Most construction contracts (particularly AIA® and ConsensusDocs® agreements) include precise methods for documenting change orders for work outside the base contract scope. However, a disturbing trend is developing whereby claims for alleged changes in the work are entertained by judges and arbitrators despite a lack of proper and timely documentation typically required by the construction contract.
Some claimants allege that the written change order process is circumvented by oral directions from the owner or upstream contractors to conduct additional work. Artistic Stone Crafters v. Safeco Ins. Co., 726 F. Supp.2d 595, 602 (E.D. Va. 2010). Often, claims take the form of “quantum meruit” or “unjust enrichment” causes of actions whereby claimants allege that they performed undocumented work and that it is unjust for an upstream contractor or owner to benefit from that work without paying its “reasonable value.” See Acme Contracting, Ltd. v. TolTest, Inc., 370 Fed. Appx. 647, 657, 2010 WL 1140997 (6th Cir. 2010)(holding that contractor “directed” to do additional grading and shoring work was “entitled to the reasonable value of services rendered” for work outside of the express terms of the contract); Taylor Pipeline Const., Inc. v. Directional Road Boring, Inc., 438 F. Supp.2d 696, 713 (E.D. Tex. 2006)(holding that “[u]nder Texas law, “the existence of an express contract does not preclude recovery in quantum meruit for the reasonable value of services rendered and accepted which are not covered by the contract”); Lansing Bd. of Water and Light v. Deerfield Ins. Co., 183 F. Supp.2d 979, 991 (W.D. Mich. 2002)(holding that Michigan law “permits an action in quantum meruit, even in the face of an express contract, where the performance of additional work or benefit not contemplated in the express contract is present”).
The “reasonable value” is then substantiated by the schedule of values for change order work typically provided in the underlying contract. Thus, a claimant takes advantage of the underlying contract to prove the amount due while avoiding its obligations (i.e., an approved and documented change order). In particular, claimants typically allege costs, scope, and unit measure of work with little to no supporting documentation substantiating those line items or the actual work performed. This presents a dangerous departure from an established construction contracting process intended to protect the expectations of the claimant and the payor, the integrity of change orders, and the written approval for additional work.
Suggested Recommendations and Defenses:
- When a downstream contractor provides correspondence or emails suggesting that additional work is performed in order to avoid the PCO process and claim damages, document the response carefully and thoroughly: (a) identify the base scope under which the work may fall; (b) remind the contractor of their obligations for timely and supported PCOs with adequate substantiating documentation (citing the governing contract provisions); and (c) clarify dates on which work was allegedly performed in comparison with PCO submission deadlines under the contract.
- Express in writing that the PCO process required under the contract is not waived and all rights, claims, and defenses are reserved.
- Although not universally accepted, make a timely assertion of the defense recognized in a majority of jurisdictions that prohibit unjust enrichment and quantum meruit in a project governed by an express contract. See TLC Realty 1 LLC v. Belfor USA Group, Inc., 166 F. Supp.3d 919, 930 (S.D. Ohio 2016)(holding that contractor was not entitled to compensation for additional work alleged absent advance written authorization provided for in express contract); Hall Contracting Corp. v. Entergy Services, Inc., 309 F.3d 468, 475 (8th Cir. 2002)(holding that “[u]nder Arkansas law, the doctrine of unjust enrichment does not apply when there is a valid, legal, and binding contract”).
- Where appropriate, do not entertain arguments about the “value” of the “extra” work alleged without first reminding the claimant and the dispute’s decision maker that the claim violates the express contract. Failure to do so may result in inadvertently validating an underlying assumption that compensation is due.
For more information on these issues, please contact Donald Rea at (410) 332-8680 or email@example.com.