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Volume 8 - Number 14 | April 5, 2010

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Recent Issues

  EDITOR'S NOTES | Issue 8-14
Construction contracts frequently specify one or more methods for pricing changed work. Despite the effort to define pricing in advance, however, the matter is a recurring source of disputes. This was illustrated in a recent California case.

The contract contemplated both time and materials and lump-sum change orders. One provision required the contractor to provide "documented actual cost." But, it was unclear whether this pertained to time and materials change orders or all change orders. As a practical matter, the project owner issued time and materials directives for smaller items of changed work. For major items, the owner attempted to negotiate forward-priced, lump-sum contract modifications based upon engineering estimates.

Not all the change orders were successfully forward priced, however. When the contractor sued to recover payment for unpriced changes, the owner argued that the claim was barred because the contractor relied on engineering estimates and failed to itemize and document its actual change order costs.

Other cases this week involve the role of an unresolved change order dispute in a finance/design/construct contract and the duties owed by a construction manager to a contractor. The builder could not refuse to convey the completed project to a public entity based on a dispute involving two percent of the project value. And, the CM owed no duty of due care to the contractor, as this would conflict with the CM's obligation to protect the interests of the project owner.
  CALIFORNIA COURT ADDRESSES CHANGE ORDER PRICING METHODS
Unless a contract clause was interpreted to require documentation of actual costs on all change order work, the contractor could use engineering estimates or the modified total cost method for quantifying its change order claims.
  CHANGE ORDER DISPUTE DID NOT JUSTIFY REFUSAL TO CONVEY PROJECT
A contractor’s refusal to convey a completed facility to the county government was not justified by an unresolved change order dispute. The amount in contest – 2 percent of the contract price – was not a material aspect of the agreement to finance, design and build a wastewater treatment plant and then convey the plant to the county.
  CONSTRUCTION MANAGER HAD NO OBLIGATION TO CONTRACTOR
A construction manager’s obligations were to protect the interests of the project owner. The CM owed no duty of due care to a construction contractor, as this would have created a conflict of interest.