United States: Statutory Limit On Change Orders Bars Contractor Claim In Virginia

Thomas Brownell is a Partner in the Northern Virginia office

A recent Virginia case strictly construing a statutory limit on the amount of contract change orders has raised concerns among contractors doing business with Virginia state and local agencies. In Carnell Construction Corp. v. Danville Redevelopment & Housing Authority, 745 F.3d 703 (4th Cir. 2014), the Fourth Circuit Court of Appeals held that a construction contractor's claim for extra work performed at the request of a local housing authority must be cut by the amount it exceeded 125 percent of the base contract price because the governing body of the housing authority had not approved the changed work in advance, as required by statute.

The statue in question, § 2.2-4309 of the Virginia Public Procurement Act (VPPA), limits the scope of changed work under fixed price contracts as follows:

§ 2.2-4309. Modification of the contract.  A.  A public contract may include provisions for modification of the contract during performance, but no fixed-price contract may be increased by more than twenty-five percent of the amount of the contract or $50,000, whichever is greater, without the advance written approval of the Governor or his designee, in the case of state agencies, or the governing body, in the case of political subdivisions.

The Virginia statute is not unique. Section 13-218(e) of the Maryland State Finance and Procurement Code, for example, prohibits a state agency from proceeding with changed work on a construction project unless it gets prior written approval from the state unit and certification from the fiscal authority as to the availability of money and the effect of the contract modification on the project budget. Similarly, in the federal system, while the standard "Changes" clause (Federal Acquisition Regulation 52.243-1) does not contain a dollar limit, a contracting officer may not exceed the dollar limits of his or her warrant and likewise may not issue change orders in excess of available contract funding. Contractors usually consider these restrictions as applicable only to the internal operation of the government agency, however, and only rarely are they applied to limit contractor claims in a court or board of contract appeals.

In the Carnell case, the contractor and the housing authority got into a dispute over performance of a $793,541 fixed price construction contract. The contractor brought suit and a jury returned a verdict for the contractor for extra work in the amount of $515,000. After trial, the court applied Va. Code § 2.2-4309 to reduce the verdict to $142,557.57, ruling that the governing body of the housing authority had not approved the extra work in advance.

The Fourth Circuit affirmed, rejecting the contractor's arguments that it had performed the work for valuable consideration and that the restriction should not apply to claims asserted in litigation. The court said:

We conclude that on its face, the statutory cap plainly applies to all fixed-price public contracts and forbids an increase to any such contract that exceeds a proportion of the contract's price. A contrary conclusion would permit the absurd result of allowing Carnell to recover, through a lawsuit, an amount that Carnell could not lawfully have obtained through a mutually-agreed modification of the contract terms.  Id., 745 F.3d at 723.

The Carnell case presents potentially huge problems for Virginia state and local contractors. While the statutory cap applies only to "fixed price" contracts (contracts awarded on a unit price or a cost-type basis are not covered), the contractor could find itself on the horns of a dilemma with respect to extra work directed by the government, particularly where the parties disagree about whether the work is included in the scope of the original contract. 

The problem is that most Changes clauses require the contractor to proceed with the work as changed pending the negotiation of a change order or the resolution of a dispute. Even if both parties agree that the work is extra to the contract, the contractor is at risk that it might not get paid until or unless the Governor (in the case of the state) or the governing body of a local government entity specifically approves. 

The situation is much worse if the change is "constructive" only and there is a dispute about whether the work is truly outside the scope of the contract. In that case, the contractor faces a risk of default if it refuses to perform, yet there is little chance that the governing body will approve the extra work in advance, since the parties do not even agree that the scope of the contract has been changed.

To avoid problems under Va. Code § 2.2-4309 and similar statutes, contractors should consider the following:

  • Closely monitor the cumulative dollar value of change orders under the contract (the statute applies not just to single changes but to overall changes in contract price). Whenever total change orders approach 25% of the original contract price, request governing body ratification of all prior change orders, as well as advance approval of any pending change orders that may exceed the statutory cap.
  • Try to avoid proceeding with significant work on change orders over the 25% threshold until the governing body has approved. Argue that the contracting officer or the owner's representative does not have authority to direct the change and that Changes clause provisions requiring the contractor to proceed with changed work in advance of agreement on price do not apply to changes of that magnitude, absent governing body approval.
  • With respect to constructive changes or disputes, try to present your claim directly to the governing body, before proceeding with the work. That way, even if the governing body supports the contracting officer, you can later argue that the governing body was aware both that the work had been ordered and that the contractor considered it to be outside the scope of the contract. This may permit the contractor to argue that it substantially complied with the statute, permitting eventual recovery.
  • Depending upon the strength of your argument that the work is extra to the contract and depending upon the cost exposure to your company, consider refusing to perform the changed work until a change order is agreed upon and approved by the governing body.  A decision to do this risks default, however, and should never be taken without the advice of competent counsel.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Emails

From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.