The Dangers of Performing Public Work Project Extra Work Without the Proper Preapprovals and Funding, by Michael D. Ganz, Esq. featured in the “The Light,” Suffolk County Electrical Contractors Association Newsletter, 6-2024

Contractors who perform public improvement work are often presented with the requirement to perform extra or non-scope work in addition to their base contract work. Every governmental entity (federal, state, municipal, town) has detailed requirements for contractors to follow in order to perform and be paid for this extra work through detailed change order requirements. If the contractor does not follow these requirements, the governmental entity does not have to pay the contractor – even if the contractor performed the extra work timely and properly. Nearly always, these change order requirements require the contractor to have pre-approval signed by the authorized governmental representative. Often, for higher valued change orders there is a tiered-system requiring multiple signatures from different levels of the governmental entity. The contractor may have to have his daily sheets delineating his labor, material and equipment signed by the governmental entity as proof of the contractor’s expenses. Note that the governmental entities’ signing of these daily slips never constitutes an ‘acknowledgement’ of the work as change order work, but it merely is a record keeping requirement as part of the overall change order process.

So why do contractors continue performing extra work in advance of having that work pre-approved by the governmental entities? The question is often a business decision in the sense that all contractors know they have a limited time to perform their public work by a set date in their contract or be faced with liquidated damages in the form of daily penalties that can accrue quickly. If the extra work will require the contractor to expend additional time to perform it, the contractor can request additional time (as well as the compensation) in the change order but both the additional time and compensation may be denied in whole or part. Also, if the contractor refuses to perform that extra work without the executed change order (which may take weeks or months), the contractor will be seen as a ‘difficult contractor’ by the government project manager and/or inspectors thus affecting its performance on that contract or even on other contracts it is performing.    

Contractors should also be weary of government representatives agreeing to pay the contractor orally (or even in a written email or letter) for the change order work. These representatives may genuinely believe the extra work is proper change order work so the contractor can be paid but the governmental agency can later deny payment if the contractor did not obtain the required preapproval.

The reason for these requirements is obviously public policy to protect the taxpayers who ultimately fund these public improvement projects but it also to prevent dishonest and illegal behavior by both contractors and government employees who decide to pay the contractors additional monies in exchange for kickbacks.

A recent example of a public improvement contractor being denied compensation for the work it performed was recently (May 1, 2024) upheld by the New York State Appellate Division. In that matter, a construction manager performed construction services under its base contract with Nassau County for the construction of a police station. In Nassau County, the Nassau County Legislature has to approve its construction contracts by statute and importantly also has to approve change orders to those contracts in order that the change orders are registered and received funding. In fact, in Nassau County, the change orders are actually ‘amendments’ to the contract. The construction manager followed this process for its first change order/amendment but did not for its proposed second amendment. The construction manager timely and fully performed its work and the police station is being utilized. However, when the construction manager pressed for its payment on its second amendment, the County refused to pay. The construction manager sued Nassau County and the New York Supreme Court dismissed the lawsuit. Thereafter, the construction manager appealed that decision, and the Appellate Division upheld the decision holding “Here, the County was not liable for the work performed under the unauthorized and unexecuted proposed second amendment despite having accepted the benefits of that work.” The Appellate Court further held “when the County failed to obtain proper authorization for or properly execute the proposed second amendment, [CM’s] option was to withhold its services until the County properly authorized and executed the amendment.” The contractor is also advised that the construction manager did not just ignore the requirement for Legislative approval but actually tried to put the amendment on the Legislative calendar numerous times but the County either ignored or removed the amendment from its calendar. The author has no doubt that many if not all the readers of the article believe that the contractor did ‘free work’ for the County and the County’s refusal to pay for that work was reprehensible. The above should be a lesson for contractors doing public (as well as private) work to not only have their attorneys review their contracts including change order provisions before they start work and keep their attorneys advised of potential issues as early as possible.

Michael D. Ganz is a partner in the Woodbury, New York office of Kaufman Dolowich LLP. He focuses his practice on Construction Law and has more than 20 years of experience in construction transactional matters and litigation. He can be reached at michael.ganz@kaufmandolowich.com or (516) 283-8761.

This article is reprinted with permission and was originally published in the Suffolk County Electrical Contractors Association LIGHT publication.