|
Frequently, contractors will carefully draft change order
provisions in a subcontract in order to avoid disputes with
the subcontractor at project closeout. But what happens
when a project supervisor, following a directive from the
project manager, issues an oral change order to a subcontractor
whose subcontract requires that all change orders be
issued in writing? In the recent case of R&D Contr., L.L.C.
v. Jenkins Constr., Inc. (In re R&D Contr., L.L.C.) 383 B.R.
890 (Bankr. E.D. Mich. 2008), the court found that the subcontractor
was entitled to enforce an oral change order, despite
a provision in the subcontract requiring that all change
orders be made in writing.
In this case, the general contractor, Jenkins Construction,
Inc. (“contractor”), hired a subcontractor, R&D Contracting,
L.L.C. (“subcontractor”), to perform sitework on a Michigan
Department of Transportation (“MDOT”) project. As
noted above, the subcontract required that all change orders
be in writing.
After the subcontractor brought heavy equipment onto the
job site, it was unable to commence its excavation work due
to delays caused by another subcontractor. During the delay,
the question arose whether the delayed subcontractor should
keep the equipment on the MDOT job site during the idle
time or whether the subcontractor should move the equipment
to another job site where the subcontractor could use
the heavy equipment.
The contractor’s project superintendent overseeing the subcontractor
wanted the equipment to stay on the MDOT job
site so that the subcontractor could begin excavating as soon
as the delay was over. The subcontractor, however, demanded
additional compensation if it was directed to leave
the equipment on-site, as it had other projects where the
equipment could be used.
The project superintendent conferred with the contractor’s
project manager who, ultimately, directed the project superintendent
to consider all of the information and to make a
decision regarding the subcontractor’s request. The project
superintendent, subsequently, orally agreed to compensate
the subcontractor on an hourly basis for idle time, provided
|
the subcontractor left its equipment on the MDOT job site for
the duration of the delay.
Accordingly, pursuant to the terms of the oral agreement, the
subcontractor invoiced the contractor $29,760.00 for equipment
idle time. After the contractor refused to pay and the
subcontractor went bankrupt, suit was filed to collect the
money from the contractor.
At trial, the contractor argued that the project superintendent
had no authority to bind the contractor to a change order. The
court disagreed, reasoning that, as the contractor admitted
that the project manager had the authority to bind the contractor
to additional work and costs and as the project manager
expressly delegated his authority to authorize and approve
change orders to the project superintendent, the project superintendent’s
actions were binding upon the contractor. By
instructing the project superintendent to make an informed
decision about how to deal with the subcontractor’s equipment
idle time, the project manager delegated the authority to
agree to change orders on behalf of the contractor.
continued on page 2
|
