A frequent topic of dispute in litigation involving construction projects is whether a subcontractor is entitled to payment for work it performs outside its contractual scope of work—often referred to as “extra work” or “change order work”—without obtaining a signed written change order to perform the work. The same issue often arises in the context of change orders and directives issued from the owner to the general contractor.
In a typical scenario, the general contractor orally directs a subcontractor to perform work outside of the subcontractor’s scope and promises that a written change order will shortly follow. The subcontractor, conscientious to keep the project moving, complies with the oral directive and completes the extra work without obtaining a signed written change order. Its subsequent payment requisition is then denied for failure to obtain the signed change order. Is the subcontractor legally entitled to be paid for the work that the general contractor directed it to perform, even without a signed change order?
In DeGraw Construction Group, Inc. v. HPDC2 Housing Development Fund Company, Inc., 2020 NY Slip Op 07131 (Dec. 1, 2020), the Appellate Division, First Department, reaffirmed that “oral directions to perform extra work, or the general course of conduct between the parties” may “modify or eliminate contract provisions that require written authorization.” In that case, the subcontract itself required signed written change orders, but none were issued to the subcontractor in connection with work performed outside the subcontractor’s scope. Nevertheless, the court held that the subcontractor was still entitled to payment for the extra work because the change orders were “directed, authorized, and performed.”
The decision in DeGraw will come as a welcome reminder to subcontractors that technical contract requirements for written change orders will not always be enforced, if the subcontractors are directed to perform the work and do perform the work without objection from the general contractor. That said, every effort should still be made to secure signed written change orders where they are required by the contract, in order to avoid unnecessary, disruptive and costly disputes. By the same token, general contractors and owners who do not consent to change order work should clearly object in writing to performance of the extra work. If they do not do so, and the subcontractor proceeds with the extra work, the general contractor or owner may be found to have “authorized” the work by their silence and therefore be responsible for paying the subcontractor for such work.