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March 29, 2016

In the April issue of this newsletter I addressed the issue of change orders and how extras are one of the biggest problems in the owner/general contractor relationship or between a contractor and subcontractor. I am now involved in a matter for a general contractor client that brings to light that what I addressed in my April newsletter does happen in the real world.

My client is doing a commercial remodeling project that includes floor leveling work. The floor preparation subcontractor submitted a proposal to do the work for $8646 for 2200 square feet or $3.93 psf more or less area. My client was not comfortable with the proposal as it seemed ambiguous and open ended and did not want to take the chance that the “more or less” would occur. Accordingly, my client requested the sub come to the job site and in the presence of our project manager take measurements with a laser of the areas of the floor that needed leveling. The subs project manager did so and confirmed that the work could be done for the lump sum price of $8646.00. My client prepared a subcontract agreement for this price and it was executed by the subcontractor’s owner.

At the end of the subs work a bill was sent for not only the lump sum price but also an extra in the amount of $9169.69 for additional floor leveling. Needless to say my client was shocked. Exactly the problem that had been anticipated might occur unless the sub measured the job in my client’s presence had arisen.

During performance of the job the subcontractor never brought to my client’s attention that additional areas were being leveled and for which extra compensation would be sought. My client’s form subcontractor agreement which I helped draft does provide that before any extra work is done a change order must be approved in writing “by the General Contractor’s accredited representative before proceeding with the work.” In addition the subcontract also provides that if any legal proceedings are instituted and an award is made in favor of my client, regardless of any setoffs to the subcontractor my client as the general contractor will be awarded its reasonable attorney fees and costs of litigation.

If you recall my April newsletter article, you know that in this “real life” situation the sub is going to have a hard time prevailing. First there is no indication my client waived the requirement of a written change order. Also as I discussed in my April article even if the written extra requirement could be considered as waived, the subcontractor in this case is going to have a hard time proving that the extra was outside the scope of its original contract agreement. Further there is no evidence that my client requested the extra or by words or conduct agreed to pay extra. Also remember that the standard of proof in a situation like this is “clear and convincing evidence.”

The general contractor I represent is a very reputable company and treats its subs extremely well. However, in this situation the feeling is that the sub is trying to take advantage of my client which does not sit well with upper management. While the amount in controversy is relatively small my client feels the subcontract was entered into fairly and they insisted on laser measurements being taken so that this type of situation would not occur. While my client is going to try and resolve this matter with the subcontractor’s owner, if litigation does ensue we have a very good position given the contract language and especially the provision that if we prevail the subcontractor is going to have to pay our attorneys fees.

As you can see in “real life” the situation I described in my April newsletter can occur. It is better for you if you have a good contract agreement to rely upon. In this instance my client had me review and update its form contracts a few years ago and this work is helping them with this current situation. If you would like me to review and revise your agreements either as a general or subcontractor I would be happy to work with you. I’ll let you know how this situation works out.