FEATURE ARTICLE
Changing Change Orders
Where is the construction project that is completed
without the necessity of a change or two somewhere
throughout the process? Typically, construction contracts
provide for such changes by giving the owner a unilateral
right to change the contract by paying a fair and
reasonable compensation to the contractor for making such
a change. However, contracts usually do not afford the
opportunity to a contractor to make changes without the
express agreement of the owner.
The changes clause of most construction contracts
contemplates circumstances caused by errors and omissions
in the design plans, minor design changes, and changes
mandated by governmental authorities, timing, or method of
construction. Consequently, changes should be
distinguished from extras, which typically involve
additional items of work that were not contemplated at the
time the construction contract was executed.
However, Ohio courts have blurred the distinction and,
therefore, have made it difficult to predict the validity
of construction claims.
In the case Dugan & Meyers Construction Co., Inc. v.
State of Ohio Department of Administrative Services
(162 Ohio App. 3d 491, 834 N.E.2d 1), the 10th
District Appellate Court held that contractors were
generally not entitled to receive delay damages if they
fail to utilize the change order process during the
project. Citing the seminal U.S. Supreme Court case of
United States v. Spearin (1918), 248 U.S. 132, 39 S.Ct.
59, 63 L.Ed. 166, the Court held that:
[w]here one agrees to do, for a fixed sum,
a thing possible to be performed, he will not be excused
or entitled to additional compensation, because unforeseen
difficulties are encountered.
The Court further determined that despite a large number
of requests for information during construction, the
substantive concerns addressed in any one Request for
Information or any group of Requests for Information did
not render the design plans unbuildable or otherwise
wholly inadequate to accomplish the purpose of the
contract. Without approved change orders, the contractor
would have to absorb the additional costs incurred in the
project. Accordingly, the Trial Court’s decision of $3.5
million was vacated.
The impact of this case has not yet been completely felt
in the construction industry and is not necessarily
governing law in any county except Franklin County.
However, when viewed in conjunction with the case
Foster Wheeler Enviresponse, Inc. v. Franklin County
Convention Facilities Authority (1997), 78 Ohio St. 3d
353, it would appear that courts are trending towards a
general disallowance of claims without properly processed
and approved change orders.
In Foster Wheeler, the issue that arose was the
validity of change orders. In this case, a contractor
incurred allegedly unforeseen expenses due to changes in
the site conditions. Approximately $1 million in
additional costs were incurred by the contractor due to
contaminated soil. The contractor failed to obtain a
written change order to cover this additional cost and the
owner refused to absorb the expenses. The contractor
raised issue with the fact that the owner knew that the
additional expenses were being incurred and allowed the
contractor to incur such expenses without issuing the
requisite written work order. In the end, the Court
placed the burden on the contractor for failing to have
obtained the necessary written approvals pursuant to the
contract.
The Dugan & Meyers case is currently on appeal to
the Ohio State Supreme Court and its final impact will not
be known until that case is decided. However, it is clear
that the Ohio courts are expecting greater accountability
from contractors as they perform their contractual
services. For that reason, both owners and contractors
alike should approach change orders with earnest
diligence, making sure that both sides are completely
aware of the nature, scope and cost of the work to be
performed.
Christopher M. Ernst
is a Partner and a member of the Litigation and Real Estate &
Construction Practice Groups. He can be reached at
cernst@bdblaw.com
or 216.736.4216.
