Oral change orders can be expensive

MOST construction-related contracts that you sign will contain a requirement that you get all authorization for extras in writing, generally before the work is done. In real life, however, the pace of work out in the field is often so fast and furious that, in the interest of getting the work done, authorization is given orally, with the promise to put it in writing later. Sometimes this works and

MOST construction-related contracts that you sign will contain a requirement that you get all authorization for extras in writing, generally before the work is done. In real life, however, the pace of work out in the field is often so fast and furious that, in the interest of getting the work done, authorization is given orally, with the promise to put it in writing later.

Sometimes this works and other times it does not. A couple of recent court cases illustrate how fragmented this area of law is.

In Wisch & Vaughan Construction Co. v. Melrose Properties Corp., 21 S.W. 3d 36 (Mo.App. 2000), an owner was trying to get out of paying for extras on the basis that the contractor hadn't followed the contract requirement to get approval in writing. The jury and later the court of appeals found that the owner had to pay because the owner had waived the right to insist on written approval by paying for other extras that were only agreed to orally.

"Habitual acceptance of extra work done on oral change orders in connection with a contract, and payment therefore, results in waiver of any contract clause providing that no claims for extra work or material shall be allowed unless the same be pursuant to a written change order. ... Waiver of a writing requirement in a contract may be established by presenting evidence that the parties agree to the changes and the changes were completed." 21 S.W.3d at 41 (citations omitted).

Before you let out that big sigh of relief, read on about F. Garofalo Electric Co. Inc. v. New York University et al., 705 N.Y.S. 2d 327 (App.Div. 2000). In that case, Garofalo's contract was with the university, but its day-to-day contact was through Morse Diesel, the construction manager.

Garofalo's contract with the university required contemporaneous written notice of claims, which Garofalo had not given. It argued, however, that the Morse Diesel project manager was fully aware of the problems, and he had orally instructed Garofalo to perform the extra work and keep track of its costs on a time-and-materials basis. He told Garofalo that, "It would be taken care of at the end of the job." On top of that, the problems and extra work were fully documented in daily reports submitted by Garofalo.

The court had no sympathy for Garofalo. Morse Diesel's authority was "clearly and unambiguously limited by the express terms of both the contract and the construction manager's agreement and, as such, it lacked authority to waive, modify the notice or documentation requirements in [Garofalo's] contract."

The owner could conceivably waive this limitation. To prove this waiver, however, Garofalo would have to show that the oral modification was "fully executed" (which it never is in these cases, or there wouldn't be a dispute) or that there has been partial performance that "unequivocally" refers back to the oral agreement. 705 N.Y.S.2d at 331.

Garofalo ended up making an unintended donation of all its extra work to New York University.

It is not easy for some contractors to say no when directed to do work in the field. As a result, they are taking a big risk as to which side a court will come down on later if the owner or general contractor decides not to pay.

The only way to avoid this is to have a strict company policy, which no one but the owner can waive, that directives have to be in writing before any work will be done that is over and above, or different from, than what is called for in the contract.

If the owner balks, tear out a copy of this column, and hand it to him.

Susan McGreevy is a partner at Husch & Eppenberger, Kansas City, Mo., tel. 816/421-4800.