The County argued that the extra work claim was barred by the doctrine of sovereign immunity, because the extra work was outside of the express contract and no change orders (as required by the contract) had been issued authorizing the extra work. Sovereign immunity is based on the ancient concept that “the king could do no wrong.” That has been translated in modern times to the “state can do no wrong.” While the State Legislature has explicitly waived sovereign immunity in tort, personal injury and wrongful death actions, there is no express legislative waiver for contract claims.
In earlier cases, some courts had found that there is an implied waiver of sovereign immunity in contracts on the premise that the Legislature authorizes the State to enter into contracts and it, therefore, must have intended them to be valid and binding on the parties. That holding was limited, however, to “express, written contracts into which the state agency has authority to enter.”
In this case, the Supreme Court did acknowledge that contracts, even those entered into by a state agency, contain implied covenants and conditions. For example, every contract includes an implied covenant that the parties will perform in good faith. Specifically in construction contracts, an owner has
- an implied obligation not to do anything to hinder or obstruct performance by the other person,
- an implied obligation not to knowingly delay unreasonably the performance of duties assigned under the contract, and
- an implied obligation to furnish information which would not mislead prospective bidders.
The Supreme Court, however, went on to state that the implied covenants did not cover unexecuted change orders. Work performed without a written change order is outside the terms of the contract.
Miorelli also asserted that the County had waived the requirement for a written change order by directing work changes without following its own formalities. This is often referred to as a “course of dealings.” This is founded on doctrines of waiver and estoppel. The waiver of the requirement of written terms by the acts of the parties estops (prevents) the owner from later insisting on written change orders. The Supreme Court refused to allow the doctrines of waiver and estoppel to be used to defeat the express requirement for a written change order regardless of any course of dealings.
Contractors performing change orders without written authorization have always been at risk. However, with this case, performing a change order on public jobs without written authorization is an act of faith. A contractor cannot rely either on a verbal or written direction to proceed with extra work and be certain of payment. Each public agency has a specific procedure for approval of change orders. Unless the extra work has gone through that formal approval process, the public body is under no obligation to compensate the contractor for this work. Consequently, contractors should refuse to perform any work in the absence of the formal written change order. This may create a difficult and even chaotic situation on the job site. However, you, not the public body, are at risk under these circumstances. Perhaps refusing to perform the work without the formal change order will make the public bodies understand the problems (to say nothing of the additional expense) that will be caused by strict adherence to the requirements of their own contracts. Hopefully, this will cause them to rethink the process and come up with a better way to handle changes.
The legislature is in the process of addressing this issue in the current legislative session to put public and private contracting on the same footing. Whether the change will make it through remains to be seen. Even if it does, it will likely not be in effect for some months.