ENR Risk Review has a story about an engineer’s lawsuit for additional compensation for work that was not memorialized in a formal written change order. The case brings to mind an often unknown rule in Pennsylvania regarding verbal change orders.
Claims for additional compensation where no written change order exists are common. What comes as a surprise to many contractors is that even when a contract requires all change orders to be in writing, a court can still award a contractor additional compensation for work not memorialized in a written change order. In Pennsylvania, this has become known as the Universal Builder’s Rule.
The Rule gets its name after the Pennsylvania Supreme Court decision in Universal Builders, Inc. v. Moon Motor Lodge, Inc. In that case, Universal Builders entered into a contract with Moon Motor Lodge to construct a motel and restaurant. The contract — typical of most construction contracts — required that all change orders be in writing AND signed by the architect. After work was complete, Universal brought suit for additional compensation for work authorized but not formally memorialized in a written change order pursuant to the contract.
Notwithstanding the clear language of the contract, the Supreme Court refused to overturn the lower court’s refusal to enforce this contractual provision. The Court explained that several legal theories supported the lower court’s decision. First, verbal change orders can be considered agreements separate from the written contract. Second, the written change order requirement could be consider waived by the parties actions.
Does this mean you can now ignore a contracts requirement that all change orders be in writing? No. First, in Universal Builders, the fact that the work extra work was ordered to be performed does not appear to be disputed. Other courts have held that when extra work is verbally ordered by someone who does not have any authority to order the work, then a contractor may not be able to recover under the Universal Builders rule. Second, Universal Builders was a private construction contract. Courts, at least in Pennsylvania, have refused to extend the rule to public contracts.
There are two takeaways here. (1) Contractors need to evaluate the circumstances surrounding a claim for additional compensation before walking away from it; and (2) Owners and general contractors cannot simply assume that they will not be required to pay for additional work not confirmed by a written change order in a format set forth in the contractor or subcontract.
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