TRA entered into a contract with the Black Corporation, Inc. (Black) for the construction of a Project.  There were problems with the plans distributed by Black to its subs and on March 2, 2001,...

  1. TRA entered into a contract with the Black Corporation, Inc. (Black) for the construction of a Project.  There were problems with the plans distributed by Black to its subs and on March 2, 2001, Gray obtained change order number 1from TRA, for modifications to the electrical plan and specifications. Additionally, Black requested and received two more change orders, number 2 and number 3. They then proceeded with the contemplated work on the Project without receiving any additional change orders for any extra work or time. Later the allegation was made that there were, in fact, numerous additional changes made to the contract because the work at the project was made difficult, more costly, and time consuming to perform, than the work originally contemplated by the parties and that work could not be performed in the manner originally contemplated and as scheduled and that at times it was denied access to portions of the work  Accordingly the claim was made by Black that it was required to do extra work, i.e., effect a change in the contract, and was thus entitled to additional sums.  TRA responded that Black had not carried its legal burden of showing that TRA waived its contractual rights to require change orders for alleged extra work. Particularly, TRA contended that when TRA and Black entered into a written contract for the construction of the Project, the contract had specific provisions regarding changes in the work. Two such provisions are paragraphs in the general conditions of the contract, states:                                                                                 “Without invalidating the Agreement, the Owner may, at any time or from time to time, order additions, deletions or revisions in the Work; these will be authorized by Change Orders. All such Work shall be executed under the applicable conditions of the Contract Documents. If any Change Order causes an increase or decrease in the Contract Price or an extension or shortening of the Contract Time, an equitable adjustment will be made as provided in Article 11. A Change Order signed by the Contractor indicates his agreement therewith. And the general conditions states: “Additional Work performed by the Contractor without authorization of a Change Order will not entitle him to an increase in the Contract Price or an extension of the Contract Time, except in the case of an emergency as provided above.”

Accordingly, TRA asserts that Black never obtained a change order to cover the extra work. Therefore, according to TRA, it is not obligated to compensate Black for any additional work outside the contract price which was not covered by change orders number 1, number 2, or number 3.   However, Black claims that TRA waived its contractual rights to require change orders for extra work through representations by TRA's agent. Black asserts that the agent made continuing promises of a final change order which would compensate Black for any extra work performed. Also, Black points out that change orders number 1, number 2, and number 3 were all issued after the extra work had begun. Therefore, Black asserts that it proceeded with additional work under the reasonable belief that a final change order would be issued by TRA based on TRA's "persistent pattern of conduct."  Discuss in detail.

Expert Answers
Stephen Holliday eNotes educator| Certified Educator

The jurisdiction in which the contract is carried out may have contract statutes that do not follow common law, but this answer is based on contract law that is followed in most states.  Another complication posed by your question is that you do not identify who Gray is, but you indicate Gray obtained a change order from TRA.  Gray appears to be a subcontractor for Black, and it would be very unusual for a subcontractor to deal directly with the owner or developer.  As a subcontractor, Gray's relationship should be restricted to Black, and you do not explain how or why a subcontractor dealt directly with the developer, TRA.  If, for example, a subcontractor bypassed the general contractor, and obtained a change order that the general contractor knew nothing about, this would create a serious problem itself.

Most construction contracts, like the one you described above, contain a clause that requires any changes to agreed-upon work to be documented by change orders.  The provision is usually called a Variation Clause or simply titled Change Orders or Changes in Scope-of-Work.  You indicate that the contract between TRA and Black included such a provision.  More to the point, the contract specifically says that work performed without an "authorized" change order will not entitle Black to additional funds for work performed.  Even though common contract law allows changes to work based on oral agreement, if the contract specifically prohibits oral agreements, oral agreements are not sufficient to effect changes to the scope of work.

Another potentially serious problem is created by your statement that Black gave its subcontractors plans that had "problems," but you don't indicate if these problems originated with TRA or with Black.  If TRA gave Black plans that had problems, then TRA has to live with the consequences of faulty plans, which might include a lot of change orders.  If, on the other hand, Black created the problems, then Black might be responsible for the results of those problems, and any changes in work created by the problems would be Black's, not TRA's responsibility.

The crux of the change order issue lies with your statement which implies that the contract provision requiring written change orders was not followed by TRA itself.  You noted that TRA's representative habitually requested changes in the scope of work and promised that a "final" change order would be forthcoming that would authorize all the additional work requested by TRA.  If this characterization is accurate, in some jurisdictions, courts may hold that TRA's agent modified the original contract to allow oral change orders.  In most jurisdictions following common law, however, courts would hold that the terms of the contract prevail:

It is a well established rule of law that where, by the terms of a contract with a governmental body, written orders for additional work are required, the contractor cannot recover for extra work without compliance with the contractual provisions. Dick Corp. v. State Public School Bldg. Authority, 27 Pa. Commw. 498, 500, 365 A.2d 663, 664 (1976).

In other words, Black should have required TRA and its agent to provide change orders in writing, signed by both TRA and Black, before doing the work outlined in the change order.

The bottom line to this issue is that the provisions of the contract should have been followed by both TRA and Black.  The fact that Change Orders 1, 2, and 3 were documented after the work had begun is not justification for performing work outlined in the change orders.  Contracts are meant to be performed exactly as they are written, and in this case, because the contract specifically prohibits oral changes to its terms, any change orders had to be documented and agreed to before the work is carried out.  And, as I pointed out in my discussion, there seem to be several problems that complicate the issue of following the contract: the subcontractor dealing with TRA and Black providing plans that may have had "problems" to the subcontractors; TRA's agent having modified the contract to allow oral agreements.