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Oral Change Orders: A Dicey Proposition


By Robert Crump

Building restoration goes awry leaving the parties in a dispute over expenses
The owners of a building contracted for remodeling, rehabilitation, and restoration of an aging building in July 2004. The building was well over 100 years old, and the owners wanted to simultaneously update the structure while keeping certain antique fixtures in place.

After demolition had begun and the first floor of the building was nearly complete, the owners discovered that a sprinkler system needed to be installed before an occupancy permit could be granted. The owners, unaware of the necessity of such an installation, did not include a provision in the contract calling for the installation of a sprinkler system with the contractor. The owners contracted with another company to install the sprinkler system. The company installed the sprinkler system, but it was not completed properly and resulted in leaks and significant damage to the building and to the work already completed by the contractor. Despite the setback, the contractor resumed work and informed the owners that the construction was completed in October 2006.

The owners found many issues with the contractor’s work, including: “portions of the building remained unpainted, certain electric and plumbing fixtures were not installed, and certain antique fixtures were left in the basement.” The owners further complained “that various windows, doors, and walls were not installed in a satisfactory manner, the kitchen was left unfinished, and various other things had been built incorrectly.” The owners filed suit for breach of contract against the contractor and the company that installed the sprinkler system. The owners alleged that the work was not completed in a “workmanlike” manner and did not comply with the specifications of the contract; that the delays in the job caused a delay in obtaining a certificate of occupancy; the delay resulted in the owners having to rent an alternative space; and the building’s antique fixtures were damaged as a result of the work. Prior to trial, the owners settled with the company that installed the sprinklers. The contractor, on the other hand, denied any liability and filed a counterclaim for breach of contract based upon the owners’ failure to pay for various oral and written change orders.

Contractor successfully proves validity of change orders
At trial, the court rejected all of the owners’ claims against the contractor. The court found that the contractor had no responsibility for the damage to the building or the consequential delays caused by the sprinkler system that was incorrectly installed by the other company. The court further found that the owners failed to prove the contractor caused a “functional and aesthetic mess” or that the owners were forced into renting alternative office space. Additionally, the court found that the owners failed to prove the value of the antique or even what happened to them, either destroyed by the flooding in the building or misappropriated.  

Regarding the change orders and the contractor’s countersuit against the owners, the trial court determined that the parties had entered into a lawful and binding contract for the work to be performed. The written contract included a provision stating “any additional changes need a change order submitted and will be an extra cost item over and above the contract price.” The trial court found that this clause did not specifically require that any change order had to be in writing. During the trial, one of the owners admitted to authorizing several verbal and written change orders that were not contemplated in the contract or the plans for the remodeling. The owner did not recall the specific details about each change order but admitted to telling the contractor to do what he had to do to complete the project and “make it right.” The contractor testified that the owners requested and approved numerous verbal and written change orders, which totaled over $100,000. As a result of the testimony and the other evidence presented, the court awarded the contractor his unpaid fees that were owed based upon the approved change orders. The owners appealed the case.

On Appeal
The Appellate Court of Illinois, citing state precedent, stated a contractor must prove five elements to recover additional compensation for extra work performed on a construction contract: (1) the work was outside the scope of the contract; (2) the extra items were ordered by the owner; (3) the owner agreed to pay extra, either by his words or conduct; (4) the extras were not furnished by the contractor as his voluntary act; and (5) the extra items were not rendered necessary by any fault of the contractor. In reviewing the evidence in this case and the trial court’s analysis, it held that the trial court’s findings were not against the weight of the evidence and affirmed the judgment for the contractor.

Practice Points
Oral change orders are a reality in the construction industry. Often times work needs to be performed immediately and the parties do not want to go through the formal process of submitting a written change order. This practice is problematic, however, and results in a number of disputes. To help prevent disputes, and increase the potential for success in the event of a dispute (as in this case), contractors should avoid relying upon oral change orders, especially if the contract specifically calls for them to be written. If reliance upon oral change orders is necessary under the circumstances and not prohibited by the contract, contractors should submit written notices as soon as practicable to ensure adequate documentation of any such change order. The contractor was successful in this case, but many others have failed to prove very similar claims against owners based upon oral change orders.

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