by Stephen Hess*
Every young student comes across those four words, either from being assigned John Steinbeck’s novel or – for the diehard English student – from reading Robert Burns’ poem “To a Mouse,” in which he reflects on the dire consequence of his having turned up a field mouse’s nest with his plough. “The best laid plans of mice and men,” often go awry.
Enter the construction contract (I know you were wondering where this was going). Everyone on the planet knows that construction projects are not static and that even modest projects undergo changes throughout the building phase. The consequences of changes can be dramatic, and most construction contracts lay out plans for the administration of changes and the negotiation and documentation of the terms of change orders with respect to the three important attributes of construction: time, money, and the details of work itself. A sufficiently robust change order clause represents the “best laid plans” for dealing with change orders. And as we have learned from Burns’ poor mouse, these plans often go awry.
In short, one party strays (or perhaps both stray) from the careful change order process set out in their contracts, sometimes through benign neglect and sometimes through deliberate indifference, and the conclusion of the job brings pitched battles among the parties over compensation for work performed or responsibility for delays and cost overruns. These disputes could have been resolved (or at least mitigated) through careful attention to the change order process set out in the contract, and when the parties have not managed their change process very well, the dispute will fall into the hands of a judge, jury or arbitrator.
And how exactly is a judge, jury or arbitrator supposed to resolve a dispute that arises because of this inattention? There is no simple answer to that question, and the myriad of considerations that come into play will be addressed in a WPL webinar entitled “Nonconforming Change Orders” on May 11. From the broadest perspective (and ignoring some important details for now), courts are divided as to how to approach these sorts of cases.
Some courts place controlling weight on the freedom of parties to fashion their own contractual relationships. Under this “strict” view, a contractor who seeks compensation for changes in its work for which the contractor never followed the change order process will be turned away at the courthouse steps.
Other courts may be less forgiving, and instead focus on “equitable” considerations when faced with a contractor whose request for compensation seems fair intuitively. That does not mean these will ignore the change order provisions. Rather, they will ask whether the contractor’s (or subcontractor’s) failure to follow the change order provisions caused some prejudice to the owner (or contractor). There are many forms of prejudice – they will be further discussed in the webinar – and as just one example, suppose a steel erection subcontractor submits a change order at the end of the job claiming that its work was impaired by the mason and thus caused labor overruns. It may be perfectly “fair” to relieve the erector of the additional labor expense in some detached sense, but at the same time the contractor may have paid out the mason and lost the practical ability to recoup that money. Why, a court would ask, should the contractor shoulder a financial burden that it could have shifted to the responsible party but for the erector’s failure to follow the notice procedures in the change order provision?
These are not the only questions that arise, of course. Might a party have “waived” the right to insist on strict compliance with change order requirements? Does substantial – albeit imperfect – compliance with a change order requirement count? Are there other barriers to invocation of a change order clause?
Click here to learn more about change orders and answers to these question in Stephen Hess's upcoming webinar on May 11, 2017.
*Stephen A. Hess
Sherman & Howard, LLC, Denver, Colorado
Stephen A. Hess has been identified as a Best Lawyer in America in “Construction Law” and in “Litigation – Construction” through his practice with Sherman & Howard, LLC in Colorado. In addition to serving clients on matters around the country, Mr. Hess is an active author, scholar and speaker. He previously served as the Editor of the American Bar Association’s law review The Construction Lawyer, as well as Editor of Construction Briefings, a national construction law review, and has edited national construction law treatises. Mr. Hess has written numerous law review articles on topics covering the breadth of construction law and litigation, has spoken nationally at construction law programs, has written several treatises on litigation-related issues, and is an Adjunct Professor at Sturm College of Law (University of Denver), where he created the school’s Construction Law Seminar. He is a member of the American Arbitration Association’s National Roster of Construction Arbitrators.