United States: Constructive Change: A Claim By Any Other Name

What should a contractor do when it and the owner's representative dispute whether certain work requested by the owner is required by the drawings and specifications and the contract states that (1) the contractor waives its right to a change order by proceeding to perform a change without first obtaining a change order or directive signed by the owner's representative, and (2) the contractor is obligated to continue performance of the work pending resolution of a disputed claim?

If the contractor is right that the work is in addition to what is required by the drawing and specifications, the contractor may perform the work without a change order or directive signed by the owner's representative and still is entitled to extra compensation and time under the constructive change doctrine.

In contrast to an express change, which is a change acknowledged (normally in writing) by the owner, a constructive change occurs when an owner makes a change to a contractor's work without recognizing or admitting that it is doing so. The doctrine of 'constructive change' is a legal fiction created "by the federal judiciary and federal boards of contract appeal to (1) remediate contractor claims for extra work, and (2) permit contractors to perform disputed work without having to risk abandonment of their contracts to preserve their claims. The theory underlying the constructive change concept is that where the government 'should have' issued a change order authorizing the extra work in the first place, the court or board may direct the government to do what 'should have been done' by directing the government to issue a formal change order. The doctrine in its modern guise is the embodiment of the ancient equitable principle that 'what should have been done will be done.'"1

Because the doctrine of constructive change has its roots in federal contract disputes, the doctrine is most commonly recognized in the context of a contract with a federal government entity. However, the doctrine is also alive and well in most state2, local and private construction disputes.3 For example, the Georgia Department of Administrative Services State Purchasing Division expressly recognizes the doctrine in its "Georgia Procurement Manual."4

The Board of Contract Appeals described the two key elements to asserting a successful constructive change as follows:

As we see it, the constructive change doctrine is made up of two elements – the "change element" and the "order" element. To find the change element we must examine the actual performance to see whether it went beyond the minimum standards demanded by the terms of the contract. But, this is not the end of the matter.

The "order" element also is a necessary ingredient in the constructive change concept. To be compensable under the changes clause, the change must be one that the Government orders the contractor to make. The Government's representative, by his words or his deeds, must require the contractor to perform work which is not a necessary part of his contract. This is something which differs from advice, comments, suggestions, or opinions which Government engineering or technical personnel frequently offer to a contractor's employees.5

For a contract to be constructively changed, the plaintiff must prove that the government expressly or implicitly ordered the contractor to perform work that was outside the contract requirements. The Federal Court of Claims in Miller Elevator Co. v. United States, stated

Thus, if the Government either expressly or implicitly ordered work outside the scope of the contract, or if the Government otherwise caused the contractor to incur additional work, a constructive change arises for that work performed outside of the scope of the contract. While the constructive change doctrine provides a means for a contractor recovery, the rationale for constructive changes involves the objective of persuading a contractor to continue to work pending resolution of any dispute involving the work at issue.6

In Miller Elevator Co. v. United States, a dispute arose out of an elevator maintenance contract between a contractor and a federal agency for the contractor to perform maintenance services for a federal office building. Sixteen months after the execution of the maintenance contract, the federal agency authorized substantial renovations to the building. The elevator contractor argued that the amount and extent of work required to maintain the building elevators during the renovations far exceeded the scope of work contemplated in the maintenance contract.

With respect to the "change" component, the Court found that the scope of work required of the contractor extended well beyond that contemplated by the contract at issue, which did not contemplate the renovations undertaken at the building. As for the "order/fault" component, the Court found that the Government either authorized the work before acceptance or allowed the performance of the work followed by acceptance. Accordingly, the Court of Federal Claims held that the contractor was entitled to an equitable adjustment under the contract to maintain elevators because the agency authorized substantial renovations to the building which required additional maintenance to comply with the contract terms.7

Constructive changes have been applied by the courts in five distinct situations: "(I) disputes over contract interpretation during performance; (II) government (or owner) interference or failure to cooperate; (III) defective specifications; (IV) misrepresentation and nondisclosure of superior knowledge; and (V) acceleration."8 In Miller Elevator Co. v. United States, the contractor sought to prove a Type I constructive change (i.e., disputes over contact interpretation during performance) by asserting the occurrence of constructive changes to its maintenance contract by the direction of government representatives to perform work outside of the scope of the contract at issue.

Due to space limitations, this article does not address all five situations where the courts have recognized constructive changes. However, the two elements that must be present to assert a successful constructive change – (1) the change element and (2) the order element – must be understood by contractors hoping to recover for actions or inactions by the Owner, or those for whom the Owner is responsible, that necessitate a change that the Owner does not acknowledge as a change.

A court is likely to analyze a constructive change claim using the two essential elements discussed in this article. With that understanding in mind, a contractor hoping to preserve a constructive change claim should follow some common-sense rules, including:

  • If you think you've encountered a constructive change situation, you should document what acts or inactions by the owner necessitated the change before performing the change work;
  • You should remember to carefully document all costs and added time associated with the constructive change, and you should preserve all correspondence with the owner notifying it of the extra costs and time associated with the constructive changes; and
  • You must also carefully review and follow the notice provisions of your contract regarding changes and/or claims9 because you could waive your right to compensation for constructive changes if you cannot prove that you complied with the contractual notice requirements.

The above list is not exhaustive and the authors recommend that you consult your attorney if you believe you are entitled to a constructive change order and have questions about preserving your rights with respect to your claim.

Footnotes

1. 1 Bruner & O'Connor Construction Law § 4:25

2. See, e.g., Sentinel Indus. Contracting Corp. v. Kimmins, 743 So. 2d 954 (Miss. 1999) (ruling that the concept of "constructive change orders" was not recognized under Mississippi law, but allowing recovery for extra-contractual work under principles of equitable estoppel or implied-in-fact contracts).

3. Because the phrase "constructive change" originates from jurisdictional issues in the federal contracting context, the phrase is most commonly used in federal cases. Cases under state or local laws are typically referred to as "claims" or "breaches of contract," but they proceed on the same theory of recovery as the constructive change doctrine and sometimes the phrase constructive changes will be used by state courts. See, e.g., Global Constr. v. Missouri Hwy., 963 S.W.2d 340 (Mo. App. W.D. 1997)

4. Georgia Procurement Manual, Department of Administrative Services State Purchasing Division (2010), http://doas.ga.gov/assets/State%20Purchasing/GPM%20Documents/GPM-A1-2010.pdf (last visited November 27, 2016) (stating that constructive changes may occur when state entity personnel: (1) provide suggestions to a contractor, (2) provide definitions to general contract terms, (3) accelerate the delivery schedule, (4) direct the work to be performed differently, (5) change the sequencing of the work, (6) delay accepting or rejecting deliverables, (7) delay reviewing invoices and approving payment, (8) interfere with or hinder performance, or (9) add to the scope of work).

5. Industrial Research Associates, Inc., DCAB No. WB-5, 68-1 BCA ¶ 7069, pp 32, 685-86.

6. 30 Fed. Cl. 662, 678.

7. 30 Fed. Cl. 662, 678-708.

8. Miller Elevator Co. v. United States, 30 Fed. Cl. 662, 678 (1994).

9. Many contracts, including standard form contracts, provide a basis for recovery of constructive changes but they do not normally use the phrase "constructive change." For example, the American Institute of Architects ("AIA") refers to the constructive change as a "claim." Paragraph 15.1.1 of the AIA A201-2007 General Conditions provides that "a claim is a demand or assertion by one of the parties seeking, as a matter of right, payment of money, or other relief with respect to the terms of the contract." You may consult an attorney to determine if your contract provides specific notifications requirements for asserting a constructive change.

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.

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