Oral authorization for engineer to perform additional design services on a municipal golf course was not binding on city because the contract mandated that written change orders be executed to authorize such services.  On the engineer’s breach of contract action against the City of Carlsbad, California, a jury awarded the engineer $109,000 for its extra work.  This was reversed on appeal based on the contract’s requirement for a written change order, with the court stating that unlike private contracts, public contracts that require written change orders cannot be modified orally or through the parties’ conduct.  Consequently, even if the engineer had sufficient proof of oral authorizations of a city employee for extra work, the matter should not have been submitted to a jury but summary judgment should have been granted instead.

In P&D Consultants, Inc. v. City of Carlsbad, 190 Cal.App.4th 1332 (California 2010), the city retained the engineering firm of P&D Consultants, Inc. to redesign the city’s municipal golf course.  Scope of work and contract price were well defined in the contract that provided that no amendments, modifications, or waivers of contract terms would be allowed absent a written agreement signed by both parties. An integration clause in the contract further provided that the contract and any written amendments thereto embody the parties’ entire agreement.

Four written amendments to the contract were issued.  For each of these, the engineers submitted a proposed change order with a fixed price to the city, and the city, typically a few weeks later, executed an amendment to the contract.   A fifth, and final, written amendment was executed on a time and materials basis, with a not to exceed maximum amount.  In most instances the city orally authorized the engineer to begin the extra work before the amendments were executed.

Amendment Number 5 stated: “It is the intent of the Parties that Amendment No. 5 shall provide all final and complete services by [Engineer] to City required to produce the final, approved, signed, and complete sets of plans, specifications, and estimates required by City to bid the Project….  No additional compensation shall be requested by [Engineer] nor shall be approved by City related to this scope of work.”

Subsequent to Amendment No. 5, the engineer sought more compensation from the City for work that it stated was not included in Amendment No. 5.  When the city refused to pay, the engineer sued for breach of contract under the theory that the contract’s written change order requirement had been modified by a city project manager’s oral authorization to perform the additional work and by the previous dealings with work being authorized for Amendment number 1 through 4 before the amendments were ultimately signed.

In rejecting the engineer’s argument the court stated:

“Any oral authorization by [project manager] for extra work beyond the work contemplated in Amendment No. 5, or supposed modification of the written change order procedure based on the handling of Amendments Nos. 1 through 5, is insufficient to bind the City.   The plain language of the contract limits the City’s power to contract to the prescribed method.  By ostensibly relying on [Project Manager’s] oral authorization or direction to begin or perform extra work without a written change order, P&D acted at its peril.  The purpose of including a written change order requirement in a municipal works contract is obviously to protect the public fisc from the type of situation that occurred here.”

For these reasons, the appellate court reversed the judgment that had been awarded in favor of the engineer and held that the engineer was entitled to no recovery.

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. 13, No.8 (Aug 2011).