Legal Blog

Extras (part two)

We have discussed extras before (see Jul 1996, Jan 2012, & Nov 2014 newsletters), but the issue keeps arising, so we will discuss it again. When a prime contract or subcontract states that there are to be no changes without a written order, and there is no written order, does that bar a contractor from claiming extras? The answer is both yes and no – depending, again, on the facts. Jessco Structural Ltd. v. Gottardo Construction Ltd., a 2015 Ontario Superior Court of Justice decision, is instructive.

Contract

 A general retained a forming sub. The subcontract stated “No changes shall be made without a written order from the contractor.” This clause, or one like it, is found in most every contract or subcontract that we have seen – and we have seen many. The sub performed extras to the contract pursuant to the oral instructions of the general’s superintendent. The sub submitted its invoice for the extras and the general refused to pay. It claimed that it had never authorised the extra work in writing and relied on the “no changes” clause, including a corollary clause, which stated that all extras had to be negotiated with the contractor in advance.

Law

 Some of the older cases held that a “no changes” clause is to be interpreted strictly as a condition to be met before payment has to be made. However, more recent cases have given some leeway to a sub seeking payment against a general or a general seeking payment against an owner. If, for example, a sub can show that the sub and general have conducted themselves in a manner that varied their contract, then the general will be held to have waived the written order requirement. Alternatively, the sub can attempt to demonstrate that the parties amended the written “no changes” clause by a subsequent oral agreement – something that will be difficult, but not impossible, to accomplish.

Writing

Not only did the site super orally instruct the sub to perform the extra, he also signed purchase orders, which the sub drafted, that described the work done and the time spent. Was that enough? The motions judge said no. Although the “no changes” corollary clause did not stipulate that the negotiations had to be in writing, there had to be a negotiation. In this case, there was none. The super orally requested the work and the sub did it. The “tickets” that the sub signed – the judge referred to the purchase orders and the tickets synonymously, although they are actually very different – merely confirmed that work was done; they did not constitute an agreement that the items, and rates, listed were extras to the contract. Accordingly, the judge held that the sub did not comply with the contractual terms requiring advance written authorisation.

Conduct

 Did the parties waive the “no changes” clause by their conduct? That would happen if the sub had previously performed and invoiced for extras and the general had paid them – all before the sub performed the disputed work. No such luck. The general had never previously paid for work performed without prior written authorisation.

Amendment

Did the site super’s signing of the tickets amend the contract? Again, the judge said no. The contract specifically stated that any tickets that the site super might sign were not an agreement that the items were extras to the contract or an acceptance of rates.

Upshot

The sub performed extras upon the oral direction of the site super, who also confirmed, in writing, the work performed and the rates the sub was charging. But the judge awarded nothing to the sub for that work. The judge stated, “This decision may appear patently unfair to (the sub) … However, (the sub’s) principal was aware of (the contractual terms) … One would have thought that, given the applicable provisions, he would have sought, before the work was done, assurances from (the general) that the latter would pay for the “extras” that it did.”

Not only did the sub receive nothing, it had to pay the partial indemnity costs of the general of $19,800 and its own legal fees.

The decision may well have been unfair. Although the signing of the POs/tickets was not an agreement in writing, it could have been stretched to satisfy the condition of a written order. However, a sub or a general performing extra work should not put itself in a position in which it needs to stretch a fact to comply with a contractual provision. Contractors should get their instructions in writing before commencing extra work. Being a “nice guy” to move the job along more efficiently will often only result in the nice guy being bitten in the butt.

Image courtesy of Danist Soh, Creative Commons.

Written by Jonathan Speigel Jonathan Speigel, the founding partner of Speigel Nichols Fox LLP, leads the litigation and construction practices.