Do You Need a Written Change Order on Public Works Projects? The Answer May Surprise You

Occasionally, a case comes across my desk which, while it may not venture into new areas of the law, provides a good summary of existing law.  G. Voskanian Construction, Inc v. Alhambra Unified School District, B221005 (March 29, 2012) is one of those cases and provides important reminders for anyone who works on public works projects.

In Voskanian Construction, G. Voskanian Construction, Inc. (“Voskanian”) entered into two public works contracts with the Alhambra Unified School District (“District”).  Under the first contract, Voskanian was to move portable classrooms to a school site for the sum of $989,000.  Under the second contract, Voskanian was to install a fire alarm system in the portable classrooms for the sum of $55,000. Voskanian was required to obtain performance bonds to secure its work under both contracts.

The contracts provided that they could only be modified “by an amendment in writing, signed by both parties and pursuant to the action of the District’s Governing Board.”  Furthermore, both contract provided that change orders could only be approved by “the District’s Assistant Superintendent of Business Services, or her designee.”  The District’s Assistant Superintendent of Business Services was Cynthia Martin.

During the course of the project, Martin directed Voskanian to deal with the District’s construction manager, BRJ & Associates, to finalize change orders which would be approved by Martin.  Because of the upcoming school year, the relocation project had to be completed within 57 days and the fire alarm project had to be completed within 45 days.  This, in turn, required that any extra work be completed immediately before change orders could be approved.

While performing its work on the relocation project, Voskanian discovered that the site conditions did not match what was contained in the plans.  In addition, the District directed that Voskanian perform additional work outside the scope of the plans.  While performing its work on the alarm system project, Voskanian discovered that several of the portable classrooms had more rooms than shown on the plans, thus requiring more alarm devices, conduit and wiring.

Upon completion of the two contracts, the District refused to pay Voskanian, and Voskanian filed suit alleging that it was owed $206,367 on the relocation projection, which included $106,225 in unpaid retention and $100,142 for extra work, and $94,777 on the fire alarm project, which included the full contract balance of $55,000 and $39,777 for extra work.  The District filed a cross-complaint in turn against Voskanian for breach of contract and against Voskanian’s performance bond surety Fidelity and license bond surety Old Republic. At trial, the jury returned a special verdict in favor of Voskanian awarding it $419,756 including penalties and interest.

On Public Works Projects, Contractual Provisions Requiring Written Change Orders Will be Strictly Construed

On appeal, the District challenged the special verdict on the ground that it was premised on an “oral” modification of the contract when the contract required that any modifications be in “writing.”

The California Court of Appeals for the Second District, discussing the historical ebb and flow of cases interpreting public works contracts, noted that earlier cases had held that the conduct of parties may constitute a “waiver” of written change order provisions, but that more recent cases have required strict compliance with written change order provisions:

Unlike private contracts, public contracts requiring written change orders cannot be modified orally or through the parties’ conduct.  Thus, even if [the contractor’s] evidence pertaining to the oral authorization of a city employee for extra work is fully credited, [the contractor] cannot prevail.

However, because the District’s governing board ultimately approved the change orders, albeit not until after the work was completed, the Court found that Voskanian had complied with the written change order provision of the relocation contract:

In sum, irrespective of the timing of the change orders, the District in fact issued written change orders for the relocation contract.  Therefore, Voskanian was entitled to recover for the extra work performed in conjunction with the relocation contract.  Upon the District’s approval of the change orders for the relocation contract, the extra work on the relocation contract was supported by written authorization from the District.

But, a Contractor who Underbids a Project Based Upon Incorrect Plans and Specifications, May Recover for Extra Work Without a Written Change Order

Unlike the relocation contract, the District did not issue written change orders for the fire alarm contract.  Nevertheless, the Court found that Voskanian was entitled to recover for the extra work it performed because it was necessitated by incorrect plans and specifications issued by the District:

It is settled law that “A contractor of public works who, acting reasonably, is misled by incorrect plans and specifications issued the pubic authorities as the basis for bids and who, as a result, submits a bid which is lower than he would have otherwise made may recover in a contract action for extra work or expenses necessitated by the conditions being other than as represented.  This rule is mainly based on the theory that the furnishing of misleading plans and specifications by the public bodies constitutes a breach of an implied warranty of their correctness.”

Thus, because the extra work performed by Voskanian was necessitated by incorrect plans and specifications furnished by the District, Voskanian’s entitlement to recover for extra work did not turn upon the District’s issuance of written change orders.

Attorney’s Fees Are Recoverable Against a Public Entity Who Brings a Claim on a Performance Bond

As discussed, in addition to filing a cross-complaint against Voskanian, the District filed a cross-complaint against Voskanian’s performance bond surety Fidelity.  After the District lost in the trial court, Voskanian filed a motion for attorney’s fees and was awarded $207,295 in attorney’s fees as well as $79,5066 in costs.  On appeal, the District argued that because it was a not a signatory to the performance bond, which was between Voskanian and Fidelity, it was not subject to an award of attorney’s fees.

The Court rejected the District’s contention explaining that the District, having sought to recover its attorney’s fees if it prevailed on its performance bond claims against Voskanian and Fidelity, could not obtain the benefit but avoid the burden of attorney’s fee provision contained in the performance bond under California Civil Code section 1717 which makes such unilateral attorney’s fees provisions reciprocal:

Here, the District prosecuted a cross-complaint to enforce the performance bonds against Voskanian and Fidelity, and it specifically requested attorney fees on the third and fourth causes of action for enforcement of the performance bonds. . . . [W]e conclude Voskanian and Fidelity, as the prevailing parties on the District’s performance bond claims, were entitled to recover attorney fees pursuant to the fee provision in the performance bonds.

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