Most construction contracts, including those based on the American Institute of Architects (“AIA”) forms, contain terms requiring that any change orders be in writing and signed. Tennessee courts have, with some frequency, not enforced those provisions. Usually, the legal theory used by those courts is waiver.
Two Tennessee construction cases involving construction contracts with change order requirements, and in which the courts reached different outcomes, provide a good view of the legal landscape in which a contractor which has not strictly complied with a written change order provision will find itself. The first case is Moore Construction Company, Inc. v. Clarksville Department of Electricity (Tenn. Ct. App. 1985). Here are the key facts in that case:
- The project was for the construction of a new office building
- The owner contracted with two prime contractors, Moore and Kennon
- Moore was to perform the site work and other exterior work
- Kennon was to construct the building
- All parties understood that Moore would be able to complete only part of its work before Kennon finished constructing the building, and that, it would not be able to complete its work until Kennon had finished constructing the building
- Moore completed its initial work timely
- Once Kennon started, it fell behind schedule due to its subcontractors
- In September of 1981, Moore began to complain that it could not complete its work due to the delays by Kennon
- A meeting was held among the owner, Moore and Kennon at which meeting it was agreed that the parties would have to adjust their schedules
- No written change order was prepared after this meeting, but the owner prepared a job site memo stating that the parties had agreed to extend the time for Moore to complete its work
- When Moore went back to work, the owner directed it to perform extra work and it did
- The extra work was done without a change order and the owner ultimately paid Moore for that extra work without protest
- Moore requested that the owner pay it an additional $22,000 in delay damages above the contract price which resulted to Moore from the delays caused by Kennon
The owner refused to pay Moore the delay damages. It argued that it had no obligation to do so because it had not signed a change order for an increased contract price. The construction contract in the Moore case incorporated the AIA General Conditions which provided: “If the Contractor wishes to make a claim for an increase in the Contract Sum, he shall give the Architect written notice thereof within twenty days after the occurrence of the event giving rise to such claim.” Article 12.1 of the General Conditions also required that the contractor obtain a written change order to enlarge the scope of work.
Moore sued the owner for breach of contract for the $22,000 in delay damages. The trial court held against Moore finding that it was not entitled to the delay damages because it had not complied with the written change order term of the contract.
The Court of Appeals reversed. It found that the owner had waived the written change order requirement. How? First, the owner had implicitly agreed, via the job site memo, that Moore would have additional time to complete its work. The court found that, at that point, Moore could have assumed that the owner was not going to insist on compliance with the written change order provision of the contract. Second, the owner ordered extra work from Moore, and even paid for it, without requiring a change order. Overall, the court concluded, the owner had engaged in conduct reasonably establishing that it was waiving the written change order requirement.
In contrast to the Moore case, the court in Guideone Taylor Ball Construction Services, Inc. v. First Baptist Church of Selmer, Tennessee (M.D. Tenn. 2007) found that the general contractor was not permitted to recover an additional $660,000 resulting from work necessitated by changes to the construction plans. The AIA contract in that case, just like the construction contract in the Moore case, required that the general contractor initiate any damage claims “within 21 days after occurrence of the event giving rise to such Claim or within 21 days after the claimant first recognize[d] the condition giving rise to the claim, whichever is later.” A “Claim” included a claim for payment above the amount set forth in the contract.
In the Guideone case, the contractor did not give notice to the owner or architect of its claims for additional monies until it filed its lawsuit, which was well outside of the 21 day period set forth in the contract. As well, there was no course of conduct on the part of the owner giving rise to any reasonable inference that it intended to waive the notice provision at issue.
For Tennessee construction lawyers, the facts of many cases will fall somewhere between the facts of the two cases discussed above, and cases where the issue is whether a written change order or notice term has been waived will turn on their own unique facts. Nevertheless, these two cases provide some helpful guidance.