A Terminated Contractor Recovers for Extra Work and Lost Profits

by James R. Keller

This article appeared in St. Louis Construction News & Review, p. 16-17, September-October, 2000.

Extra work and possible termination are two "facts-of-life" for contractors.

Missouri's Court of Appeals for the Southern District affirmed a jury's verdict in favor of a terminated contractor for $170,283 on claims for extra work, lost profits and contract retainage. The decision is Wisch & Vaughan Construction Co. d/b/a WAVCO v. Melrose Properties Corp., Case No. 22768, decided May 16, 2000.

The case offers valuable guidance about how a Missouri jury and one of its appellate courts resolved a dispute over extra verses additional work. Only extra work entitles the contractor to more money.

The decision also shows that a contractor can recover for extra work even though it did not follow the written provisions of the contract. The court decided that the parties waived the formal contract requirements, given their course of dealings with each other.

WAVCO and Melrose Properties, the owner, entered into a written contract to build a two-story, 60-unit motel in St. James, Missouri for $1,534,218. The contract allowed for price adjustments if changes or additions to the plans increased the scope of the work and increased the cost or labor for WAVCO. The contract also required that the motel had to be substantially complete within 142 calendar days after the notice to proceed.

The project was "fast tracked," meaning that construction would begin before completion of the final plans and specifications.

The contract provided that Melrose Properties could retain percentages of contract payments during various phases. The contract further provided that if WAVCO failed in any way to perform or abandoned the job, Melrose Properties could terminate the contract upon seven day's notice, complete the project itself and offset accordingly any money due to WAVCO.

WAVCO started site preparation a month before receiving the formal notice to proceed on June 21, 1994, and received the final plans another month later on July 23, 1994.

Melrose and WAVCO agreed on three change orders during construction for extra work that increased the total contract price by $120,695.

WAVCO failed to complete the project within the agreed time, but continued to work after the contract completion date. Then came the dispute. Almost two months beyond the scheduled completion date, and still on the job, WAVCO requested an additional 51 days to complete the work.

Melrose responded by asking the contractor to work weekends and double shifts without any increase in the contract price. WAVCO refused. The owner then provided the seven-day notice, terminated the contract, and took over construction. The motel eventually opened on May 29, 1999.

WAVCO sued Melrose for breach of contract for the termination and for not allowing it to finish the work, claiming damages of $69,663 for extra work, $69,120 for unpaid retainage, and $38,000 for lost profits.

Melrose counter sued for the contractor's alleged failure to complete the motel on time.

The jury awarded WAVCO $170,283, and gave Melrose nothing on its counterclaim.

On appeal, Melrose argued that the trial court should not have allowed the jury to consider or award anything on WAVCO's claim of "extra work". The owner contended this was merely additional work, not extra work, and even if it were extra work, the contractor did not follow the contract provisions necessary to receive additional money.

The appeals court defined "extra work" as being work not contemplated by the parties; "additional work" as work required to complete the contract, but which arose from unanticipated conditions; and "alterations" as changes in the form of the work that do not destroy its identity.

In the WAVCO case, the jury awarded damages for eleven of twelve items claimed to be extra work, including adding steel reinforcing rods to the concrete driveway and a slotted drain for storm drainage. The court said these items were outside the scope of the work as originally contemplated, so the jury could award damages.

Melrose Properties also argued that the written contract required that claims for extra work required a written change order, signed by the owner, and submitted by the contractor within 21 days after determining a change was necessary. Because WAVCO did not do this, Melrose believed that WAVCO could not recover. Melrose was wrong.

The contractor said that since none of the parties followed those rules during construction, they had through their course of conduct waived the contract's provisions. Furthermore, WAVCO's president testified that the owner requested changes in the work throughout construction, and of the three change orders that were prepared and paid, two were not signed as required. The court agreed with WAVCO, concluding that the parties had "waived" strict compliance with the provisions for written change orders.

The court also considered the contractor's claim for lost profits. The appeals court noted that such damages, if proven, are recoverable, and the dollar amount could be an estimate, but it must be a "rational estimate," based on "reasonable certainty."

Although disputed on appeal, the jury's award appears to have included $38,000 for lost profits. To the extent the final damage award included lost profits, the appeals court found the jury's decision to be proper.

James R. Keller is a partner at HERZOG, CREBS & McGHEE, LLP, St. Louis, Missouri, where he concentrates on construction law, real estate and business litigation. He is also an arbitrator for the construction and commercial sections of the American Arbitration Association.