Payment disputes are unfortunately commonplace in construction — and one of the most prevalent points of conflict is compensation for “extra” or change order work.
Most construction contracts will require that these be approved in writing to be entitled to payment (keep in mind: It’s never a good idea to perform work outside the scope of work without written approval). However, in some cases, the owner or GC’s actions can result in the waiver of these requirements, which is exactly what happened in a recent New York Supreme Court case.
Performing work that requires a change order
Subcontractors are stuck between a rock and a hard place when it comes to requests for additional work on any given project.
On the one hand, you aim to please so you can have repeat customers and strengthen your business relationships. Agreeing to do the work and getting it done as quickly as possible is a great way to achieve this goal.
On the other hand, no one wants to work for free. With profit margins as slim as they are in the construction industry, you need to be sure you’re getting paid for everything you’ve earned! So getting that change order approved in writing is just plain good business.
Learn more: How Change Orders Work in Construction
But many times, changes can stack up quickly. And waiting around for written approval for each can be difficult, particularly when you’re in the midst of a project.
A New York subcontractor was recently faced with such a predicament. However, the New York Supreme Court ruled in their favor, declaring that the general contractor’s actions and conduct essentially waived the contractual requirements for change order approvals to be in writing.
Sub files lawsuit to collect on change order work without written approval
The case in question is DeGraw Construction Group, Inc. v. HPDC2 Housing Development Fund Company, Inc. et al.
- General Contractor: Joy Construction Corp. (Joy)
- Represented by: Stanley K. Schlein
- Subcontractor: Degraw Construction Group, Inc. (Degraw)
- Represented by: Stuart Zisholtz
Degraw was hired by Joy under a $2.1 million subcontract to provide labor and materials for concrete and rebar work on a project located in the Bronx. The subcontract also provided for changes to the scope of the work for which Degraw would be paid additional amounts.
Degraw began work on the project and, as you probably guessed, complications arose. Around seven months into the project Joy contended that Degraw improperly walked off the job when less than 50% of their work was complete.
At about the same time, Degraw submitted a change order payment request of $450,000 for work performed outside the scope of work in their contract. The extra work in question was performed in response to design changes such as incorrect rebar count, locations, and spacing.
Joy rejected the claim, stating that claims for change order work were never authorized in writing. Therefore, the claims were expressly barred by the express terms of the contract.
Written change order requirements may be waived
The dispute went through both trial court proceedings and an appeals court hearing. Ultimately, the courts ruled in favor of Degraw regarding the claims for compensation for the extra work performed.
At trial, Joy did concede that they “may have discussed and agreed to change orders” even while there “was no evidence of any change orders signed by Joy,” which was supported by a number of emails submitted as evidence.
Furthermore, Degraw testified that the process of submitting payment requests involved an engineer signing some of the change orders, and that “no conversations ever took place” where Joy explicitly rejected the change orders submitted by Degraw.
In light of this, the court cited a previous case, which stated “… provisions requiring written authorizations for extra work are waived” where “the conduct of the parties demonstrates an indisputable mutual departure from the written agreement and the changes were clearly requested by [the owner] and executed by [the contractor].”
The court went on to emphasize that it’s well-established under New York law that “oral directions to perform extra work, or the general course of conduct between the parties may modify or eliminate contract provisions requiring written authorization or notice of claims.”
Ultimately, the court found that the “trial court properly found that the change orders were directed, authorized, and performed,” and that the plaintiff consented to operate outside the subcontract’s technical requirements.
NY contractors have some leeway for work without written approvals
With this decision, subcontractors in New York can breathe a collective sigh of relief. Well, to an extent.
These types of cases pop up all over the country, and most jurisdictions tend to lean towards strict enforcement of the contract requirements — see VT Sub Loses Claim After Failing to Request Change Orders for Extra Work.
Yet, New York courts have, on more than one occasion, held that the written approval requirement for change orders can be waived in some instances.
However, by no means should NY contractors assume that they can ignore the written approval requirements in their contracts. Performing any extra work without written authorization is a risky proposition — even in light of this decision.
Determining whether the written authorization requirements were waived or not can be a drawn-out, expensive, and tedious process. But if the payment dispute does eventually reach the court system, this decision can provide some solace for contractors seeking compensation for extra work performed without written approvals.