By Bruce Jervis
On virtually every construction project, public or private, the contractor deals directly with a designated representative of the project owner. The owner’s rep provides information, answers questions and conveys directives. The representative seems to act with considerable authority and autonomy. That impression, however, can be misleading.
In a recent Minnesota case, a municipality’s project engineer signed a change order. The contractor acted in reliance on the change order. But the city code stated that this preliminary change order was not final until it had been approved and signed by the city engineer and the city manager. The project engineer signed the change order knowing it was unlikely his boss, the city engineer, would approve the increase in the contract price. The project engineer simply wanted to process the document and maintain a good relationship with the contractor.
When the project engineer’s superiors refused to approve the change order, the contractor was left without recourse. The project engineer had followed the change order procedure. The contractor should have been familiar with the procedure and realized the project engineer lacked authority to finalize a change order.
Do you always determine the scope of authority of the individual with whom you are dealing? It is not always established in the contract itself. In the Minnesota case, it was defined in a municipal code. What do you consider “best practice” in terms of obtaining proper authorization on a construction contract? I welcome your comments.
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The engineer has a greater duty to know his own code than the contractor. This engineer haas been through this before and knew the contractor could get stiffed and did it anyway. The city was unfair to the contractor. They were legally right but exhibited bad faith in their refusal.
Posted by: Bill Enderle | 01/27/2012 at 12:24 PM
I had a client on a city project actually get all the required signatures, and got paid for an increase in steel prices between bid and contract. But the Contracts Department later stated that it was a "cost increase", not "extra work", and therefore not allowable as a change order and they rescinded it. The trick with government work, at least in Texas, is that there is no "apparent authority" argument to use. Government employees have no more authority than the charter or contract confers on them, no matter what they may say or even believe.
Posted by: Gavin McGee | 01/27/2012 at 01:27 PM
Every one were inequitable to the contractor. This is all called political Drama...
Posted by: Construction Contract Template | 01/27/2012 at 10:26 PM
There is a common law of our land called due just enrichment. even if there is no true authority for appproval, if the owner recieves a benifit a certain compensation may be in order
Posted by: tony | 01/30/2012 at 06:15 AM
As a Public Owner's representative, we have a clear line of authority established on our building construction projects. This is communicated directly to the contractor. We never leave anyone in limbo about who has the authority to approve change orders. 2 levels of signatures are mandatory... and we would never direct a contractor to proceed with a change unless that authority was granted. Our standard is to be "firm, but fair" in all contract change issues.
In 30 years and $300M in building, we have not had to litigate any change order disputes.
Posted by: Tom Burrows | 01/30/2012 at 11:15 AM
Also in Japan, as far as I recognize, the municipality's project has somewhat different procedures from those of central government's projects. The contract form(General Conditions of Construction Contract) is quite the same with that used for central government project agencies. Main difference is that each of the successful bid prices should be approved by city council(assembly). This rule comes from Municipalities Law in Japan. So, after the bid award, the parties once enter into a tentative contract. Rather strange practice or not? Just the same procedures are needed regarding the amount of change orders. Nevertheless the construction works are being usually proceeded.
Here, I should like to know the followings:
(a)Is there a similar procedure with mentioned above in municipalities in US?
(b) What kind of contract form(General Conditions of Contract) was used in the stated Minnesota case?
(c) Is that contract form similar with those of AIA A201 or Engineer's Joint association? Or rather similar with FAR regulations for GSA etc?
I am so much interested in these problems in US, UK, NZ and Japan. So, I really hope that any comments would be given to each of above questions.
Posted by: Tadashi Eguchi | 02/01/2012 at 07:58 AM