When Does a Change Order Really Have to Be in Writing?
Kegler Brown Construction Newsletter February 1, 2001
A "change order" is any deviation from the contract documents —typically an upgrade with an additional cost. Under most contract language, a change order is to be memorialized in writing and signed before the changed work is performed. This paperwork requirement creates certain practical difficulties as all associated with the project try to perform the work in a timely and efficient fashion. Unfortunately, many disagreements occur concerning the necessity of the change, and more importantly its reasonable cost, after the additional work is performed when a change order is not signed before the work proceeds.
In determining whether a contractor gave adequate notice, the courts will evaluate the totality of the circumstances to include all written and verbal communications between the parties. Julian Speer Co. v. Ohio State Univ., (Ohio Ct. Cl. 1997) 83 Ohio Misc. 2d 88; 680 N.E.2d 254. (The state's non-written instructions to build the project other than as included in the specifications create a "constructive change order" that is a proper basis to allow recovery of additional costs. Valentine Concrete, Inc. v. Ohio Dept. of Adm. Serv, (1991) 62 Ohio Misc. 2d 591, 601, 609 N.E.2d 623.
Without prejudice, any technical deficiencies in the notice generally will not result in a legal basis to deny the claim. The test is to determine whether the Owner had actual knowledge of claim of differing site conditions and an adequate opportunity to investigate the claim. Roger J. Au & Son, Inc. v. Northeast Ohio Regional Sewer Dist., 29 Ohio App.3d 284, 504 N.E.2d 1209 (1986).
Contrast these cases on actual or constructive notice requiring prejudice to the owner before barring recovery for the contractor with the Ohio Supreme Court case of Foster Wheeler Enviresponse v. Franklin County Convention Facilities Authority, (1997), 78 Ohio St. 3d 353. The Supreme Court upheld a literal reading of the written change order requirement and stated that the knowledge of, and even acquiescence in, the extra work by the Owner was not enough to permit a contractor recovery. Yet the Supreme Court acknowledged that such a clause could still be waived by the Owner.
The bottom line for subcontractors and contractors is that if you expect to be compensated for a change order you should get written authorization before the extra work is performed.