Change Orders -- The Bane of All Construction Projects

More disputes arise and more adversarial positions are staked out because of actual or perceived changes in a construction project than for any other reason. Aggressive contractors will threaten slow-downs and work stoppages if they don't get paid. Overbearing owners will insist that unknown conditions, extra features, and an expanded project are covered by the original bid price.

A seemingly minor in-the-field alteration of a lateral support may, weeks or months later, change the route of a surface drain to a more expensive and even dangerous location. Many shop drawings, materials specifications, detailed plans and installation requirements are not known when the work is bid. New instructions arise instantly in the field through the superintendent or architect or owner's representative. One side may have no recourse except to make the change or get thrown off the job and lose the ensuing legal fight, or the contractor will have a valid claim for extras and the owner will bear the consequences. Informal change requests may be backed up by the full force of law; in other circumstances the impact of changes will be ignored by the courts, and claims for extra payment will not be enforced.

• Why You Need Written Authorization of Change Orders
• When Do Contract Changes Not Have to Be in Writing?

Most construction contracts specify the steps required before additional work or deduction in work is authorized. Construction contracts typically provide that a change in dollars or time must be described and submitted in writing, must be submitted so many days in advance of the work (or so many days after the owner's request), signed by designated people, and reviewed and approved within so many days of submittal.

But most contracts fail to anticipate other issues. Care must be taken that any affected third party also signs off on a change order (a construction lender, a surety or bonding company, a landlord for improvements to property under a long term lease). A change in scope of work between subcontractors should be signed off by the prime contractor. See Superior Gunite v. Ralph Mitzel, Inc. (2004) 117 Cal.App.4^th 301.

If the change implicates health or safety concerns or building code requirements, permits may need to be applied for and obtained before work on the change begins. See California Pools, Inc. v. Pazargad (1982) 131 Cal.App.3d 601. An extreme example of the interplay of building laws and contract rights is Heple v. Kluge (1952) 114 Cal.App.2d 473. The contractor bid a job on plans that did not comply with building requirements. The courts ruled the contractor could completely ignore those building plans and instead be paid much more than the contract price.

Change orders on public agency jobs present special problems. There, change requests and contracts must scrupulously adhere to regulatory requirements that vary among states, cities, and other public agencies. See Los Angeles Dredging Co. v. Long Beach (1930) 210 Cal. 348, 353. Contracts wholly beyond the powers of a municipality are void even if fully performed. In First Street Plaza Partners v. City of Los Angeles (1998) 65 Cal.App.4th 650, the court upheld a summary judgment because "the signature of the mayor was lacking." Id. at 667.

The manner of approving changes in public agency projects varies among the different types of public agencies. California state agency contracts are governed by the Public Contract Code, particularly sections 10250 et seq. for modifications. Changes in construction contracts of local agencies, such as counties, are governed by Public Contract Code §§ 20136 et seq. Other public agencies such as cities, irrigation districts, water districts, unincorporated associations, and the United States each have their own unique requirements for any binding change orders and contracts.

Even a completed fully performed and paid for contract can result in a viable lawsuit to make the contractor pay back the entire amount received if the public agency contract was entered into in a manner not authorized by law. Miller v. McKinnon (1942) 20 Cal. 2d 83.