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Zachary
Zachary, Attorney
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Experience:  Lead trial/International commercial attorney licensed 11 yrs
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We have a construction contract that disallows the contractor

Resolved Question:

We have a construction contract that disallows the contractor to charge the owner for the cost of performance bond premiums on change orders. OVer the last 14 months 17 change orders have been submitted with backup that clearly shows the cost of a performance bond in the change order. The owner has executed these change orders. Total bond premium on all of the change orders approaching $100K. Auditor comes in and says that the owner has been over charged. Most of the cost came on one change order late in the job that had we known we couldn't charge for bond premium we would have done as a new contract. Does the fact that owner signed off on change orders for over a year which included the bond cost indicate they consented to the cost despite what the contract says.
Submitted: 1 year ago.
Category: Legal
Expert:  Zachary replied 1 year ago.
Thank you for your question.

Generally a performance bond relates directly to the contract under which it was issued, as it ensures the performance of the contract. Thus, when the contract changes through a change order (which changes the scope of work of the contract) the performance bond may change as well. When this occurs, the performance bond relates to the original contract and the change order.

Whether the change order may amend the original contract to override the provision assigning responsibility for the increased costs of a performance bond arguably depends on the language of the change order itself. The simple statement in the change order that the bond premium will increase does not by itself change the assignment of who is responsible to pay for that increase unless expressly stated.

So, what is the exact language in the change order?
Customer: replied 1 year ago.

THe original contract is where the language is that indicates what cost can be included in a change order. the change order itself has a budget attached that shows the cost of the bond premium as part of the change order cost. Owner signs the change order.


 


Auditor is going back to the original contract and saying that this cost should be deducted from the change order amount.

Expert:  Zachary replied 1 year ago.
I agree with the auditor. If the change order does not specifically state that the owner will now be responsible for the increase in the premium, then it does not amend the original contract, even though the cost was included in it. It would have to be a specific statement to override the original contract term. As this is only listed as an item in the budget, it does not change the contract and should be deducted out.
Zachary, Attorney
Category: Legal
Satisfied Customers: 3641
Experience: Lead trial/International commercial attorney licensed 11 yrs
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