Contractors on Public Projects Beware – Verbal Waiver Of Prior Written Approval Requirement For Extra Work Not Enforceable

The New Jersey Appellate Division, in Contract Applicators, Inc. v. Borough of Park Ridge, Docket No. A-6080-10T3 (October 2, 2012), recently affirmed a trial court decision that denied a contractor’s attempt to obtain payment for extra work on a public project because the contractor did not comply with the express terms of the contract by obtaining prior written approval authorizing the performance and payment of the extra work.  The contractor claimed it was entitled to payment because he was given verbal approval by the municipality’s engineer to perform the extra work.  The Appellate Division rejected that argument and affirmed the trial court’s decision to deny payment to the contractor for the extra work. 

Contract Applicators, Inc. (“Applicators”) was the lowest responsible bidder for the mechanical and structural rehabilitation and waterproofing of the Mill Road Powerhouse Museum project (the “Project”) in Park Ridge, New Jersey (“Park Ridge”).  The contract awarded provided: “Any proposed changes or deviations from the contract documents during the construction phase of this project must be submitted to [Park Ridge] in writing.  Written approval from [Park Ridge] must be obtained prior to the execution of the proposed change.  The contractor proceeding without receipt of this approval does so at his own risk.”  Park Ridge engaged an engineer (“Engineer”) to supply information regarding engineering related to the Project and separately designated the municipal Director of Operations (the “Director of Operations”) as the contact person for issues relating to the contract.

After the Project work was completed, Applicators submitted an itemized request to the Engineer for payment for additional work at the Project.  Applicators claimed that the Engineer waived the requirement in the contract that extra work must be approved in writing when the Engineer told him to wait until the work was done before submitting claims for extra work.  Despite the lack of prior written approval, Park Ridge approved some, but not all, of the extra work claims submitted.  Applicators then filed a legal action against Park Ridge seeking payment for all of the extra work.

At trial, Applicators claimed that the Engineer had authority to and did waive the requirement that there must be prior written approval for any extra work.  The trial judge disagreed, finding that Applicators did not comply with the contract, failed to obtain prior written approval for the extra work and found Applicators was not entitled to relief.

On appeal, the Appellate Division also rejected Applicators’ argument based on certain statutory procedures relating to the adoption of municipal budgets, taxes and approving budgeted funds for specific purposes.  The Court also noted although the Engineer could provide expert opinions and recommendations regarding change order requests, “nothing supports the proposition he held authority to waive [Park Ridge’s] prior approval of any changes, especially those resulting in increased costs.”  Those areas presumably came under the control of the Director of Operations, not the Engineer.

In refusing to find a waiver of the requirement that any extra work must be the subject of prior written approval, the Court explained that the applicable statutes reflect a policy to assure the protection of public funds.  In addition, the Court found nothing to support Applicators’ claim that the Engineer held authority to waive the prior written approval of any changes/extra work requirement.  The question remains whether anyone, even the Director of Operations in the Contract Applicators, Inc. v. Borough of Park Ridge case, may verbally waive the prior written approval requirement in a contract or whether the applicable statutes still will prohibit such a waiver even if given by the appropriate person appointed by the municipality or public entity to deal with contract issues.

The lesson here is that contractors on public projects should be diligent in obtaining prior written approval for extra work from the public body rather than relying on verbal assurances of payment for extra work performed from municipal or other public entity representatives.