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Are Oral Change Orders Enforceable on Commercial Construction Projects?

Los Angeles Litigation Attorneys | Golding + Lamothe > Financial  > Are Oral Change Orders Enforceable on Commercial Construction Projects?

Are Oral Change Orders Enforceable on Commercial Construction Projects?

Nearly every construction contract has a provision that changes to the work must be documented in written Change Orders and signed by both the Owner (or his or her representative) and the Contractor. Courts have recognized it as a “wise precaution in making contracts of this magnitude.” (City Street Improvement Company v. Kroh (1910) 158 Cal. 308, 321.)

Change Orders should be issued whenever the work of the project is changed, whether that change increases or decreases the project scope. So, for example, they should be issued for changes that add to scope (most likely increasing the cost and, perhaps, even extending the schedule for the construction), as well as changes that remove elements of the project scope and may result in a credit being given to the project Owner.

Sometimes, the Owner and Contractor agree that an additive change should be made, but they can’t agree on the price for the change. As a result, the Contractor may decide to proceed with the additional work without a written Change Order or with a written, but unsigned, Change Order. If the Owner refuses to pay for the change, the Contractor usually will pursue a claim for extra work under a breach of contract theory, a breach of implied contract theory, or an unjust enrichment theory.

Even where construction contracts require a written Change Order before the contractor performs extra work, California courts have recognized that the parties may waive this requirement, such as where the Owner, by its conduct, clearly assents to a change or addition to the Contractor’s required performance. (See Weeshoff Construction Company v. Los Angeles County Flood Control District (1979) 88 Cal.App.3d 579, 589-90.) The waiver may be implied by the Owner’s conduct, such as where the Owner orders materials and instructs the Contractor to install them.

Courts sometimes find that the course of conduct of the parties is so inconsistent and incompatible with the contract terms that there is an implied modification of the contract. (See Diamond Woodworks, Inc. v. Argonaut Ins. Co. (2003) 109 Cal.App.4th 1020, 1038.) The written Change Order requirement also can be overcome by oral modifications to the extent the modifications have been performed. (Civ. Code, § 1698 (b).)

In Girard v. Ball, the parties entered into a written contract that required “all agreements must be made in writing.” (Girard v. Ball (1981) 125 Cal.App.3d 772, 785.) Despite that language, the court recognized a “commonly known custom and practice in the construction industry where oral agreements frequently modify or extend written agreements.” (Ibid.)

Where a Contractor performs extra work without a signed Change Order, relying on the Owner’s authorization, it is important that the Contractor confirm the authority of the person authorizing the work. For example, in Acoustics Inc. v. Trepte Constr. Co., a State Inspector – instead of the State Architect – directed the Contractor to make changes that he was without authority to order. (Acoustics, Inc. v. Trepte Constr. Co. (1971) 14 Cal.App.3d 887.) The court held that the contract was clear that formal notice had to be given to the State Architect, and that any increase in the contract price would have to be supported by a written Change Order. (Id. at p. 912.) This requirement could not be waived by a subordinate. Thus, the Contractor was not compensated for the extra work.

If you are an Owner or Contractor and have actual or potential disputes regarding a construction project, please contact us. We can help you resolve those disputes.

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