Eleventh Circuit Upholds Strict Enforcement of Contract's Change Order Approval Process

A recent 11th Circuit decision considered whether a contractor could recover the costs for work that was undisputedly outside the scope of the construction contract when the contractor failed to obtain prior approval from a specific party. In Mallory & Evans Contractors & Engineers, LLC v. Tuskegee University, No. 11-10940, 2012 WL 1003640 (11th Cir. Mar. 27, 2012), Tuskegee University had retained a general contractor to perform certain dormitory renovations.  The contract between the parties required prior approval by the university’s purchasing department before commencing work if the change order costs would exceed the contract price.  During the course of construction, the contractor provided several written change orders to the University’s construction manager, but the manager did not forward the written change orders to the University’s purchasing department. At the close of the project, the contractor submitted a claim for $400,000 for extra work beyond the fixed price contract amount.  When the University refused to pay this sum, the contractor filed suit to recover the $400,000 for the extra work.

Prior to trial, the University moved for summary judgment, arguing that it did not owe the general contractor anything above the contract price because the contractor had not satisfied the condition precedent of obtaining prior approval from the purchasing department. The general contractor argued that the University waived that condition precedent by “clothing” the University’s construction manager with apparent authority to approve change orders. The district court granted summary judgment to for the University, finding that it had not waived the condition precedent in the change order approval process.

On appeal, the Eleventh Circuit affirmed, holding that the construction manager did not have apparent authority to approve costs that exceeded the fixed contract price, and that the contractor did not satisfy the condition precedent of obtaining prior approval from the purchasing department. The Court found that the University made no representation that the construction manager had the authority to approve extra work . Also, the Court found that the plain language of the contract put the contractor on notice that the construction manager did not have that authority. Finally, the Court rejected the general contractor’s contention that the mere submission of the change order would have guaranteed the purchasing department’s approval. When the contractor continued to perform work outside of the contract scope without the approval of the purchasing department, it did so at its own risk. The Court stated that, until the purchasing department’s approval had been obtained, the contractor “should have parked its equipment and waited for the Purchasing Department’s approval.” Therefore, because the contractor did not strictly comply with the change order approval process, the Eleventh Circuit affirmed the lower court’s grant of summary judgment in favor of the University.

This decision has further solidified past court decisions strictly upholding condition precedents for the approval of change order work. See Carolina Conduit Sys., Inc. v. MasTech N. Am., Inc., No. 3:11CV133-HEH, 2011 WL 5042082 (Oct. 24, 2011). If a contractor intends to perform work outside the contract for which it expects additional compensation, it should carefully review the contractual change order process to ensure that all approval conditions have been satisfied before starting the work. If the contract calls for approval by any specific individuals or entities, the contractor should wait to receive approval from that additional party before commencing extra work.  Otherwise, as the 11th Circuit cautioned, it performs the work at its own peril.