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Contractor that performed significantly greater unit quantities of paving work than anticipated was barred from an equitable adjustment because although it adequately documented the increased quantities and costs, and the project owner was aware of the same, the contractor failed to submit a change order for approval by the owner in advance of incurring the costs.

In Seneca Valley, Inc. v. Village of Caldwell, 808 N.E.2d 422 (Ohio, 2004), a contractor, (Seneca Valley) on a waterline project brought suit against a village seeking an equitable adjustment for increased costs associated with excess materials and costs it incurred for increased unit quantities of pavement.  The contractor argued that the village was in breach of its contract by failing to pay for the work, or that in the alternative, the contractor was entitled to recover its extra costs under the theory of “quantum meruit” because the village would otherwise be unjustly enriched by all the extra work performed by the contractor.

The contract had been awarded to Seneca as the lowest bid on a lump-sum, fixed-price contract.  The specifications included in the invitation for bid showed a small unit quantity of pavement replacement.  Seneca asserted in the litigation that the contract was not lump-sum contract but a unit price contract.  The contractor placed approximately 1,380 cubic yards of granular aggregate and replaced 1,422 square yards of pavement at the project site. (Only ten square yards of asphalt restoration was included in the unit price estimates contained in the bid and contract).  No written change order was issued for the placement of these materials.  It was not until the contractor’s pay estimate was submitted to the village seeking payment for these quantities of aggregate and pavement that the dispute became apparent.  The project manager for the village responded to the pay request by advising that “A quantiy increase over the bid quantity of this magnitude needed a request for a change order.”  In addition, the project manager noted that the material used for the pavement restoration was not the same as the bid item and that this also required a written change order to approve this change.

In considering the matter, the court stated that it was undisputed that the contractor performed work beyond the specific base units set forth in the bid.  The court stated that the question to be determined was whether the contract was a unit base contract (fixed price per unit but no set number of units) or a fixed bid based contract (one set price for completion of the job as a whole).  The contractor argued that the contract was a fixed bid contract and that setting unit prices within the contract was “merely a convenience for calculation of the final bid and, in the event that the specific number of units listed in the contract was exceeded, was to be used in order to more easily facilitate a written change order.”

The village’s Notice of Award to the contractor stated “You are hereby notified that your bid has been accepted for items in the amount of $103,040.”  This amount, said the court, was the total amount of all bid items and the notice of award didn’t anywhere mention unit prices.  The General Conditions section of the contract, says the court, support the villages argument that the unit prices that were identified in the contract were “pre-negotiated unit prices for dealing with post-contractual increases.”  The court quoted at length from various contract provisions concerning “Contract Price,” “Field Orders,” “Change Orders,” “Measurements and Quantities,” and “Changes in the Work.”  It’s conclusion was that in accepting the contractor’s bid, the bid was accepted based on a finite amount of money and did not refer to unit prices. The court finds: “Further, the fact that the base bid quantities may have been estimates does not eliminate the change-order requirement for work quantities in excess of the estimates.  This contract unambiguously requires a written change order in advance of any additional pay items.”  Based on this, the court found that the village did not breach its contract by refusing to pay the extra costs demanded by the contractor.

Contractor’s alternative theory for recovery (i.e., unjust enrichment for the village) was also rejected by the court.  As stated by the court, “While the outcome herein may render unfortunate results for the [contractor], it is not the function of this court, or any court, to construe an otherwise unambiguous contract in order to achieve equitable results.  Finally, the court rejected the contractor’s argument that the village had waived its rights under the contract by virtue of the fact that its project representatives had approved daily work in excess of the initial bid item quantities.  As explained by the court, “The contract documents in the instant case do not provide that the Village water department employee, acting as an “Observer,” had authority to authorize contract quantities orally or even writing.  There is no evidence of or any claims of an express waiver by the Village.  In fact, the bid contract documents themselves negate such a claim.”    For these reasons, the appellate court affirmed summary judgment in favor of the village against the contractor.

Practice Note: The importance of complying with contract requirements is emphasized by this decision.  As explained by the court, a number of factors favored the Village against the contractor in this case.  There is a significant body of case law standing for the proposition that where procedures for written change orders are provided for within the contract, those procedures must be followed, and will not be deemed to be waived by knowledge or actions of the owner’s project representatives who lack authority to approve change orders, or even if they had authority, were not timely asked to approve a change order in advance of the contractor performing the work to which it asserts entitlement to equitable adjustment.  Contractors should take steps to educate their field and office personnel on provisions of the contract concerning time limitations and authority for approval of change orders.  These are not matters to be known only by the contract negotiators and legal counsel, or to be ignored or forgotten by throwing the contract in a file cabinet and never referring to it for managing the project and documentation.

About the author: Article written by J. Kent Holland, Jr.,  a construction lawyer located in Tysons Corner, Virginia,  with a national practice (formerly with Wickwire Gavin, P.C. and now with Construction Risk Counsel, PLLC) representing design professionals, contractors and project owners.  He is founder and president of a consulting firm, ConstructionRisk, LLC, providing consulting services to owners, design professionals, contractors and attorneys on construction projects.  He is publisher of ConstructionRisk.com Report and may be reached at Kent@ConstructionRisk.com or by calling 703-623-1932.  This article is published in ConstructionRisk.com Report, Vol. 6, No. 7 (Sep 2004).

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