A common issue in cases addressing an owner’s responsibility for increased costs of a project is whether proper contractual change order procedures were followed.  Contractor’s and subcontractor’s often argue the change order process has been waived by the Parties and therefore claims for additional costs are unaffected by the failure to abide by the contract. In AECOM Technical Services, Inc. v. Flatiron | AECOM, LLC, the United States Court of Appeals for the Tenth Circuit addressed the requirements for waiver in relation to an engineering firm’s claim for increased costs.

Flatiron Constructors, Inc. and AECOM Energy & Construction, Inc. formed a joint venture (“Joint Venture”) to bid a Colorado Department of Transportation (“CDOT”) project, which it was awarded to the Joint Venture. The Joint Venture retained AECOM Technical Services, Inc. (“ATS”) to design the project. The project was then plagued with delays and required redesigns that substantially increased the price.  Litigation ensued where ATS sued the Joint Venture for the increased design costs, and the Joint Venture counterclaimed for the total increased costs of the project allegedly stemming from the design defects. An important issue addressed by the Court was whether the Joint Venture had waived the contractual change order process.

The Court recognized, “For waiver to be implied by conduct, the conduct should be free from ambiguity and clearly manifest the intention not to assert the benefit.” The Court stated, “So for the joint venture to prevail on its Rule 50(b) motion, it had to show that the evidence supported ‘no reasonable inferences’ that the joint venture either (1) expressly waived the Control Board condition or (2) ‘clearly manifest[ed] the intention not to assert” that condition’.”  The Court then noted that while initial Change Order requests had been properly submitted, later requests were held by the Joint Venture to be addressed in the litigation.  The Court held:

“[T]he jury could reasonably conclude that when the joint venture did follow the requirement, it did so out of prudence, not obligation. In other words, following the Control Board condition from time to time is compatible with a finding that the joint venture “clearly manifest[ed]” its intent not to assert that condition.”

This case is a stark reminder that strict adherence to a contract’s terms is essential.  A party that follows contractual requirements periodically, especially when doing so benefits that party, is not sufficient.  Parties should remember that even when litigation is anticipated, they should continue following contract procedures or risk waiving the protections the contract provides.