Opinion ID: 901222
Heading Depth: 1
Heading Rank: 10

Heading: Change Orders

Text: [¶ 16.] The City argues that even if the contract is a unit bid contract, Prunty should not be paid for the final change order because Prunty did not get the City's prior approval. The City relies specifically on a provision in a document entitled Special Conditions, which addresses change orders as follows: Change orders, if necessary, will be authorized by the Engineer, and approved by the Owner [City], prior to change order work being performed. This provision is, however, one of several provisions in the contract that control change orders. How the parties intended to handle changes is determined from the entire contract and all its provisions must be given meaning if that can be accomplished consistently and reasonably. Carstensen Contracting, Inc. v. Mid-Dakota Rural Water Sys., Inc., 2002 SD 136, ¶ 8, 653 N.W.2d 875, 877. We have previously applied general principles of contract interpretation as follows: In interpreting a contract, we seek to ascertain and give effect to the intention of the parties; at the same time, to find the intention of the parties, we rely on the contract language they actually used. Malcolm v. Malcolm, 365 N.W.2d 863, 865 (S.D.1985). In a case where, as here, several documents comprise the contract, all are to be read together to learn the parties intent. Dail v. Vodicka, 89 S.D. 600, 237 N.W.2d 7 (1975). It is a fundamental rule of contract interpretation that the entire contract and all its provisions must be given meaning if that can be accomplished consistently and reasonably. Id. at 603, 237 N.W.2d at 9. However, when provisions conflict and full weight cannot be given to each, the more specific clauses are deemed to reflect the parties intentionsa specific provision controls a general one. State v. Greger, 1997 SD 14, 21, 559 N.W.2d 854, 864. Ordinarily, the plain meaning of the contract language will be followed unless there is some ambiguity or different intent manifested. American State Bank v. Adkins, 458 N.W.2d 807, 809 (S.D.1990). Id. [¶ 17.] We must also look at all the provisions in the contract addressing change orders in addition to the section relied upon by the City. The contract defines a change order as an order to the contractor authorizing adjustments in the contract price: CHANGE ORDERA written order to the CONTRACTOR authorizing an addition, deletion, or revision in the WORK within the general scope of the CONTRACT DOCUMENTS, or authorizing an adjustment in the CONTRACT PRICE or CONTRACT TIME. In the portion of the contract entitled General Conditions, Section 13 Changes in the Work allows the City to order changes for which an equitable adjustment shall be authorized, and allows the Engineer to make changes in the details of the work with a Field Order. [4] Additionally, Section 14 of the General Conditions requires a Change Order if the contract price changes. Section 14 Changes in Contract Price states: 14.1 The CONTRACT PRICE may be changed only by a CHANGE ORDER. The value of any WORK covered by a CHANGE ORDER or of any claim or increase or decrease in the CONTRACT PRICE shall be determined by one or more of the following methods in the order of precedence listed below: a. Unit prices previously approved. b. An agreed lump sum. The contract specifically requires work stoppage and prior approval in certain circumstances. Section 17 of the General Conditions provides when subsurface or latent physical conditions ... differ[ ] materially from the contract specifications, the contractor must not proceed until a Change Order is approved. Additionally, if unknown physical conditions ... of an unusual nature differ[ ] materially from those ordinarily encountered and generally recognized as inherent, to the project (water and sewer project), the work must stop until approved. The contract states: The CONTRACTOR shall promptly, and before such conditions are disturbed, except in the event of an emergency, notify the OWNER by WRITTEN NOTICE of: 17.1.1 Subsurface or latent physical conditions at the site differing materially from those indicated in the CONTRACT DOCUMENTS; or 17.1.2 Unknown physical conditions at the site, of an unusual nature, differing materially from those ordinarily encountered and generally recognized as inherent in WORK of the character provided for in the CONTRACT DOCUMENTS. (emphasis added). [¶ 18.] Section 27 of the General Conditions details the engineer's authority as the City's representative in overseeing the project and interpreting the contract. Subsection 27.1 states: The ENGINEER shall act as the OWNER'S [City's] representative during the construction period .... and shall interpret the intent of the CONTRACT DOCUMENTS in a fair and unbiased manner. Subsection 27.4 states [t]he ENGINEER shall promptly make decisions relative to interpretation of the CONTRACT DOCUMENTS. See Subsurfco, Inc. v. B-Y Water Dist., 337 N.W.2d 448, 453 (S.D. 1983) (discussing the authority of an engineer in contract cases). This language provides the engineer with the authority to interpret the intent of the contract in a fair and unbiased manner. [¶ 19.] Another portion of the contract entitled Supplemental General Conditions amends the General Conditions and supersedes any conflicting provisions of the contract. The Supplemental General Conditions expressly change, amend, or supplement the General Conditions and shall supersede any conflicting provisions of this Contract. (emphasis added). It contains a change order section which clearly gives the City the right to increase or decrease the unit price quantity. Section 2.3 provides: When the CONTRACT sum is, in whole or in part, based on unit prices, the OWNER reserves the right to increase or decrease a unit price quantity as may be deemed reasonable or necessary in order to complete the work contemplated by this CONTRACT. [¶ 20.] Section 2.1 provides for a written change order for all changes agreed to by the City, the Contractor and RUS. The provision states: All changes affecting the project's construction cost or modifications of the terms or conditions of the contract must be authorized by means of a written contract change order which is mutually agreed to by the OWNER and CONTRACTOR and is approved by RUS. The contract change order will include extra work, work for which quantities have been altered from those shown in the bidding schedule, as well as decreases or increases in the quantities of installed units which are different than those shown in the bidding schedule because of final measurements. Supplemental General Conditions § 2.1 (emphasis added). [¶ 21.] This superseding contract provision does not specifically state the need for work to stop until the work is approved. It also does not specifically state that change orders always need to be completed prior to the work being done. Particularly noteworthy is the language at the end of the section. The language contemplates a final change order based on final measurements of units that have already been installed. It provides: [t]he contract change order will include ... decreases or increases in the quantities of installed units which are different than those shown in the bidding schedule because of final measurements. Id. The conflicting change order provision upon which the City relies appears in a document entitled Special Conditions. As to change orders, it says, Change orders, if necessary, will be authorized by the Engineer, and approved by the Owner, prior to change order work being performed. This provision conflicts with the provision in the Supplemental General Conditions which allows adjustment due to final measurements of installed units. The provision in the Supplemental General Conditions controls. [¶ 22.] The change order in controversy is based on final measurements of installed units. It was submitted on an RUS form made part of the contract and prepared by the Owner's (City's) engineer. The form of the order states that it is from the City directed to Prunty Construction Company as follows: You are hereby requested to comply with the following changes from the contract plans and specifications. Next, the form provides a place for a description of the increases or decreases in the number of installed units different from the number of estimated units shown on the Bid Schedule. The final change order is designated Order No. 02-Final and includes the following adjustments to the contract: Drainage Pipe Adjustments $ 2,439.32 increase Surfacing Adjustments $43,201.23 increase Traffic Control Adjustments $ 245.70 increase Erosion Control Adjustments $ 1,328.50 decrease Water Main Adjustments $14,629.25 increase Sanitary Sewer Changes $ 4,256.96 decrease Total Adjustments $54,930.04 increase [5] The form indicates the contract total of $1,002,601.15 including the changes. The Order is signed by the engineer. Attached to the form are five pages of detailed adjustments and narrative explanation for each category listed. Signature lines appear on the form as follows; Requested____________________________________ (Owner) Recommended__________________________________ (Owner's Architect/Engineer) Accepted_____________________________________ (Contractor) Approved by Agency___________________________ (Name and Title) [¶ 23.] Sayre engineer Miller considered this a final change order designed to reconcile the final quantities which could not have been known until the project was completed. Miller testified that his interpretation of the contract provisions gave him the authority to approve certain changes on a day to day basis. He explained as follows: There's also language at the end of the proposal that deals with various quantity variations, too, that I think give the engineer as the owner's representative latitude in adding or deleting certain items of the project during the course of the work. And as we do that in the course of the work, we can't be dealing with a change order every time there's a deviation in the quantity. During the project, Miller had submitted a change order to the City when a substandard slope in an existing sewer line was discovered and had to be remedied. The change order requested approval for work in the amount of $22,083.34. It was submitted and approved as part of Partial Payment Estimate 6. The first change order fell under the contract provision that specifically requires prior approval of a change order when unforeseen subsurface problems are discovered. Miller testified that when the first change order was presented to the City, the City was told that the project may go over budget and that one way to stay within the budget was to eliminate the asphalt pavement on Warehouse Avenue. Miller said the City, was pretty adamant that Warehouse Avenue would have to be paved. There was some discussion about it, but it was decided that Warehouse Avenue would be paved. A large portion of the increase in the project was attributable to Warehouse Avenue paving. Miller determined that prior approval was unnecessary for the final order because it merely adjusted the actual units used in the project; and as the owner's representative, he had approved the changes on a day to day basis. Miller testified that the Contractor, the City and RUS expected a final adjustment would be made after the project was completed since this was a unit bid contract. [¶ 24.] The trial court determined that the contract required the City's prior approval of unanticipated conditions and granted summary judgment to the City. In its memorandum decision, the trial court stated: As a matter of law, the contract between Prunty and Canistota required notice of unanticipated conditions and a halt to the work until the change order was approved. The record before the Court indicates Prunty failed to comply with the requirements of the contract and thus Canistota is not bound to pay for these additional expenses. Since interpretation of a contract is a matter of law, we review de novo without any presumption in favor of the trial court's determination. James River Equipment Co. v. Beadle Co. Equip., Inc., 2002 SD 61, ¶ 10, 646 N.W.2d 265 (citing Thunderstik Lodge, Inc. v. Reuer, 1998 SD 110, ¶ 12, 585 N.W.2d 819, 822) (additional citations omitted); Mahan v. Avera St. Luke's, 2001 SD 9, ¶ 15, 621 N.W.2d 150, 154. [¶ 25.] The only provision in the contract that specifically addresses the circumstances requiring prior approval and work stoppage is in the General Conditions 17.1.1 & .2. The specific provision requires the contractor to stop work when unanticipated conditions differ[] materially from the contract or from those ordinarily encountered and generally recognized inherent in this type of work. The conditions prompting the first change order fell within this provision. Whether any of the changes in the final change order fall within this provision is a question of fact. Some of the changes are reductions, some are increases. There is conflicting evidence of whether these changes were materially different from the contract or materially different from those ordinary and inherent conditions of sewer and water renovations. Whether the final change order falls under the contract provision requiring the work to stop until the City approves the order would be a question of fact. [¶ 26.] Also inherent in every contract is a covenant of good faith and fair dealing. Mahan, 2001 SD 9 at ¶ 30, 621 N.W.2d at 159. If the City did adamantly require the Contractor to pave Warehouse Avenue as Miller testified, it would be unreasonable for the City to disallow payment for the work. The trial court placed the entire burden of bringing forth a Change Order on the Contractor. The Contract, however, specifically gives the Owner the right to unilaterally make changes in the number of units. If the Owner makes changes without implementing a written Change Order, it should not be allowed to deny payment for those changes for lack of a Change Order. Since there are genuine issues of material fact, summary judgment is not appropriate. We reverse the trial court's grant of summary judgment in favor of the City.