Most construction contracts have a standard provision requiring changes in the work or directions to perform extra work to be made in writing. Courts generally hold that a contractor who fails to obtain the required written authorization will not be paid for such work.
However, a contractor or subcontractor who performs extra work will not automatically lose his extra work claim just because he failed to follow the contract provision requiring written authorization. Courts are hesitant to deny a just claim for extra work and have found that contractual requirements for written orders can be waived under certain circumstances.
In the recent case of Penava Mechanical Corp. v. Afgo Mechanical Services, Inc., an appellate court ruled on whether recovery may be had for orally directed extra work despite the contract provision that an extra work claim must be supported by written authorization.
Absolute Electrical Contractors, Inc. entered into a subcontract with general contractor Richter & Ratner Contracting Corp. The parties’ subcontract contained a so-called “no- oral modification clause.” Pursuant to the clause, all changes in the work or directions to perform extra work were to be made in writing or were otherwise not compensable.
During the course of construction, representatives of the general contractor verbally directed the subcontractor to work overtime. The representatives also orally agreed to pay for this premium time over and above the contract price, as they had previously paid for other overtime work throughout the project.
The promised overtime payment was in lieu of an extension of time to finish the work. In addition, the general contractor’s project manager testified that he instructed the subcontractor not to bother with the “tickets” that were usually prepared by the subcontractor for such extra work and formed the basis for change orders issued, but rather directed the subcontractor to “just get the work done.” The subcontractor sued when the general contractor refused to make payment for the subcontractor’s overtime.
In defense, the general contractor argued that the subcontract’s no-oral modification clause barred any claim by the subcontractor, since the direction to perform overtime work and promise to pay at a premium rate were made orally, and were not in writing. In addition, the general contractor argued that the subcontractor had waived any claims to the overtime pay pursuant to the express language of the lien waivers signed by the subcontractor.
The general contractor moved for summary judgment, which the trial court granted. The subcontractor appealed.
The appellate court reversed the trial court, denying the general contractor’s motion for summary judgement and directing a trial on whether the subcontractor had been paid in full for the overtime work performed.
According to the appellate court, under 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 appellate court relied heavily on the verbal directions by the general contractor to the subcontractor to perform the overtime work and verbal promises to pay the subcontractor.
The court also relied on the general contractor’s verbal direction that the subcontractor not bother with the work tickets that would form a written basis for a formal change order. Under these circumstances, the court held that the general contractor cannot argue that it did not have to pay for the overtime.
As to the general contractor’s argument that the claims had been released, the appellate court held that since the subcontractor was required to sign these waivers whenever it received partial payment, and since payments were made after waivers were given, the parties treated the waivers as mere receipts of the amounts stated in the waivers, not as complete waivers of all claims to that point.
While courts routinely seek to enforce the express terms of an agreement that was freely negotiated, courts also seek to prohibit bad-faith dealings. Here, where the general contractor verbally promised payment, and verbally stated that written work tickets were not necessary to protect the subcontractor’s right to payment, the court would not allow the general contractor to rely on the subcontract’s provisions to the contrary.
A prudent contractor or subcontractor, however, should not ignore the contractual requirement for written extra work orders in the hope that a court may make an exception and find a waiver of the contract provisions under particular circumstances. He should insist on a written order in the form specified by the contract provisions before he performs any extra work. A written extra work order will ensure his right to be paid for performing such work.
About the author: Mr. Miuccio is a partner of the law firm of Welby, Brady & Greenblatt, LLP and General Counsel to the Construction Industry Council of Westchester & Hudson Valley, Inc. Adam W. Downs, an associate with the firm, assisted with the preparation of this article.