Performing extra work on a project without a written change order or other types of approval can be a dangerous game. When looking to recover payment for undocumented or unapproved extra work, the options are limited. However, a recent case out of the NY Commercial Division suggests that a sub may be able to recover payment from the owner or GC for work outside the scope of their contract.
Extra work outside the scope of the contract
The scope of work is an important aspect of a construction contract. It should clearly define the obligations and responsibilities of the contractor. But construction projects rarely go as planned. The answer to this is the change order process, another critical provision in a contract. This will typically require submitting a written request and approval before performing any additional work.
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Yet many contractors around the country (mistakenly) tend to perform this type of additional work before getting it in writing. When a contractor goes unpaid for work performed outside the scope of the contract, with no written approvals, they can find themselves left holding the bag. That’s because in the construction industry, sometimes what happened is less important than what is documented. When it comes to your payment rights, few things are as important as what’s in your contract.
However, a recent case out of New York suggests that contractors may be able to recover payment for work outside the scope of the contract.
Owner’s actions may make them liable for subcontractor nonpayment
The case in question is: Corporate Electrical Technicians, Inc. v. Structure Tone, Inc.
- Owner: Macy’s Inc. & Macy’s East Inc. (Macy’s)
- General Contractor: Structure Tone, Inc. (STI)
- Subcontractor: Corporate Electrical Technicians, Inc. (CET)
In preparation for the holiday shopping season, Macy’s was planning a slew of renovations at their flagship store in Herald Square. So Macy’s hired STI as the general contractor on the project.
In turn, STI hired several subcontractors to perform the work, including CET. CET and STI entered into a lump sum contract for a little over $1 million.
Owner became more involved in the project
As the project progressed, there were multiple jobsite delays, which resulted in numerous change orders. The project had so many changes that Macy’s decided to take over the day-to-day management of the renovation project and assign a project manager to oversee the construction.
After this, Macy’s instructed CET to perform additional work beyond the scope of work of the subcontract. But when CET submitted the change orders, they went unpaid. So CET filed suit.
Sub files suit for non-payment
CET sought $1.85M in damages for breach of contract and quantum meruit. Both Macy’s and STI moved for summary judgment on all claims. The court granted the motion to dismiss the breach of contract claim. The claim included delay damages, and there was an issue of the scope of a no damages for delay provision that would need to be resolved by a jury.
But it’s the discussion of the quantum meruit claim that could have some interesting implications.
Extra work was performed under the direction of the owner
Property owners in NY won’t usually be liable to a subcontractor unless they expressly agree to pay the sub directly. Macy’s argued that they couldn’t be liable to CET because the had no contract with them, and the subcontract covered these claims.
Generally, this is all true. Quantum meruit in NY isn’t typically available if the subject matter of the claim is covered under a valid contract. Macy’s also brought up the issue that CET contract specifically mentions that all extra work must have written approval from the owner.
In this case, Macy’s project manager was communicating with CET directly. CET also submitted emails from the project manager which implied that they would provide financial incentives to complete the project on schedule. This could make Macy’s liable to pay the reasonable value of the work since it was directed by them. Furthermore, the court stated that even with the presence of the “extra work approval clause,” actions and statements by the owner can act as a waiver of this clause.
Accordingly, the judge dismissed the motions for summary judgment. Instead, the case will continue to trial.
Owners can expressly consent to pay for extra work
Although this case hasn’t been completely settled, the court’s approach brings up an interesting concept. Under certain circumstances, a sub may have the ability to recover payment for work beyond the scope of the subcontract…even without written approval! Although we always caution to never perform any extra work without a written change order.
Macy’s tried to rely solely on the terms of the subcontract to shield themselves from liability. It seems for now that their words and actions can be enough. We’ll keep an eye on this case and let you know how it turns out.