Confirm Project Manager's Authority To Sign Change Orders Or Risk Non-Payment
Written by Kevin M. Tracy
In the matter of Mallory & Evans Contractors and Engineers, LLC v. Tuskegee University, the U.S. District Court for the District of Alabama concluded that a contractor was not entitled to additional compensation for labor and materials provided over and above the contract amount where the owner's project manager did not have the authority to bind the owner to change orders. In this case, the contractor and the owner entered into a fixed price design-build HVAC improvement project at the Tuskegee University campus. During the project, the contractor continually found equipment that was not operational and was asked by the owner's project manager to fix or repair the equipment, even though the repairs were outside the contract scope of work. The project manager approved thirty-six (36) separate change orders, but it did not follow the proper process in approving those change orders. The contract between the parties required all change orders to be approved by the purchasing department. Both the project manager and the purchasing director had signed the underlying contract between the parties.
The Court found that the contractor's "mere belief" that the project manager had authority to sign the change orders was not sufficient. The contract stated clearly that any payment exceeding the original contract amount required prior approval from the purchasing department. That language was notice to the contractor that the project manager did not have the authority to approve change orders that resulted in an adjusted contract that exceeded the original contract amount.
This case demonstrates with harsh clarity the importance of understanding and following the details in construction contracts. The contractor in this case lost $765,915.00, the amount of the outstanding change orders, in addition to its litigation costs incurred in seeking to recover the money. Be sure that your contract dictates who can bind the other contracting party, and that your project managers and supervisors understand and respect that authority.
