| Importance
of Timely Change Orders Shown
By
John S. Mrowiec
Construction contracts typically provide
that a contractor is not to perform changed work and the contract price or contract
time may not be increased without a written change order.
In practice,
however, those words of the contract sometimes are ignored. It is common for contractors
to perform extra work and to submit a formal change order request later. Many
owners and contractors are content to administer contract modifications that way.
A
less-than-formal attitude on the change-order process worked for one contractor
and one owner on more than 30 projects.
But on what would be their last
project, a dispute about the quality of the contractor's work arose. The failure
to submit contemporaneous change-order requests then became a major issue.
Nearly Done Project Terminated In Welton Ventures Limited
Partnership v. Project Coordinators, Inc., 2006 Wis. App. LEXIS 424 (4th Dist.
May 11, 2006), the owner, Welton Ventures LP, terminated a construction contract
for an office and warehouse at 90 percent completion. The contractor, Project
Coordinators Inc., thereafter submitted requests for 34 change orders seeking
$573,211. Litigation ensued with various claims between the parties.
A
major issue was whether the contractor was entitled to any payment for the late
submitted change order requests. The contractor sought $111,070 for breach of
contract for progress and retainage payments. (The adjusted contract price included
three signed change orders.) For the change order requests, the contractor sued
the owner for $573,211 under the theory of "unjust enrichment."
After
a jury trial, the jury awarded the contractor $111,070 on the contractor's breach
of contract claim and $203,287 of the $573,211 "unjust enrichment" claim.
The jury awarded the owner $42,404 in damages on the owner's breach of express
warranty claim. (There were awards on other contractor claims not the subject
of this article.)
The trial court denied the owner's motion to invalidate
the jury's verdicts in favor of the contractor. The owner appealed on various
theories. For purposes of this article, we focus only on the owner's contention
that the jury's award on the late change order requests under the contractor's
theory of "unjust enrichment" was improper.
The owner argued
that recovery for "unjust enrichment" is always improper when there
is a written contract on the same subject matter. The Welton Ventures court first
acknowledged that the owner was correct that the general rule was that a written
contract on the same subject precludes an "unjust enrichment" recovery.
But
what made this case different was that the contractor was seeking completely different
amounts for completely different damages in its breach-of-contract and unjust-enrichment
claims: One claim was for unpaid contract balance and one claim was for the late
change order requests. There was no double-count.
'Could Have, Should Have' Welton Ventures acknowledged
that instead of the "unjust enrichment" theory, the contractor "could
have, and perhaps should have" used conventional contract-based theories
to seek recovery for the extra work.
The contractor could have contended
that the owner waived the contract's written change order provisions under the
theory of the parties' course of dealing on their many previous projects. Or,
the contractor could have argued that the parties had separate "contracts
implied in fact" for the additions and modifications.
While those
are the conventional ways that contractors overcome the written change order provision,
the contractor's theory was held valid in this case because the Welton Ventures
court was not persuaded that the jury awarded more to the contractor than it would
have awarded under the conventional theories, Welton Ventures, 2006 Wis. App.
LEXIS 424, * 28-29 and n.9. In other words, "no harm, no foul."
The
owner also contended that the contractor's unjust enrichment damages proof did
not satisfy the requirement of proof of the amount of "benefit conferred
on the owner."
The contractor's proof was the contractor's cost to
perform the extra work.
Although damages for "unjust enrichment"
must be measured by the benefit conferred on the owner, the Welton Ventures court
noted that one way the law measured that benefit is "the reasonable value
to the other party of what he received in terms of what it would have cost him
to obtain it from a person in the claimant's position" Welton Ventures, 2006
Wis. App. LEXIS 424 at * 33 n.10 quoting Restatement (Second) of Contracts §
371 (1981).
Moreover, it was not as if the jury blindly accepted the contractor's
evidence that all the cost "translated into a benefit to" the owner.
After all, the jury awarded only $203,287 of the $537,211 requested, Welton Ventures,
2006 Wis. App. LEXIS 424 at * 31.
The appellate court affirmed the jury's
verdict in favor of the contractor. Welton Ventures reminds us of two important
legal principles about parties' failure to follow the contractual change-order
process by performing modifications in advance of the written change order requests
and issuance of change orders: (1) an owner might be held to have waived the written
change order requirements by owner's conduct, and (2) a contractor's recovery
might be less than if contractor had obtained timely signed change orders. The
failure to submit contemporaneous change-order requests then became a major issue.
John
S. Mrowiec is a partner with Chicago-based Conway & Mrowiec, a construction
and public contracts law and litigation practice. He may be reached at (312) 658-1100.
For information, go to the firm's Web site at www.cmcontractors.com.
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