Change Orders During the COVID-19 Pandemic — Managing Unexpected Construction Costs and Time Overruns

By Mark McCallum posted 07-23-2020 10:02 AM

  

By Elizabeth D. Charnowski and Carl R. Pebworth of Faegre Drinker Biddle & Reath LLP
Published July 20, 2020


The COVID-19 pandemic has caused cost overruns and project delays that construction owners and contractors could have never imagined before 2020. These unanticipated circumstances can create contract application and interpretation challenges for the unwary construction partner. For example, even if a prime contract expressly requires a specific notice period for change orders, parties can waive or circumvent these requirements in a range of ways. Now, more than ever, prudent construction partners must act carefully to avoid unforeseen impacts. That is especially true when project sites shut down due to executive orders and as work later restarts. Many contractors may now be seeking extra time or compensation for these project delays. How do prudent owners and contractors navigate these uncertain circumstances? Here are some considerations to bear in mind:

Orally Modifying Change Order Provisions

Parties can orally modify change order provisions by their conduct and actions. Absent a purposeful decision to do so, owners and their representatives should avoid orally “agreeing” to certain changes in meetings either informally via email or by their course of conduct. Even unconsidered actions can be interpreted by a court to be an implied equitable modification of the contract provision. Oral representations, even if contrary to terms of a contract, should be carefully made and can be considered a modification of the contract. Otherwise, an owner may have to pay a contractor or allow for a contract extension due to an untimely submitted change order. Careful construction partners should aim to confirm changes in cost or timing formally and in writing to avoid uncertainty.

Waiving Requirements in Change Order Provisions

Similarly, parties can waive the notice requirement for a change order through their actions and conduct. For example, if a contractor previously submitted a change order that an owner still executed even if it violated the notice provision, those actions waive notice timing requirements in a change order provision. Additionally, paying an invoice even though a formal change order was not timely submitted may waive these requirements. Even if an owner would be willing to execute a late-submitted change order, the owner should understand that this conduct could more generally waive notice requirements in the change order provision. All this is made further unclear because risks of the COVID-19 pandemic were, understandably, not considered in project pricing and scheduling and current understandings regarding pandemic impacts are widespread and ubiquitous.

Work Performed Under Emergency Circumstances

As an example of unforeseen exigencies, contractors may have performed emergency work because of project shutdowns created by executive orders. Courts may find that, although a formal change order was not timely submitted, the owner still must pay the contractor for that emergency work. Whether the work was an “emergency” remains a question of fact for a judge or jury. However, parties can avoid unnecessary and expensive disputes about cost or time overruns caused by emergency circumstances if the parties engage in ongoing close communication.

The COVID-19 pandemic brings unprecedented circumstances to construction project sites, as well as related cost and time overruns that parties must account and pay for. If successful construction partners make these decisions carefully, they can hope to avoid unpleasant surprises at the project’s end. Knowing when and how a clear project obligation can change before changes occur can save much cost and stress.

This article summarizes content from Bruner & O'Connor on Construction Law. For more information on this topic, or for additional citations, see Section 4:35.

Faegre Drinker’s Coronavirus Resource Center is available to help you understand and assess the legal, regulatory and commercial implications of COVID-19.




Elizabeth D. Charnowski
Elizabeth D. Charnowski  is an Associate with Faegre Drinker.  She solves clients’ construction and real estate litigation challenges. She can be reached at Elizabeth.charnowski@faegredrinker.com or 312.356.5049.

 








Carl R. PebworthCarl R. Pebworth is a Partner with Faegre Drinker. He represents clients in disputes and risk management involving real property and construction. A skilled litigator, he is adept at proactive risk management, early case assessment, motions practice, negotiating settlements, and successfully winning trials and appeals on behalf of clients. He can be reached at carl.pebworth@faegredrinker.com or 317.237.1267.







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