Get it in Writing: Best Way to Mitigate Risk in Commercial Construction Projects
It happens all the time – a contractor is walking a jobsite with the client and the client decides something needs to be changed. It could be anything from a paint color change to a multi-million dollar scope addition, but all changes have one thing in common – they cost money to implement. The price of both materials and labor rises every day, making the consequences of project changes even more impactful to the bottom line. When it comes to mitigating the risk of implementing these changes, a written change order signed by all parties can make the difference between protracted litigation and a quick resolution.
Most, if not all, construction contracts contain a clause that calls for all changes to be agreed to in writing. Known as “no oral modification” clauses, such clauses attempt to limit contract changes to those agreed to in writing only. In practice, however, oral agreements are routinely enforced by courts. So long as there is sufficient evidence to show mutual agreement by the parties, oral modifications to construction contracts are valid. In light of their ineffectiveness in court, you might be asking “Why even have such a clause?” The answer is that such clauses are put in contracts to influence the behavior of the parties. Including a “no oral modification” clause encourages all parties to put all changes in writing, leading to fewer disputes and less confusion over the course of the project.
Unlike written change orders, oral modifications to contracts are rife with uncertainty. The evidence for such changes tends to be the memories of the parties and the completed work. Memory is fallible, and the parties may have differing recollections of the scope of the change and the cost to perform it. The completed work alone may not be enough evidence to get a contractor paid – without evidence of direction or agreement by the project owner a court may decide that the contractor is not entitled to additional compensation for the additional work. Similarly, if scope is cut from a project, unless there is sufficient evidence that the parties agreed to the change, a court may decide that an owner still has to pay the full contract price or the contractor still has to perform the full scope.
In contrast, ensuring all changes are captured by written change orders can help protect both the owner and the contractor. Well written change orders describe the scope of the change and the agreed upon cost of the change. There is no need to rely on the perhaps faulty memory of the parties, and at the end of the project the change orders can be reconciled to ensure the contract has been performed as required. An additional benefit of capturing all change orders and change order requests in writing is to establish a record of all changes to the project, whether agreed upon or not.
In conclusion, the best way to mitigate the risk of project changes and forestall costly litigation is to get it in writing.
Jamie Blue is an attorney with Poyner Spruill LLP. He represents commercial construction clients — including developers, architects, owners, sureties, general contractors, and suppliers — in all phases of construction law. For contract revisions, claim resolution, or other construction law matters, contact a member of Poyner Spruill’s Construction Law Practice Area.
