Contractors Beware: the Persons Directing Your Work Must Have the Authority to Bind the Owner

In construction contracting, there is an old axiom that “unless it is in writing, it doesn’t exist,” which is simply another way of warning the contractor that it should not rely on informal or oral directives.  Instructions from the owner’s representative or contracting officer should be in writing.  Not only should instructions be made in writing, but the direction must come from someone who is authorized to speak for the owner (authorized to legally bind the owner).  There are definite limitations on the power of the owner’s representatives to order changes.  The person or persons ordering the change must have the requisite authority to issue the change order and the changes clause, which usually limits such orders to those “within the general scope of the contract,” must encompass the proposed change.  In public contracts, the use of the changes clause is further limited as a result of competitive bidding.[i]

  1. 1.                  Authority to Issue Change Orders

Contract documents generally delineate the authority of those empowered to issue change orders from those who are not.  For example, the AIA 201 General Condition, Article 7.1.2, requires that the owner, contractor, and architect all execute a change order.  In U.S. government contracts, the contracting officer may unilaterally order a contract change.  Under WSDOT contracts, the “contracting agency” may at any time change the work, which presumably includes the WSDOT project engineer.

From the contractor’s prospective, it is essential to make sure that the person issuing the change order has the requisite authority under the contract to do so.[ii]  Courts have enforced contract provisions restricting authority to order changes.[iii]

An agency relationship, however, is not determined merely by the manner in which the parties contractually described their relationship.  It can be implied from the parties’ actions.  As stated in Rho Co., Inc. v. Dep’t of Revenue:

An agency relationship, of course, may arise without an express understanding between the principal and the agent that it be created.  It does not depend upon an express undertaking between them that the relationship exists.  If, under the circumstances, the parties by their conduct have created an agency in fact, then it exists in law.  In this regard, agency is a legal concept that depends on the manifest conduct of the parties; it “does not depend upon the intent of the parties to create it” … [A]gency can be implied, if the facts so warrant, not only if the contracts are silent as to agency, but even if the parties execute contracts expressly disavowing the creation of an agency relationship.[iv]

Where the contract is silent, an architect and its subconsultants are not general agents of his or her employer and have no implied authority to make a new contract or alter an existing one for the employer.[v]  Stated differently, a contractor should not rely on direction to perform extra work from the project architect or engineer unless the contact specifically gives that person authority.

  1. 2.                  A Federal Government Contractor Learns the Lesson the Hard Way

A recent Armed Services Board of Contract Appeals case illustrates a tough lesson that a contractor learned when it relied on government officials who gave oral directives, but lacked the requisite authority to do so.[vi]  The contractor asserted a number of claims against the government, contending that “constructive” changes to the contract resulted in higher performance costs.  In part, the contractor alleged that the government’s on-site representative and the contracting officer’s representative interfered with the contractor’s means and methods of performing the work which required the contractor to make numerous changes to the project.  The contractor also contended that the construction representative and contracting officer’s representative constructively accelerated its performance on the project. According to the contractor, the acts of the construction representative and contracting officer’s representative were implicitly ratified by the contracting officer who allegedly had knowledge of the facts.

Irrespective of the contractor’s allegations, the Board found no entitlement and the contractor recovered nothing.  Without addressing the merits or the credibility of the contractor’s claims, the Board of Contract Appeals held that, even if events unfolded as the contractor claimed they did, the contractor had no entitlement to damages because neither the on-site construction representative nor the contracting officer’s representative were authorized to, in any manner, modify the contract.  Therefore, the Board concluded the contractor was not entitled to any recovery because only the contracting officer had authority to modify the contract and there was no assertion that the contracting officer directed the contractor to make the changes.    

Comment:  The lesson to learn from this harsh case is that taking direction from anyone other than the person specifically authorized to provide such direction in the contract places the contractor at extreme peril.  In federal government contracting, the contracting officers are generally the only persons authorized to provide such direction, and in WSDOT contracts, the project engineer has that authority.  In private contracts, the contract documents should be scrutinized to ascertain who under the contract documents has the authority to make such direction to issue such directives.  Unless specifically authorized by the contract documents, the engineer or architect generally lacks that authority.

[i]  McHugh v. City of Tacoma, 76 Wash. 127, 140, 135 P. 1011 (1913).

[ii] West v. Jarvi, 44 Wn.2d 241, 245, 266 P.2d 1040 (1954).

[iii] AAAA Enterprises, Inc. 85-1 B.C.A. 17828 (1984) (Contractor could not recover for installation of bolts as directed by the site inspector because only the contracting officer could authorize change).

[iv] 113 Wash. 2d 561, 570, 782 P.2d 986 (1989).

[v] See, e.g., Absher Constr. v. Kent School Dist., 77 Wn.App. 137, 143, 890 P.2d 1071 (1995); Valley Const. Co. v. Lake Hills Sewer Dist., 67 Wn.2d 910, 918, 410 P.2d. 796 (1965).

[vi] EEC International, ASBCA 55781 (December 28, 2012).  This case came to our attention via the Federal Contracting Blog, an excellent resource for government contracting legal updates.

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