Hoopes & Adams, PLC: Getting Paid

Getting Paid

However complete your contract documents are believed to be, changes frequently occur. When the contractor claims that a change has occurred, the owner's concern is to be sure there really is a change and that the contractor is not trying to get paid for work that is in fact part of the original scope of work. For the contractor's part, he wants to make sure that he is paid fairly for extra work performed.

Under certain circumstances, the owner or the owner's representative may unilaterally direct the contractor to perform extra work. For example, certain American Institute of Architect (AIA) forms — e.g., §7.3.1, AIA Document 201 — provide for a "construction change directive," which obligates the contractor to perform additional work with the appropriate adjustment of the contract price/time to be determined later by procedures detailed in the contract documents. This right is not, of course, unlimited, and if the change is sufficiently significant in scope, it may constitute what is called a "cardinal change" that justifies termination of the contract.

More typically, changes are negotiated and stated in written change orders. Although the urgencies of a project do not often permit it, whenever possible a written change order should be prepared and signed before the extra work is performed. And while the AIA forms include a suggested change order, no particular form is required for a change order to be enforceable as long as it satisfies the basic requirements of a contract.

At a minimum, the written change order should:

specify in as much detail as possible the change in the work;
state the resulting change in the contract price; and
if applicable, note the resulting change in the contract time.

One of the most frequent misconceptions about change orders is the belief that the owner may rely on contract provisions stating that only written change orders may be enforced.

In its decision in Sitkin v. Smith (35 Ariz. 236, 276 P. 521 [1929]), the Arizona Supreme Court considered a contract that purported to bar oral modification. The court held that such a bar "does not prevent the parties from subsequently making another and different agreement, or from orally altering, changing or modifying the written contract when they mutually agree thereon." (35 Ariz. at 230).
An owner's conduct may constitute a waiver of a contract's prohibition against oral change orders. In Pioneer Roofing Co. v. Mardian Construction Co., 152 Ariz. 455, 733 P.2d 652 [App. 1986]), the court ruled that the owner's "'go ahead actions' ... constituted a waiver of the provision of the supplementary conditions to the general contract documents that provided: 'Claims for additional compensation, account of extra work done, will not be recognized unless such actual work has been authorized in advance and in writing by the architect.'"

These types of change orders are sometimes called "constructive change orders." While possible, claims based on unwritten change orders can be difficult to prove. The contractor's prosecution of such claims is helped to the extent that job logs and correspondence confirm communications with the owner regarding the additional work. Likewise, the owner can reduce the risk of change orders if he confirms in writing his advice to the contractor that a change order request has been denied, the proposed work is within the scope of the original contract, and the contractor will not receive additional compensation for that work.

The amount of recovery in the case of an oral or constructive change order will usually be governed by principles of what the law calls quantum meruit, or "unjust enrichment." According to this rule of law, where in the circumstances one may not rely upon a contract to define the compensation to be paid, one may recover the reasonable value of the work or materials provided. Reasonable value is typically not determined by the cost to the contractor/supplier, but instead by reference to the value realized by the owner.