Working during a disputed caim

You have probably found yourself in this position at least once: There is a disagreement about whether something a contractor has been asked to do constitutes a change order or is within the base scope of work. The question then becomes, does the contractor have to perform the work before that dispute is resolved even if the owner does not issue a change order? 

Chances are, your construction contract or subcontract includes a provision that is substantially similar to the following from the AIA A201-2017:

Pending final resolution of a Claim, except as otherwise agreed in writing or as provided in Section 9.7 and Article 14, the Contractor shall proceed diligently with performance of the Contract …

Under such provisions, if a dispute arises as to, for example, whether a site condition constitutes a “differing” site condition entitling the contractor to additional compensation, the contractor must continue to perform even if the owner refuses to acknowledge a differing site condition. That means, while the owner must continue to pay the base contract amount and any approved change orders, the owner does not have to pay any additional amounts for the alleged differing site condition. In other words, the contractor must finance that portion of the work and pursue a claim to be reimbursed for the additional costs (assuming it is, in fact, a differing site condition). A similar effect is often seen when the owner has the contractual right to use Construction Change Directives (CCDs) or the like to require the contractor to perform work where there is a dispute as to whether it is a change order or the amount of the change order.

The financial hardship resulting from the use of such provisions can be lessened through careful drafting of the applicable provisions, and we encourage contractors and owners to consult their attorneys regarding such provisions before signing contracts.