IV. Change Orders

  1. Generally – Compensable or Non-compensable

    Change orders or construction changes generally come into play when there has been some alteration of the work originally agreed upon in the contract. Courts usually interpret change orders using a “changes clause” in the contract. A “changes clause” generally allows the owner to make changes and the contractor to be compensated for these changes. A frequent issue is whether the change is significant enough to be compensable. Generally, if a contractor performs more than what was contemplated under the original agreement, he will be compensated for the additional work. See Medical Clinic Bd. of City of Birmingham Crestwood v. Smelley 408 So.2d 1203, 1204 (Ala. 1981) (subcontractor hired to install sheet rock on eight foot wall was due compensation for installation of sheet rock beyond eight foot wall). Contracts typically address this issue.

  2. Oral or Written Change Orders

    Parties to a contract should always document change orders in writing. Contracts sometimes require that they be in writing. Courts have considered the effect of an oral modification of a contract with differing results. One argument asserts that written notice is not required if there is actual notice of the circumstances giving rise to the dispute. See Medical Clinic Bd. v. Smelley, 408 So.2d 1203 (Ala. 1981) (written notice can be waived if there is actual notice); see, also Commercial Contractors, Inc. v. U.S. Fidelity & Guaranty Co., 524 F.2d 944, 952, (5th Cir. 1975) (applying Alabama law) (finding that a written executory construction contract may be modified by a subsequent oral agreement, despite a provision in the contract that all modifications be in writing); but see Chemical Construction Corp. v. Continental Engineering Ltd., 407 F.2d 989 (5th Cir. 1969) (refusing to allow an equitable adjustment of a contractor’s price when the contractor did not follow the exact provisions of the changes clause).