Don’t Get Short Changed: Tricks and Traps to Keep in Mind When Setting up Contracts and Agreeing to Change Orders Bryan Hicks and Eric Bojm April 19, 2016 www.blakes.com
Agenda 1. Overview of General Contractual Principles 2. Enforceability of Change Orders I. Is the extra work outside the scope of work contemplated by the original contract? II. Is there acquiescence/authorization of the extra work? 3. Quantum Meruit Claims 4. Best Practice for Making Sure Your Change Orders will be Enforceable 5. Q & A 2
Basic Contractual Principles • Construction contracts are governed by ordinary contractual principles. • An enforceable contract requires: � offer; � acceptance; � consideration/quid pro quo; and � meeting of the minds/intent to contract based on an objective test of a reasonable person. 3
Basic Contractual Principles • An enforceable contract can: � be created orally or in writing and parol evidence may be admitted in some cases to show that a written contract does not constitute the whole contract; and � be varied by the conduct of the parties. • Emails, letters, invoices, notes, etc. may be evidence of the terms of a contract. 4
Enforceability of Change Orders • Most construction contracts have a standard clause providing: � that any agreement or order as to extra work must be in writing; and � a contractor or subcontractor cannot recover any amounts due for extra work unless such requirement has been met. 5
Enforceability of Change Orders • A court may waive the contractual requirement for written authorization if the party performing the work can prove : 1. the work performed was in fact, extra work outside the scope of work originally contemplated by the contract; 2. the owner gave express or implied instructions requesting or authorizing the work performed; 3. the owner was informed or necessarily aware that the extra work would increase the cost; and 4. an owner’s conduct, such as oral approval, amounts to acquiescence to the extra work and an implied promise to pay for the extra work. • Requirements 2, 3, and 4 are closely related and are concerned with whether the owner authorized the work (and the extra expense). 6
Enforceability of Change Orders Whether work is “extra work” beyond the scope of the original contract is determined by: 1. reference to the terms of the original contract; and 2. the nature of the work and the surrounding circumstances. 7
1. Is the extra work outside the scope of work contemplated by the original contract? Extra work that is outside scope of original contract – some examples and factors: • Work caused by the owner that is more expensive than work contemplated under the terms of the original contract. 1 • Work performed that deviates from work specifically outlined or required by the original contract by reason of installation of additional units and unforeseen dimensional changes. 2 • Work product that substantially differs from that described in the drawings and plans of the original contract as a result of new additions and changes. 3 8
1. Is the extra work outside the scope of work contemplated by the original contract? “Extra” work that is within scope of original contract – some examples and factors: • Strict interpretation of terms, dimensions and plans identifying the scope of work of the original contract applies despite the performance of significant additional work to comply with certain dimensions specified in the contract. 4 • Corrective work that is performed to comply with contract specifications. 5 9
2. Is there acquiescence/authorization of the extra work? Acquiescence/authorization of the extra work • Previous conduct of parties precludes reliance upon the terms of the contract requiring written authorization of extra work. 6 • Instructions authorizing extra work, letters to plaintiff to proceed with extra work and practice of issuing change orders after invoices given amount to acquiescence. 7 • Seeking an estimate of the cost necessary to conduct extra work from the subcontractor or contractor, failing to stop the performance of extra work, and previous practice of ordering changes to plans without work orders indicate a waiver of the contractual provision requiring written approval. 8 10
2. Is there acquiescence/authorization of the extra work? Non-acquiescence/authorization of extra work • Reliance on a vague promise of compensation and a lack of evidence showing owner was informed in advance of the performance of extra work indicate non- acquiescence. 9 • Owner’s unawareness of additional work being performed indicate non-acquiescence. Paying more than the contract price before termination of the contract is not acquiescence to extra work. 10 11
Quantum Meruit Claims • Quantum meruit is a term used to describe the monetary value attributed to the uncompensated services provided by the plaintiff to the defendant. • Quantum meruit has been described by the courts as simply meaning “what the job is worth” 12
Qantum Meruit Claims Two types of quantum meruit : 1. contractual quantum meruit ; and 2. restitutionary quantum meruit (unjust enrichment) . 13
Restitutionary Quantum Meruit • No requirement for existing contract between the parties. • Plaintiff must establish there has been an unjust enrichment by proving: 1. the defendant has been enriched by the plaintiff ; 2. the plaintiff has suffered a deprivation as a result of her role in helping the defendant acquire the enrichment; and 3. there is no juristic reason that justifies the enrichment. 14
Contractual Quantum Meruit • A court may find that an owner has acquiesced in the performance of extra work to the extent that the extra work is separate and distinct from the scope of work as defined and contemplated by the original contract. In these circumstances, the extra work may constitute a separate contract and entitle the contractor to receive compensation on the basis of quantum meruit . 15
Contractual Quantum Meruit • The party claiming compensation based on contractual quantum meruit must prove: 1. a contractual relationship exists between the parties; 2. agreement between parties that certain work was to be done but failed to agree on all aspects of the contract, for example, the price to be paid; 3. the defendants accepted the work; 4. both parties had, or should have had in the circumstances, an expectation that the work was not rendered gratuitously; and 5. the payment sought was reasonable remuneration for the work done. 16
Contractual Quantum Meruit • A separate contract can be inferred from circumstances which show that the owner requested or knew of a variation for the owner’s benefit and must have realized would involve extra expense. 11 • Oral authorization from an owner to proceed with the work can be an indicator of a separate contract entitling the contractor to compensation on a quantum meruit basis. 12 13 17
Best Practices 1. Ensure the scope of work is well defined in the original contract. Use clear, express language. 2. Obtain written approval for all change orders before commencing work under the order. Include price adjustments if possible. If specific price adjustment is not known, then refer to price increase to be determined at later date and the owner’s agreement to pay such price once known. 18
Best Practices 3. If prior written authorization is not possible or desired, then confirm oral agreement with a follow-up written communication: a) use clear, affirmative language (ie. “I write to confirm the terms of the agreement that you and I discussed and agreed to earlier today. We have agreed as follows:”) b) use express words to describe the terms (ie. “extra work”; price; will commence right away without requiring any further formalities; reliance) 19
Best Practices 4. Document any indications that the owner authorized or acquiesced to the extra work. Eg. Did the owner see/comment on the work in progress, help select materials, etc. 5. Retain (or document) evidence of prior practice on the job regarding change orders that went ahead without requiring written approval. 20
Q & A 21
Bryan Hicks 604-631-5227 bryan.hicks@blakes.com Eric Bojm 604-631-5241 eric.bojm@blakes.com 22
Sources • Colautti Construction Ltd. v Ottawa (City), 25 ACWS (2d) 379, 46 OR (2d) 236. • Kei-Ron Holdings Ltd. v Coquihalla Motor Inn Ltd., [1996] BCJ No 1237, 29 CLR (2d) 9. • Rich Van Electric Ltd. v Dhaliwal (c.o.b. Mainland L Contracting Ltd.), 2009 BCSC 1383, [2009] NCJ No 1997. • Tri-Gil Paving Construction Ltd. v Maxim 2000 Inc., 2014 NBCA 43, [2014] NBJ No 165. • Fast Trac Bobcat & Excavating Service, a Division of Fast Trac Enterprises Ltd. v. Riverfront Corporate Centre Ltd., 2009 BCSC 268, [2009] BCJ No 371. • Cheong (c.o.b. Cheong’s Development & General Contractor) v Nguyen, 2005 BCSC 1653, [2005] BCJ No 2611. • Chow v Kwan, [1999] BCJ No 2212, 48 CLR (2d) 183. • Fairwood Construction Ltd. v Lin, [1997] BCJ No. 1123, 33 CLR (2d) 111. • Nu West Decorating Ltd. v Gateway Construction & Engineering Ltd., [1992] MJ No 207, 1 CLR (2d) 313. • Andes Concrete Services Ltd. v Cambie Forming Ltd., 2016 BCSC 352, [2016] BCJ No 399. 23
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