In This Issue

• Looks Like a Change Order - What To Do Next...
• Miller Act Trumps "Pay if Paid" Clause
• Firm News

Looks Like a Change Order - What To Do Next...

Donald W. Gregory,
Construction Law
Chair

There probably has never been a project built without changes meriting additional compensation occurring during the work. Sometimes these changes result in a change order, while other times a disagreement simply results. Contractors and subcontractors can take action when changes occur to increase the chances that they will be fairly compensated for the additional time or money associated with the change:

1. Give timely written notice before the work takes place.
   
   Though this is a simple concept, it is frequently violated during the press of the job. Many contracts have a provision requiring prompt notice (within hours or days of the discovery of the occurrence) of the proposed changes or the claim will be waived. This provision can be simply satisfied simply by providing language like:
   

   “The purpose of this [e-mail, letter, etc.] is to notify you that we recently discovered [the changed condition], which differs materially from the contract documents we bid upon and which may result in cost and time ramifications and be appropriate for a change order. Further information will be provided upon request as we learn more about the cost and time ramifications associated with this issue.”

2. Provide supporting cost and time documentation ASAP.
   Rather than waiting until after the work is done, or the job finished, provide back-up for the projected costs as soon as possible, even if it is just an estimate. For example:
   

   “The [changed condition] we previously notified you of will likely result in additional costs of at least [$____] and additional time of [___ days] through no fault of our own. While this is just an estimate, your contract states that we should have a written change order before performing the work, and we are unable to proceed with this extra work without your go-ahead. If we do not timely receive it, we cannot be responsible for any adverse effects on the project.”

3. Only proceed with the changed work after receiving a directive to do so.
   The safest course of action is always to insist upon some written direction, not only to proceed with the work, but also that the change is an extra to the contract, before performing the changed work. However, sometimes this may not be practical or in the best interests of the project.
   
   If a change directive or change order is not received, or at least committed to in writing, and you still find it necessary to proceed at your risk, you can write a self-serving letter designed to minimize that risk:
   

   “Even though you have asked us to proceed with extra work to avoid delaying the project, you have not followed the change order process, therefore we will consider that process waived and proceed with the extra work reserving our right to recover our additional costs.”

4. Do not sign a change order for less than full compensation (for time and money) without reserving rights.
   Frequently, the change order references paying for only the direct costs of the change but expressly states that “all direct and indirect costs associated with the change are waived.” Courts have been harsh to contractors and subcontractors who do not reserve the effects of “cumulative impact” or additional time in such change orders.
   
   If there are delay damages or additional time is potentially needed, rights should be reserved similar to the following:
   

   “We have only priced the direct costs, so Change Order Number ___ is returned to you as executed with one exception and deletion. We have deleted and initialed the portion of the change order that would waive claims for any delays, inefficiencies, disruption or suspension, extended overhead, acceleration, and the cumulative impact of this and other change orders issued to this date. Please return an executed and initialed copy to us.”

Additionally, language should be added to the change order section that addresses the number of additional days required by such change order. Assuming at the time the change order is presented no additional days are required, sample language that should be added as provided below:


“No additional time is sought as of this date based upon what is foreseeable now. But we are not waiving claims for additional time should circumstances change.”

Of course, all of this letter writing can be avoided if the owner or contractor simply agrees not to enforce language in its contract requiring a written change order before work is performed.

While these qualifications will not avoid change order disputes, if followed, they will increase the chances you will be compensated for additional work.

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Miller Act Trumps "Pay if Paid" Clause

“To hold otherwise would turn a pay-when-paid contract provision into an implicit waiver of the subcontractor’s Miller Act rights…”

Therefore, the subcontractor was allowed to recover against the surety under these circumstances.

Subcontractors seeking recovery under their state’s “Little Miller Act” on state public works may be able to utilize this same argument if they have signed a contingent payment clause.

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