Example 1: During a push to get a new department store finished, the owner changes lighting layouts. He also decides to expand a storage area. No new drawings are issued, and the owner’s representative tells you to go ahead on verbal instructions.
Example 2: You encounter water unexpectedly while trenching for conduit. There is no way to know if the problem is only localized. The construction manager tells you to proceed and wait and see what happens.
Example 3: You are installing a replacement emergency generator. After you remove the old one, you discover that the existing wiring, behind the console, has seen many years of modifications and there are no as-built drawings to go by. The owner says to do the best you can, and the costs will be worked out later.
You can add your own experiences to these examples. What they have in common is an electrical contractor who believes that working with the owner, informally, for the benefit of the project is the responsible way to conduct business. They also have in common the contractor’s willingness not to follow the clear dictates of the contract.
Can the changes clause be waived?
The simple answer to this question is yes. A more complete answer is yes, but not easily.
A standard changes clause has a number of important subparts. The requirements include prerequisites that the order be in writing and that the writing be issued before the work is done.
The reason is obvious. No owner wants to be surprised by a claim for extra money, after the fact.
Some more sophisticated clauses allow the owner the option of agreeing to price and time before the changed work is performed, permitting the contractor to proceed on a time-and-materials basis, or permitting the work to proceed on a cost-to-be-determined basis. With any of these options, the owner remains more or less in control of the project cost and duration. →
These types of clauses give the owner substantive rights that are well-grounded in contract law. For the owner to waive these rights, the courts require something more than the contractor’s later claim that he was “urged” to get the job done or that he was led to believe that, under the circumstances, the owner had to know what his instructions to “just get the job done” really meant.
As you can probably guess, in claims negotiations, or at trial, the owner’s representative will recall the conversations differently from the way you do. He may be being truthful. Were the exact words, “I will pay you whatever it costs,” or was the expression less definite?
The conditions of waiver
Waiver is the voluntary relinquishment of a known right. The concentration here is on “voluntary relinquishment.”
Who was the person who gave you the go-ahead? There are cases where the courts have held that a construction manager or an architect does not have that power over the owner’s contract terms. An owner’s field representative may not have that power either.
In addition, the owner may not be waiving other contract clauses, such as those requiring written notice of delays. The owner still may argue that the instructions were only to have you do what the contract required anyway.
What the courts also look for is a clear, unambiguous expression of intent by an authorized representative of the owner before waiver is found.
A client once called me to say that the owner was complaining about my client’s “notice” letters. Whenever the electrical contractor was instructed to perform what appeared to be extra work, he sent a confirming speed memo to the owner. The owner’s verbal reaction was, “If you spent the same effort on your work as you do on your letters, the job would be done.”
My advice: Ask the owner for a letter stating that the written notice of changes was waived. No such letter was ever forthcoming.
What can/should you do?
Even if a waiver is later declared by a judge, your next step will be to prove your extra costs. Were you as informal in keeping cost records of the change as you were in sending written notices? Were your job foremen clearly told to notify the home office when these verbal directions were given by the owner, so that appropriate action could be taken?
You want to maintain a good working relationship with the owner. That goal is always advisable. You also want to maintain a good business relationship.
Send a note. The message does not have to be a warning or threat, but it should summarize what you have been told, with a request to notify you if you have misunderstood. One contractor I know would prepare an internal memorandum on the conversation and send a copy to the owner.
If you can, give the owner an estimate of the cost and time impact of the verbal instruction. Where an estimate is not an immediate option, tell the owner that you will accumulate the extra costs and submit a formal request for payment and time extension later. On this point, your coding of labor per change order directive will be of serious importance.
In the event the change directive involves an impact to your work extending over a period of weeks or longer, send updated costs or cost estimates. This approach will help you accumulate your costs and will take away a potential argument by the owner that, had he known, he would have acted differently. Make certain that, when you sign your monthly partial waivers of lien, you list these verbal changes as unresolved extras so you do not waive your claims.
Submit your final change proposal as soon as possible and do not wait until the end of the job to seek compensation. On one project, the owner was convinced to open new line items for billing these verbal changes, each with a “not to exceed” amount. In this way, the owner was kept apprised of the costs, and the contractor was not forced to fund the extra work.
The more difficult situation arises where you do not follow up in a timely manner. Don’t let weeks or months go by to find that your costs have seriously escalated. Even though your memo or e-mail may be later than is ideal, send it anyway. Remind the owner of the verbal directions given to you. You might as well know whether there will be a problem. Separating out costs associated with the extra work may not be reasonably possible, but you can do an estimate, which is still contemporaneous with the work and has enhanced credibility for that reason.
Don’t rely on promises that you will be taken care of if you just get the job done. The owner’s idea of fairness may be very different from yours.
Try not to be lulled into a feeling of security that an open-ended promise will modify the written terms of your contract.