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Written Change Orders and Written Notices

An Ounce of PreventionOwners and contractors alike should recognize that change clauses in construction contracts are a fertile area for disputes; nevertheless, proper contract administration and timely written documentation will avoid potential pitfalls. Failure to comply with formal written requirements may operate as a forfeiture of any right to compensation for changed or additional work.

By way of background, when a contract is formed, certain rights and responsibilities become legally binding between the parties. As such, an owner generally has no inherent right to change a contract which impairs or expands a contractor's bargained-for rights and obligations. Therefore, an owner will almost always incorporate a changes clause in a construction contract which allows him to unilaterally alter a contractor's work so long as the change is within the general scope of the contract. Essentially, a change clause permits an owner to unilaterally alter the work to be done without invalidating the contract, modifying the contract, or rebidding the entire contract. In this way, an owner may rapidly react to unanticipated changes or conditions which alter the original plans.

Most construction contracts require that changes be reduced to writing. A written change order protects an owner from having to pay for unwanted work, and it also protects a contractor by evidencing changes that require an adjustment of contract price and or completion time. Courts usually enforce contract requirements that change orders be in writing notwithstanding construction industry trade and custom. In one case, a subcontractor was denied additional compensation for a change because he had not performed pursuant to a written change order. In so doing, the court afforded little weight to the subcontractor's argument that custom in the construction industry was that written change orders were normally issued during or after the completion of the work. Quite simply, a contractor should rely upon the terms of his written contract rather than customs and trade practices.

Sometimes a contractor, as opposed to an owner, will request a change order for various reasons. Prior to a formal change order, however, a contractor will typically be required to provide formal, written notice of the anticipated changed work. This written notification, which is separate from the actual change order, allows an owner to investigate, correct and accommodate a change in an effective manner, minimizing its impact upon project costs and schedule.

A contractor should always provide formal notice when events have occurred that may constitute a change to the contract, irrespective of whether the events are, in fact, a change. In this way, a contractor may avoid assertions that he forfeited his right to compensation for changed work by failing to comply with formal written notice requirements. When a contractor does not strictly comply with the notice provisions, he will often argue that oral or actual notice was afforded to the owner. When this informal notice is followed by written confirmation, such as a letter or meeting minutes, the courts may avoid forfeiture of the contractor's claims and consider them on their merits. Absent a written memorial, though, the likelihood of a contractor prevailing in a subsequent lawsuit under a theory of actual notice is diminished and left to the whim of judge, jury or arbiter.

Whether a contractor will prevail under an argument that an owner had actual notice is dependent upon the factual circumstances surrounding the parties. An owner may always waive non-compliance with formal notice requirements; moreover, parties to a contract may orally agree for additional work to be done outside their contract or alter the provisions of the written agreement. See generally, M.L. Shalloo, Inc. v. Ricciardi & Sons Const., Inc., 348 Mass. 682 (1965) (provision in subcontract that no extra work would be recognized unless agreed to in writing before work was done could not prevent oral contracts for extra work, for the parties had power to waive or alter that provision orally at any time). The course of conduct between the parties may evidence a modification of the contract terms where formal written notice is no longer required. If an owner has actual notice of the events giving rise to a claim, and he was not prejudiced by the absence of written formal notice, then a court may consider the merits of the claim for changed work. See George A. Fuller Co. v. United States, 104 Ct. Cl. 176, 218 (1945) (where the owner had actual knowledge of the change so that notice would have served no useful purpose and owner was not prejudiced by the absence of formal notice, actual notice was sufficient). Nevertheless, absent proof of waiver, notice provisions will normally be enforced.

In conclusion, owners and contractors should strictly comply with the change and notice provisions in their contracts. A party who proceeds with changed work absent compliance with the contractual requirements does so at his own peril, as a court may be unsympathetic to any trade and custom practices of the construction industry.

Submitted by, Nolan T. Koon

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