CHANGES in THE OWNER'S POINT OF VIEW - Law Firm Thomas Feldman & Wilshusen, LLP Attorneys Dallas, Texas

CHANGES: THE OWNER’S POINT OF VIEW

AMERICAN BAR ASSOCIATION
FORUM ON THE CONSTRUCTION INDUSTRY
and
THE TIPS SECTION FIEDLITY AND SURETY LAW COMMITTEE
JOINTLY PRESENT

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CHANGES: THE OWNER’S POINT OF VIEW

Richard Gary Thomas
Thomas, Feldman & Wilshusen, LLP
9400 NCX Tower
9400 North Central Expressway
Suite 900
Dallas, Texas 75231

January 25, 1996
Fairmont Hotel
San Francisco, CA

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CHANGES: THE OWNER'S POINT OF VIEW

The complexity of most commercial and public construction projects make changes in the scope of work inevitable. This fact puts the owner in a dilemma. On the one hand, the owner must have the flexibility to change the scope and price of the work to allow the changes necessary for proper completion of the project to occur. On the other hand, the owner must retain control over the change order process so that it always knows the total cost of the project and is protected from large claims from the original contractor of which it had insufficient notice. Balancing these two needs may be the owner's greatest challenge on a project.

The only way for an owner to keep control over this problem, is to have a carefully drafted general contract that allows for changes in the scope of work but which makes changes in contract price subject to the approval of the owner. In those instances where approval cannot be reached, then the contract must require that the owner be given thorough advance notice of the possibility and amount of a contract addition. An example of such a scheme to deal with increases in contract price caused by changes is the AIA 201. It provides a detailed process for changes and a method to establish the compensation for the contractor. Under that document, there are only three contractually authorized ways to impose liability upon an owner for changes: (1) Change Order, (2) Construction Change Directive, and (3) Claims .

1. Change Order -- A Change Order documents an agreement between the owner, architect, and contractor as to the (a) scope of the change, (b) price of the change, and (c) adjustments of time caused by the change. Art. 7.1.1, 7.1.2, and 7.2.1.

2. Construction Change Directive -- A Construction Change Directive is intended to be used in the absence of total agreement on the adjustments that will result from a change. It is tantamount to a provision for what is commonly known as "force account" work. Under this procedure, the contractor is directed in writing to proceed with the changed work and the written directive states a proposed adjustment of price and time of performance that can serve as a basis for payment to the contractor in the normal course. Art. 7.3.2, 7.2.2 and 7.3.1.

3. Claims -- If the contractor has been ordered to perform work it considers to be outside the scope of the contract and neither a change order nor construction change directive has been issued, the contractor may assert a "claim" for the extra under Art. 4.3. Pursuant to Art. 4.3.1, any demand or assertion seeking an adjustment of contract terms or payment of money qualifies as a "claim" for treatment under Art. 4.3.

Cost overruns on commercial and public projects are as old as construction itself. In all likelihood, the Pharaoh complained regularly to his Chief Administrator about the escalating cost of the Pyramids! Consequently, the contract protections mentioned above, such as the requirement that change orders be in writing, are recognized and enforced throughout the jurisdictions.

Nevertheless an owner, despite a carefully worded contract must remain vigilant. The strong pull of equity has caused American courts to recognize a number of exceptions to such contract requirements such as waiver and common law theories and the cardinal change doctrine. This article will examine both the comfort and anxiety that owners face in trying to enforce their otherwise "watertight" contract change order and claims clauses. In addition, certain related issues such as who has authority to bind the owner to prospective changes and what liability the architect faces in administering the change order process will be analyzed.

I. CHANGE ORDER REQUIREMENT

Many construction contracts require a written change order before the contractor is entitled to extra compensation for extra work. In fact, many construction lenders require their written approval of proposed changes before funding the changed work. Lenders commonly require the contractor to execute a "Contractor's Acknowledgment and Consent" memorializing that the contractor understands and agrees to such requirement. It has been suggested that owners should insist upon the lender's approval of changed work as a condition precedent to the owner's obligation to pay for it. As a general rule, clauses requiring written change orders are enforceable. McGaffick v. H.M. Leigland, 303 P.2d 247, 255 (Mont. 1956); Texas Constr. Assocs., Inc. v. Balli, 558 S.W.2d 513, 521 (Tex. Civ. App.--Corpus Christi 1977, no writ); Herbert & Brooner Constr. Co. v. Golden , 499 S.W.2d 541, 547 (Mo. 1973); See Also, Quin Blair Enters., Inc. v. Julien Constr. Co., 597 P.2d 945 (Wyo. 1979); Chambless v. Fritch, Gen. Contractor, Inc., 336 S.W.2d 200 (Tex. Civ. App.--Dallas 1960, writ ref'd n.r.e.) (dicta).

However, the requirement of a written change order can be waived. The waiver can result from oral statements or promises made to induce the contractor to perform the extra work. Lazer Constr. Co., Inc. v. Long, 370 S.E. 2d 900, 902 (S.C. 1988); Union Bldg. Corp. v. J & J Bldg. & Maint. Contractors, Inc., 578 S.W.2d 519, 520 (Tex. Civ. App.--Houston [14th Dist.] 1979, writ ref'd n.r.e.); see also Fondedile, S.A. v. C.E. Maguire, Inc., 610 A.2d 87 (R.I. 1992).

Courts have held that oral statements are not the only means of waiving the requirement of a written change order. Actions or conduct relied upon by the contractor can also create a waiver. S&M Rotogravure Serv., Inc. v. Baer, 252 N.W.2d 913, 920 (Wis. 1977); Son-Shine Grading, Inc. v. ADC Constr. Co., 315 S.E.2d 346, 349-350 (N.C. 1984); Moore Constr. Co., Inc. v. Clarksville Dept. of Elec., 707 S.W.2d 1, 12-13 (Tenn. 1985); Kelly v. Anderson Ridge Assocs., 1994 WL 450285 (Conn. Super.). It follows that owners should be cautious that their statements and actions cannot be used as an argument that written change order requirements have been waived.

If the contractor is relying upon an oral promise or some other form of waiver of the written change order requirement, it must have been made by someone with authority to bind the owner. When the person acting on behalf of the owner has actual authority, of course, the owner is bound. Grace Community Church v. Gonzales, 853 S.W.2d 678, 679 (Tex. App.--Houston [14th Dist.] 1993, no writ). If such person lacks actual authority, however, the contractor must establish either apparent agency or apparent authority of an actual agent before the contractor can rely on the promises or conduct to bypass the requirement of a written change order. Desormeaux v. Lalonde, 578 So. 2d 226, 230 (La. 1991).

The problem of assuring proper authority becomes much more complex when the owner is a public entity. There are statutes and regulations that place strict change order limitations upon public owners. For example, Mass. Gen. Laws Ann. Ch. 44, § 31c (West 1994) provides that no Change Order to the contractor for an increase in the contract price shall be deemed to have been given until an auditor or accountant, or other officer of the city or town having similar duties, has certified that an appropriation in the amount of such change order is available.

Likewise, Tex. Loc. Gov't Code Ann. § 252.048 (Vernon 1988) provides that the governing body of a municipality may approve change orders, but the total contract price cannot be increased unless additional money for increased costs is appropriated for that purpose from available funds or is provided by the authorization of time warrants. Under that statute, the original contract price may not be increased by more than 25%.

These statutory requirements for change orders should be taken very seriously. At least one court held that in light of such a statute, even if the extra work is undisputed, an oral authorization for the contractor to perform the work is not sufficient to support recovery for the contractor. Wegroup PC/Architects & Planners v. State of Oregon, 885 P. 2d 709 (1994). The court reasoned as follows:

That rule places rigorous burdens of compliance on persons and entities in plaintiff’s position and may, on occasion, compel seemingly--or actually--draconian consequences. But that is the statutorily imposed price of doing business with a public body.

Wegroup, 885 P.2d at 714.

To render a municipality liable for acts of its agents, it must be established that the acts were expressly authorized by the municipality or were done pursuant to general authority to act for the municipality. Christopher v. City of El Paso, 98 S.W.2d 394 (Tex. Civ. App.--El Paso 1936, writ dism'd); School Comm. of the City of Providence v. Board of Regents for Educ., 429 A.2d 1297 (R.I. 1981); Wacker-Wabash Corp. v. City of Chicago, 112 N.E. 2d 903 (Ill. 1953). For example, Texas Statute Tex. Loc. Gov’t Code Ann. § 252.048 (Vernon 1988) provides that a governing body may grant general authority to an administrative official of the municipality to approve change orders of only $15,000 or less.

The party that claims an agent possessed actual authority to bind the governmental body carries the burden of proof on that issue. Desormeaux v. Lalonde, 578 So. 2d 226 (La. 1991). Parties who contract with municipal corporations are charged with notice of the extent of the powers of the agents and officers of the municipality, and must take notice of those restrictions or limitations. Pasadena Police Officers Ass’n v. City Of Pasadena; 497 S.W.2d 388 (Tex. Civ. App.--Houston [1st Dist.] 1973, writ ref’d n.r.e.); Peterson v. Barron, 401 S.W.2d 680 (Tex. Civ. App--Dallas 1966, no writ); Stoddard v. King County , 158 P.2d 78 (Wash. 1945). Thus, where statutes limit the express authority that may be conferred upon officials of public entities, traditional principles of apparent authority may not be available to bind the owner to pay for extra work.

If this is true for actual employees of the public entities, it is even more the case for "non-employees" of the entity. For example, contractors should be especially wary in relying upon representations of non-employee design professionals of the governmental bodies. In the face of statutory limitations of authority to bind governmental bodies to change orders, architects and engineers may lack the capacity to bind the entity by their actions, conduct or their statements.

In Texas, when the owner of a construction project is an agency or department of the state, the owner is not limited to contractual change order requirements to avoid liability for extra work. The doctrine of sovereign immunity precludes liability of state public entities for breach of a construction contract, even where liability is undisputed. Green Int'l, Inc. v. State of Tex., 877 S.W.2d 428, 432 (Tex. App.--Austin 1994, writ granted, motion to dismiss granted due to settlement). It should be noted that this decision is not restricted to claims for extra work, but also applies generally to all actions against the state involving contractual and other commercial transactions.

Texas is unusual, but contractors dealing with any public entity must be extremely cautious when their contracts contain written change order requirements. Situations that will ordinarily result in bypassing the written change order requirement on privately owned projects may not do so where the owner is a public entity.

II. CONSTRUCTION CHANGE DIRECTIVE

The Construction Change Directive procedure detailed in Art. 7.3 of the AIA 201 is a means to compel a contractor to perform extra work even though, for whatever reason, there is no agreement as to price or time adjustments. This is sometimes called "force account" work. The procedure calls for the issuance of a written directive from the owner and architect containing proposed price and time adjustments. The contractor does not agree to the terms of the directive, but is allowed to include the price adjustments in future pay requests, Art. 7.3.2, 7.2.2 and 7.3.1. If the owner and contractor do not ultimately agree to the adjustments, the matter is referred to the architect for determination. Art. 7.3.7.

The Construction Change Directive is an innovative procedure designed to contractually obligate the contractor to perform force account work while, at the same time, providing the contractor with some security that he will be given some compensation for it. The contractor is allowed to include in its "pay applications" requests for payment for changes authorized by the directive. Art. 9.3.1.1 and 7.3.7. Hence, use of the procedure provides contractors, subcontractors and suppliers with at least some degree of cash flow during the course of the project. The Construction Change Directive assures the owner that the project will not be delayed because of a lack of agreement with the contractor for an adjustment as to price or time for extra work. With the issuance of the directive, the contractor is given written documentation providing (1) that a change has, in fact, been ordered and (2) a precise description of the scope of the change.

The Construction Change Directive is one approach to force account work. However, it is not unusual for public entities to use much more strict procedures to compel contractors to perform force account work, and to administer payment therefor.

III. THE "CLAIMS" CLAUSE

Art. 4.3.1 defines a "claim" as: ". . . [A] demand or assertion by one of the parties seeking adjustment . . . of Contract terms, payment of money, extension of time or other relief . . . ." A claim for extra work by a contractor falls well within this definition.

If extra work is not documented by a "Change Order" as defined in Art. 7.1.2 and 7.2.1, or a "Construction Change Directive" as defined in Art. 7.1.2 and 7.3.1, the claims process is the only avenue sanctioned by contract to recover compensation. That process sets forth an intricate scheme designed to protect the owner from unanticipated expenses. Like most standard form general contracts, the AIA 201 contains a notice requirement as well as a time requirement for actually submitting the claim.

A. Notice Requirement.

Article 4.3.7 provides that in order for a contractor to make a "Claim" for an increase in the Contract Sum (i.e., a claim for an extra), ". ... written notice . . . shall be given before proceeding to execute the Work." Written notice of a "claim" for additional time is also required by Art. 4.3.8.1.

B. Claims Submission.

Art. 4.3.3 provides that: "Claims ... must be made within 21 days after the occurrence of the event giving rise to such Claim or within 21 days after claimant first recognizes the condition giving rise to the Claim, whichever is later."

These notice and submission deadlines serve a valuable purpose to the owner. They provide timely information of the potential expense or time impacts that may be occurring as a result of the underlying facts of the claim. That information gives the owner the opportunity to take preventative measures (such as altering the current course of action) to preclude the occurrence of the claim, or to implement appropriate financial planning to provide for payment of the claim.

Failure to make timely notice or to assert claims within contractually prescribed times can defeat the claim. Galin Corp. v. MCI Telecommuni-cations Corp., 12 F. 3d 465, 469 (5th Cir. 1994) (interpreting New York law); U.S. for The Use and Benefit of Chase Somerset Corp. v. Becon Servs. Corp., 837 F.Supp. 461, ( D.D.C. 1993); U.S. v. Centex Construction Co., Inc., 638 F.Supp. 411 (W.D. Va. 1985). The failure to meet notice requirements, however, does not always defeat the contractor's claim, such as: (1) when the owner had actual knowledge of the facts forming the basis of the claim, New Ulm Bldg. Center, Inc. v. Studtmann, 225 N.W. 2d 4 (Minn. 1974); (2) and when the owner was not prejudiced by the untimely or total lack of notice, R. C. Hedreen Co., GSBCA 4289, 77-1 BCA¶ 12521.

Conduct of the owner can likewise render the notice provisions unenforceable. When an owner breaches a building contract it relinquishes its contractual procedural rights concerning change orders and claims for additional costs. City of Baytown v. Bayshore Constructors, Inc., 615 S.W.2d 792, 794 (Tex. Civ. App.--Houston [14th Dist.] 1980, writ ref'd n.r.e.; Tribble & Stephens Co. v. Consolidated Servs., 744 S.W.2d 945 (Tex. App.--San Antonio 1987, writ denied). This is sometimes referred to as the "first to breach" rule.

Estoppel can also be the basis of rendering notice provisions unenforceable. In E. C. Ernst, Inc. v. Koppers Co., Inc., 626 F.2d 324, 329-330 (3d Cir. 1980), a subcontractor was given a large number of changes that dramatically altered the scope of work, forcing it to accelerate its work. The contractor was advised by the subcontractor that the circumstances necessitated that the subcontractor dispense with the notice requirements every time extra work was performed. Under these circumstances, the court held that the contractor was estopped from relying upon the notice provisions as a defense to the subcontractor's claim. Again, owners must be cautious that their actions do not dispense with contractual protections meant to inform them of potential costs.

Finally, special statutes may exist rendering unenforceable time deadlines for notices. For example, in Texas, a stipulation requiring notices of a claim as a condition precedent to the right to sue is not valid unless it is reasonable. Further, stipulations requiring notification within 90 days are void! Tex. Civ. Prac. and Rem. Code § 16.071.

The unmistakable requirement of the AIA 201, however, is that the "claims" procedure must be followed for a contractor to obtain compensation for extra work not documented by a Change Order or a Construction Change Directive. That procedure not only includes the notice and submission requirements discussed above, but also includes the claims resolution procedure outlined in Art. 4.4. That article contains an intricate scheme to quickly resolve disputes without expensive court litigation and without disrupting or delaying the progress of construction. The process set forth in Arts. 4.4.1 through 4.4.4 provides, in general, that the architect will review the claim, may request additional data, recommend a compromise, reject the claim, or recommend approval. If those actions fail to produce a resolution, the architect renders a written decision that is final and binding, but subject to arbitration. The entire procedure should not exceed over 27 days after the claim is submitted! This is an extremely fast way to resolve disputes.

The architect's decision is final and binding unless arbitration is commenced within 30 days after the decision. Arts. 4.4.4 and 4.5.4.1. Significantly, the architect's decision is a condition precedent to arbitration or litigation. Art. 4.3.2. Whether the condition precedent has been met will be decided in the context of arbitration, not litigation in court. Board of Library Trustees, Shaker Heights Public Library v. Ozanne Constr. Co., Inc ., 651 N.E. 2d 1356 (Ohio 1995). Hence, according to the plain wording of the contract, the claims procedure must be followed for a contractor to maintain an action for extras where there is neither a "Change Order" nor a "Construction Change Directive."

Proper utilization of the claims resolution procedure set forth in the AIA 201 should meet the needs of all parties. For the contractor, it is a method that will provide relatively quick cash flow for disputed extra work. For the owner, it assures communication of information so that the owner better understands the financial impact of a change. This aids in preventing unexpected budget overruns that are not only bad for the owner, but eventually, delay payment to the entire construction team.

IV. OTHER METHODS OF RECOVERY

A. Cardinal Change.

Other methods, outside the contract, can produce recovery for the contractor for extra work. The "cardinal change" doctrine is available when the quantum of changes or the magnitude of a change creates a fundamental alteration of the scope of the contract so that it essentially breaches the contract. Air-A-Plane Corp. v. U.S., 408 F.2d 1030 (Ct. Cl. 1969). However, this approach is most unpredictable because of the factual intensive nature of the claim. There is no exact formula for determining when a change, or series of changes, alters the scope of the contract, and thereby breaches the contract. Wunderlich Contracting Co. v. U.S. , 351 F.2d 956, 966 (Ct. Cl. 1965). Neither the number of changes, nor the character of the modifications is the determining factor. J.D. Hedin Constr. Co. v. U.S., 347 F.2d 235, 258 (Ct. Cl. 1965); Air-A-Plane Corp ., 408 F.2d at 1033. Relying upon "cardinal change," however, almost assures litigation because of the factual basis of the doctrine.

B. Quantum Meruit.

Another method of recovering outside the express contract is by a contract implied by law, or the doctrine of quantum meruit. See eg., Uhlir v. Golden Triangle Dev. Corp., 763 S.W.2d 512, 517 (Tex. App.--Ft. Worth 1988, writ denied). That theory can be problematic because one must establish that there is no express contract covering the subject matter of the changed work. Generally, there can be no contract implied by law when an express contract exists. Exxon Corp. v. Atlantic Richfield Co., 678 S.W.2d 944, 947 (Tex. 1984). A contractor may face a most persuasive argument from the owner that the "changes" and "claims" clauses create the express contract covering the subject matter thereby precluding recovery under quantum meruit. Use of the contract implied in law theory may also encourage quality of work arguments where the owner contends that the doctrine is inapplicable because the owner actually received no benefit from the claimant's work. Kunkle Water & Elec., Inc. v City of Prescott , 347 N.W.2d 648 (Iowa 1984). Like the cardinal change doctrine, reliance upon quantum meruit almost assures ensuing litigation. It is a pure legal concept that is unlikely to be well understood by the non-legal construction community; and therefore, it is doubtful that its use will produce a resolved dispute in a non-legal forum.

V. CONTRACTOR'S RIGHT TO ABANDON FOR UNPAID EXTRAS

When the contractor has not followed the claims procedure set forth in the contract and there is no "Change Order" or "Construction Change Directive," but the contractor has performed extras for which he has not been paid, can the contractor suspend work and abandon the project?

The answer to this question should be found in an analysis of whether there is a legal obligation for the owner to pay. As a general rule, when one party to contract commits a material breach of that contract, the other party is discharged or excused from any obligation to perform. Hernandez v. Gulf Group Lloyds, 875 S.W.2d 691, 693 (Tex. 1994). Nonpayment sometimes qualifies as a justification for abandonment. See The Brooklyn & Ownes Screen Mfg. Co. v. U.S., 97 Ct.C. 532 (1942); Overstreet v. U.S., 55 Ct.C. 154 (1920). However, at least one case has held that, in this context, "nonpayment" refers to nonpayment of agreed contract amounts, but not to claims for additional payments which are not yet resolved. See, DWS, Inc. , ASBCA 33245, 87-3 BCA ¶ 19960, 29 G.C. ¶ 265. That case involves a government contract that was not a construction contract. Nevertheless, it can be used as authority that nonpayment of extras does not justify abandonment.

Oxford Dev. Corp. v. Rausauer Builders, Inc., 304 N.E. 2d 211, 216 (Ind. 1973), on the other hand, held that nonpayment of extras justified abandonment in the context of a construction contract. A distinguishing factor in Rausauer , however, is that the court found a legal obligation on the part of the owner to pay for the extras. It is, therefore, reasonable to conclude that absent a legal obligation to pay, there is no right to abandon performance for nonpayment of extras. That result is consistent with the contractual scheme of the AIA 201. Art. 4.3.4 specifically requires the contractor to proceed diligently with performance of the work pending final resolution of claims. Furthermore, Art. 4.5.3 requires the same during the arbitration process.

Once the legal obligation to pay for the extras is established, and all other criteria justifying abandonment exist, the contractor is entitled to "walk the job" for the nonpayment of extras. It should be noted that in some jurisdictions, a contractor can lose the right to abandon performance once it has been obtained. In those jurisdictions, a contractor is put to an election at the time that a material breach occurs. The contractor may abandon performance or continue performance and sue for damages. Board of Regents of Univ. of Tex. v. S&G Constr. Co., 529 S.W.2d 90 (Tex. Civ. App.--Austin 1975, writ ref'd n.r.e.). Continued performance after the material breach can constitute a waiver of the right to abandon. It is unclear how long a contractor's continued performance must be before a waiver occurs. It would appear that due to the factually intensive nature of the analysis of the existence of the right to abandon, no practitioner can predict the outcome with any degree of certainty. To counsel a contractor to abandon performance for nonpayment of extras is risky at best. However, situations exist where it is not only advisable, but it is the only realistic course of action for the contractor.

VI. ARCHITECT LIABILITY TO THE OWNER IN THE CHANGE ORDER PROCESS

The design professional can have liability to the owner in the change order process. Generally speaking, an action against an architect/engineer by the owner can be based on either contract or tort law, or both. Under contract law principles, an architect may be liable to the owner based upon the breach of the contract between the parties. Williams Engineering, Inc. v. Goodyear, 496 So.2d 1012 (La. 1986). Under tort theory, an owner can bring a claim against the architect based upon the breach of a legal duty owed to the owner. Corcoran v. Sanner , 854 P.2d 1376 (Colo. 1993). Sometimes, the limitations periods (which can be different) will dictate the type of action an owner is allowed to bring.

Under tort theory, absent a provision to the contrary, implicit in every contract between an owner and an architect is the duty of the architect to "exercise the care of those ordinarily skilled in the business." Nelson v. Commonwealth of Virginia, 368 S.E.2d 239, 243 (Va. 1988) quoting Surf Realty Corp. v. Standing, 78 S.E.2d 901, 907 (Va. 1953). A breach of that duty entitles the owner to damages. Proof of professional negligence by an architect ordinarily requires expert testimony. Allied Properties v. John A. Blume and Assoc., Eng'rs, 102 Cal. Rptr. 259, 265 (1972).

Where the architect's duties include formulating changes to the project, initiating the change order process, and processing change orders, it would appear that he must perform those functions under the standard of negligence expressed above. Hence, failing to process change orders in a timely manner could constitute professional negligence on the part of the architect. If such failure is established, the architect should be liable to the owner for all damages proximately caused thereby.

For example, a design professional can be liable for delays. Under the AIA B141 , an architect is specifically obligated not to delay the work on the project. AIA B141 Art. 2.6.12. When the time for occupancy of a building is delayed due to the negligence of the architect, an owner may recover damages for the loss of the use of the building, including lost profits. Northern Petrochemical v. Thorsen & Thorshov, Inc., 211 N.W.2d 159 (Minn. 1973). One court has gone as far as to award delay damages to an owner against the architect that were based upon the liquidated damages specified in the prime contract (between the owner and contractor). E.C. Ernst, Inc. v. Manhattan Constr. Co. of Texas , 387 F.Supp. 1001 (S.D. Ala. 1974), modified on other grounds, 551 F.2d 1026 (5th Cir. 1977). It follows that delays caused by the architect negligently performing change order functions should render the architect liable to the owner for the delay damages.

However, some jurisdictions have held that in actions against an architect based upon negligence, economic damages are not recoverable unless accompanied by physical property damage or bodily injury. Sandarac Ass'n., Inc. v. W.R. Frizzell Architects, Inc., 609 So. 2d 1349 (Fla. 1992), review denied, 626 So.2d 207 (Fla. 1993). This is commonly referred to as the "economic loss doctrine." The applicability of this doctrine will depend on the jurisdiction of the lawsuit.

As mentioned above, an architect owes contractual duties to the owner in addition to duties of care implicit to the professional services. For example, an architect can be liable under the contract between the owner and architect when the architect fails to properly supervise the project adequately. First Nat'l Bank of Akron v. Cann , 503 F. Supp. 419 (N.D. Ohio 1980) affirmed, 669 F.2d 415 (6th Cir. 1982). Hence, if for some reason the owner does not pursue the architect for negligence in the change order process, the architect can still be liable for breach of its contractual duties.

If the contractual duties of the architect include active involvement in the change order process and the scope of that process includes the use of Construction Change Directives, it would appear that the architect would owe the duty to perform that function under the same professional standard as exists for all other functions performed by the architect. Hence, where there are numerous changes and the change order processing has been slow, the failure of the architect to use, or recommend that the owner use, Construction Change Directives should be actionable conduct based upon both tort and contract principles. It follows that if delays occurred that could have been prevented by using Construction Change Directives, the architect should be liable to the owner for all resulting delays as well as all other damages.

It should also be noted that one reason change orders may be necessary is because of substandard plans or specifications prepared by the architect. An architect may be liable to an owner for defective or inadequate plans and specifications. Huber, Hunt & Nichols, Inc. v. Moore , 136 Cal. Rptr. 603. Therefore, if defective plans and specifications are the reason for numerous change orders that result in delays to the project, the architect should be liable to the owner for all the resulting damages.

VII. CONCLUSION

Changes on construction projects are a necessary evil that will continue to plague all segments of the industry. When the inevitable necessity for changes occurs, each segment has needs that compete with the other. Owners need knowledge of the time and cost implications of the change, fair charges, and prompt execution of the changed work. Contractors, subcontractors and suppliers need prompt payment of fair compensation for the changed work plus time adjustments that are equitable.

The process described in AIA 201 to implement changes is a logical approach to meet as many of the needs of all parties as is practical and, therefore, its use should be encouraged. The law offers safety valves in appropriate circumstances to prevent abuse of any party when there is deviation from the contractual requirements of the changes process. Some jurisdictions limit the availability of these safety valves with respect to public works.

In the end, however, society does not benefit when there is no accountability to pay for quality work performed in good faith. If the contractor inexcusably failed to follow contractual requirements in performing that work, the contractor should be accountable to the owner for any resulting adverse financial impacts, if any such impacts were caused thereby. However, the contractor should not be denied compensation for his work based upon noncompliance with mere technicalities. In other words, the contractor should be paid for extra work performed in good faith for which the owner receives a definite benefit. That payment should be reduced, however, by any amounts the owner has been damaged because of the contractor's failure to comply with notice and claim submission deadlines or other such contractual requirements. If the courts invoke this philosophy, the entire industry, including each of its individual segments, will be well served.