, fundamental changes that go to the heart of the contract.
Contractors usually deplore interruptions in their work, and therefore are inclined to accept informal change order directives with the promise that the proper paperwork, and payment, will follow. It usually works out that way, but when it doesn’t, the contractor can be left holding the bag. At a minimum, the contractor should insist on a clear, written statement detailing what is to be built and how pricing will be determined, signed by a duly authorized representative of the owner (or general contractor). An acceptable, although less desirable, alternative is a letter issued to the proper authority confirming what was ordered and the applicable pricing, and demanding immediate written notification if the owner’s understanding differs.
Pricing disputes also are common even when the scope of the change itself is not at issue. Most contracts specify change order pricing procedures, either by an agreed upon lump sum, unit pricing, or time and materials. The owner’s “choice” of deciding the reasonable cost at his own discretion is not a legally enforceable option, and never should be followed. If there is no agreement otherwise, then time and materials will provide the basis for payment for the changed work.
Contractors and owners should not lose sight of the fact that a cumbersome change order procedure is really the owner’s problem. The contractor is perfectly within his rights to continue building in accordance with the original design, or to stop work altogether, unless and until a properly issued change order is forthcoming.
In summary, the owner’s (or general contractor’s) authority to order a change is not unlimited. Only changes within the general scope of the original contract, issued per the contract procedures, are permissible. An owner cannot make a fundamental change in the extent or nature of the work as a matter of “right” because such changes fall beyond the scope of the original contract.
Protecting Yourself from Unreasonable Change Requests
Whether you’re starting a new job or discussing changes with a project owner or general contractor, it is important to take steps to protect yourself from trouble down the road. Contact us to discuss your options, schedule a consultation, or get answers to questions you may have.
Michelson, Kane, P.C.
