By: WBG, LLP Published: January 2009

The Appellate Division First Department Finds in Favor of a Subcontractor That Oral Directions to Perform Extra Work May Override Contract Provisions Requiring Written Authorization

Generally, a provision in a private construction contract that extras must be ordered and agreed to in writing, is valid and binding upon all parties and no recovery can be had for alterations or extras done without a written order. However, as evidenced by the following, where there is an oral waiver, modification, or abrogation of such a provision, the First Department of the Appellate Division, will recognize and enforce such oral agreements.

 A mechanic’s lien foreclosure action was initiated by the HVAC subcontractor on the improvement and reconstruction of the Uniqlo USA’s (“Uniqlo”) flagship retail store in the SoHo district of Manhattan (the “Project”). A named defendant and fellow mechanic’s lienor, Absolute Electrical Contractors, Inc. (“Absolute”), the protagonist of our story, answered the complaint and asserted counter-claims1 against Uniqlo, as the owner, and the general contractor, Richter & Ratner Contracting Corp. (“R&R”) for amounts owed for additional labor, including overtime and shift work, performed at the direction of R&R. 

Absolute asserted that significant amounts of overtime work and additional shifts were required to meet the scheduled completion date, understood to be grand opening party for the store on November 10, 2006. R&R orally agreed to pay Absolute for its overtime and additional shift work on the basis of “work tickets” submitted by Absolute and signed by R&R. Based on this agreement, Absolute submitted daily work tickets and requests for additional compensation for overtime, additional shift and other extra work. R&R issued and executed 19 change orders and paid all. However, roughly three weeks before the completion date, R&R directed Absolute to further accelerate its work by working literally around the clock, including weekends, but instructed Absolute to stop submitting daily work tickets. Instead, R&R directed Absolute to submit a bill for the overtime and additional shift work at the completion of the Project, which R&R agreed to pay. At the completion of the Project, Absolute submitted a “Proposal for Equitable Adjustment,” requesting payment of overtime, additional shift work and other costs and damages resulting from R&R’s accelerated work directives. In the end, R&R refused to issue a change order or pay any portion of these sums.

 R&R responded to Absolute’s claims by cross-moving for summary judgment based on provisions of the subcontract, which expressly required that “any additional or extra work must be authorized in writing by a Project Manager, Project Executive or Officer of R&R,” and restricted any remedy for delay to an extension of time. Absolute then cross-moved for summary judgment on their “counter”-claims for amounts owed for extra work against R&R. Judge Lowe of the Supreme Court, New York County, granted Uniqlo and R&R’s motions for summary judgment dismissing the counterclaims asserted by Absolute and denied Absolute's motion for summary judgment as to liability on such counterclaims. Absolute appealed. 
                                                              1 The decision as reported and the documents filed erroneously refer to the cross-claims made by the co-defendants as counter-claims.

The Appellate Division ruled that R&R failed to meet its burden on summary judgment of Absolute’s counterclaims, holding that the oral directions to perform extra work overrode the contract provisions requiring written authorization and that there were issues of fact to be resolved as to whether Absolute was paid in full. Quoting Barsotti’s Inc. v. Consolidated Edision Co. of N.Y., 254 A.D.2d 211 (1998) and citing testimony of R&R representatives, the Court stated that “[u]nder New York law, oral directions to perform extra work, or the general course of conduct between the parties, may modify or eliminate contract provisions requiring written authorizations or notice of claims.” The Court found that, given such testimony admitting to directing Absolute to perform the additional work, agreeing to pay for the work and instructing them not to bother with the “tickets,” the general contractors claim that it did not have to pay for this overtime because there were no written tickets or change orders was meritless. 

The Court also alluded to the fact that the no-waiver provision of the subcontract did not avail R&R, as Absolute was not claiming that the general contractor waived its right to enforce the no-oral-modification clause by making other payments. Rather, Absolute was claiming that R&R waived such right by directing it to perform overtime work and not to bother with the tickets. Further, R&R could not rely on a “no damages for delay” clause as Absolute was not seeking to recover damages caused by delay, but rather to be paid for overtime that R&R directed and for which it had agreed to pay. 

Ultimately, the court found that there were issues of fact as to whether R&R had fully paid Absolute for Absolute’s overtime work during the three week period. Therefore, where there is a provision within a subcontract requiring that all extra work be requested and agreed to in writing, any oral waiver, modification, or other abrogation of such a clause will be recognized and enforced if supported by corroborating testimony. 

 

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