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In the recent case of Steel Service Corporation v. Board of
County Commissioners of Hamilton County, 2007 U.S. App. LEXIS
30052 (6th Cir., December 27, 2007), the Sixth Circuit
considered the distinction between claim provisions and change
order provisions under a construction contract. Ultimately, the
Court distinguished between claims and change orders, holding that
signing a change order does not preclude a party from
making a claim on that subject.
Steel Service Corporation ("Contractor") entered into a
contract (the "Contract") with the Board of County Commissioners
of Hamilton County, Ohio (the "Owner") to construct the steel
superstructure for the Cincinnati Reds new baseball stadium,
the Great American Ball Park (the "Project"). The Contract
initially called for payments to Contractor of approximately
$33 million. During the course of construction, Owner directed
Contractor to take "extraordinary measures, including the
provision of additional manpower, shifts, overtime and
equipment" in order to expedite construction. Contractor
subsequently informed Owner that it would be submitting a
claim for the resulting costs and, in accordance with the relevant
provisions of the Contract, submitted the claim to Owner (the
"Claim").
The Claim requested an additional $5 million as compensation
for the extraordinary measures taken by Contractor beyond the
scope of the Contract. Owner, disagreeing with this assessment,
delayed making a decision on the Claim. Prior to resolving
the Claim, the parties executed a valid change order, which,
by its terms, constituted a "full, final and complete waiver and
settlement with respect to any and all claims, demands and
causes of action of [Contractor] arising out of the Changes."
Owner asserted that the change order settled all construction
change proposals submitted by Contractor, including the Claim.
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Upon substantial completion, Contractor filed suit against
Owner to recover its $5 million Claim. Owner responded,
arguing that the change order precluded any recovery on the
Claim because the Claim amounted to a construction change
proposal addressed by the express terms of the change order.
Owner also argued that Contractor's Claim included the
"pass-through" claims of Contractor's subcontractors, which should
be precluded given the lack of privity of contract between the
subcontractors and Owner. The trial court granted summary
judgment in favor of Owner, persuaded that the change order
precluded Contractor's recovery of its Claim.
On Appeal, the United States Court of Appeals for the Sixth
Circuit conducted a detailed review of the contractual provisions
regarding making claims and executing change orders.
In doing so, the Sixth Circuit highlighted the inherent differences
between the construction change proposal/change order process
and the process for making a "claim" under the
contract. The Sixth Circuit stressed that a claim in most
circumstances, including the instant case, is defined in the
contract as a demand for compensation that a party believes
it is entitled to under the contract. As such, a claim is
broader than a right to adjustment under a particular change
order. The Sixth Circuit found, therefore, that signing off
on the change order did not preclude Contractor from making
its Claim. Contractor properly brought the adjustment
for the extraordinary measures required by Owner in its
Claim, despite the existence and validity of the change
order.
General contractors and owners of projects alike should
take note of the Sixth Circuit's holding in Steel Service
Corporation and recognize that courts may treat the change
order process and claims process as separate forms of
demand for payment.
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