When a contractor performs “extra” work—more than its construction contract contemplates—how can it be paid? A common question, indeed. And one that usually is easily answered with a change order or extra work directive. But what if the change order is rejected—after the work has been performed, of course—under the terms of the contract? Can the contractor claim payment anyway on the basis that the extra work was performed outside the scope of the contract?
Oregon has answered, “no.” An opinion issued on February 15, 2023, addressed a construction project where the excavator subcontractor removed 3,290 cubic yards of fill under a construction subcontract that contemplated—at most—1,500. The general contractor later rejected the subcontractor’s change order for the additional quantity of work as being too late under the contract’s terms. So, the subcontractor claimed that the unexpected overrun was work performed outside of the contract, arguing that the unanticipated excess work was not governed by the contract—especially after the change order was rejected—and that not paying for the services performed would constitute unjust enrichment to the prime contractor.
Not so, says the Court of Appeals of Oregon, holding that an express contract will govern disputes about any conduct that is within the contract’s subject matter (see: Kizer Excavating Co. v. Stout Building Contractors, 324 Or App 211 (2023)). The law will not permit a party to a contract to put it aside when events arise that—even though unexpected, additional, or different—are within the subject matter of the contract. In Kizer, that meant that the subcontractor’s remedy for payment was found only in the subcontract and, as a result, payment was unavailable because of the tardy, rejected change order. (Of interest, the question about the validity of the change order’s rejection was not part of the case, at least on appeal.)
So what? Several important lessons come out of the Kizer decision.
First, contractors of any tier must ensure that the general contractor or owner has approved—in writing—the proposed changes or extra work before that work. Doing extra or additional work on a handshake (or email)—or not following the contract’s terms—throws away the contractor’s leverage to be paid later.
Second, be sure that the construction contract (1) is valid and enforceable, (2) specifically identifies the contractor’s scope of work, and (3) expressly excludes—or qualifies—other or additional work that might arise. In this case, both parties admitted that the subcontract was valid and enforceable and covered the removal of fill. In other cases, however, the extra or additional work might be excluded from the scope of the work in the contract, or the contract may not be valid, leaving an argument that the extra work is outside the contract. Careful drafting of construction contracts with qualified legal counsel cannot be overstated.
Third, a contractor’s construction lien rights might be limited by this decision. No lien was at issue in Kizer, but its reasoning could be applicable to limit claims for the value of work performed under the lien laws. Do not rely on a lien remedy to solve this problem for you.
Finally, don’t despair. Your claim may not fit within the Court of Appeals’ decision. In this case, the parties made several concessions at trial that one might not make in a different case. Check with your construction attorney about whether your claim might be enforceable under other theories of recovery.
Note that this decision is still fresh and may yet be appealed to the Oregon Supreme Court. And please don’t rely on this article as legal advice. Always consult with a competent construction lawyer for advice for your situation.
This article is provided for informational purposes only—it does not constitute legal advice and does not create an attorney-client relationship between the firm and the reader. Readers should consult legal counsel before taking action relating to the subject matter of this article.