by James R. Keller
This article appeared in St. Louis Construction News & Review, p. 58, March-April, 2003.
In two recent appellate decisions, Missouri's Eastern District Court of Appeals in St. Louis has upheld awards for extra work performed without written change orders, even though the contracts called for written change orders. The cases are Flooring Systems, Inc. v. Staat Construction Co., ED 80814 and ED 80867, filed February 11, 2003, and The Missouri Dept. of Transportation, ex rel. PR Developers, Inc. v. Safeco Insurance Co. of America and Robertson Contractors, Inc., ED 79860, filed November 5, 2002.
These cases reinforce that contractors and subcontractors can, under certain circumstances, recover when they perform extra work beyond the scope of the original contract, but they do not have anything in writing. Virtually every project in the construction industry involves some sort of oral agreement or conversation about extra work. These cases offer important guidance to everyone about which unwritten extra work claims are viable in Missouri and which claims will fail.
In Flooring Systems, the trial court found that the contract "contemplates" that any change to the original plan was to be made as a written change order, submitted by the architect and signed by the owner and the contractor. The project involved site improvements and construction of buildings for an office complex for a guaranteed maximum price of $1,600,252.00.
Staat Construction, Inc. was the general contractor. The owner and Staat met frequently during construction to discuss the progress of the job. These discussions included changes in the original plans as circumstances dictated, such as storm water run-off and detention, site grading, parking, a retaining wall, type of brick to be used, use of aluminum soffit, and tenant-finish issues.
The lawsuit involved a number of issues including Staat's claim against the owner for compensation for extra work. The owner defended on the basis that Staat breached the contract by not submitting any written change orders or providing notice of cost overruns to the guaranteed maximum price for the contract.
The case was tried before a judge who found that the requirement of written change orders had been waived by the actions of the owner and the contractor. To establish a waiver, the contractor has to prove either habitual acceptance of work completed upon oral change orders or that the owner and contractor agreed orally to the changes and the changes were then completed by the contractor.
During construction, Staat had discussed with the owner the many changes that took place and received oral approval for them. Also, the owner accepted the extra work performed by Staat. Given this course of conduct, the appellate court agreed that Staat was entitled to $154,831.06 for extra work and its construction manager's fee.
In Missouri Department of Transportation, PR Developers, a subcontractor, sued its general contractor for breach of contract and the general contractor's surety for vexatious refusal to pay. The project was construction of a bridge, embankments, ramps and roadways at the interchange of Interstate Highway 55 and Routes H and HH for the Missouri Department of Transportation. PR Developers was the subcontractor for the base rock and paving portions of the job.
The case was tried before a jury and involved a number of issues, including PR Developers' claim for compensation for extra work. The jury awarded PR Developers $74,810.16 for non-delay damages and $1,581,192.50 for delay damages.
The trial judge instructed the jury that it should return a verdict for PR Developers on its claim for extra work if it believed that the general contractor and PR Developers had agreed that PR Developers would perform certain "tasks" outside the scope of the written subcontract and Robertson, the general contractor, would pay PR Developers for the work.
PR Developers also had to prove that it performed the work and that Robertson failed to pay for it.
The general contractor argued at trial that the judge should not have instructed the jury as it did because the contract required specific written authorization for extra work before the subcontractor can recover additional money and because PR Developers did not establish that the general contractor had waived this provision.
There was scant evidence of "habitual acceptance" of work being done through oral change orders. However, P. Mitchell Parris, president of PR Developers, testified that Robertson had asked for equipment and labor from PR Developers to repair the bridge approach slab, additional rock for a sub grade and that PR Developers hire a trainee to help Robertson meet its requirements for using trainees on the project. All of this work was outside the scope of the written contract.
Parris' testimony was enough to prove an oral agreement and hence a waiver of the requirement of written change orders. The appellate court upheld the jury's award on this claim.
James R. Keller is a partner at Herzog, Crebs & McGhee, LLP, St. Louis, MO, where he concentrates on business litigation, construction law and ADR. He also is a neutral/arbitrator with the American Arbitration Association and a mediator.