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The Supreme Court recently issued
a ruling which will impact all contractors doing
business with public bodies. In County of Brevard
v. Miorelli Engineering, Inc., the Court dealt
with a situation where the County contracted with
Miorelli to build a spring training facility for
the Florida Marlins. After work had commenced
on the facility, the County terminated the contract
and withheld amounts due to the contractor. Miorelli
sued the County, asserting a variety of claims,
including a claim for extra work.
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
(1) an implied obligation not to
do anything to hinder or obstruct performance
by the other person,
(2) an implied obligation not to
knowingly delay unreasonably the performance of
duties assigned under the contract, and
(3) 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.
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