Due to the complexities and procedures involved in construction agreements, most contracts are in writing, but does that mean that they cannot be modified orally? On April 8, 2019, the United States Court of Appeals for the 5th Circuit held that construction contracts can be modified through oral modification, silence, inaction, or even the conduct of the parties.
In RCS Contractors, Inc. v. Westcoast Corporation, a dispute arose when a subcontractor failed to pay its subcontractor timely. Even the amount owed was in dispute. The contract between the parties held that RCS, the sub-subcontractor, was responsible for financing and coordinating flaggers. However, it was shown at trial that Westcoast, the subcontractor, had taken the reins in coordinating as well as paying the flaggers.
It was further shown that RCS did not obtain insurance for flaggers but that Westcoast did. The Court ruled that these actions and RCS’ testimony signified that there was an oral modification. It was sufficient to show that the contract had been modified and that Westcoast, despite the provision in the contract, was responsible for the costs of the flaggers.
The Court went even further holding that written contracts could be modified orally even when the contract explicitly holds that change orders must be in writing. Inaction, silence, and the conduct of the parties could also lead to modifications.
So why is this important?
Despite what your contracts say, your company’s actions can lead to conclusions that the contract was modified, which could severely affect your company’s ability to recover damages or enforce clauses to protect your company. For these reasons, you should take extra steps to ensure that not only you, but the other party to all of your contracts act in accordance with them.
This means being vigilant in enforcing contract provisions, because as shown in RCS, “if you don’t use it, you could lose it.” The attorneys at Favret, Carriere, Cronvich are experienced in interpreting and enforcing construction contracts.
Should you have any questions or you would like to discuss this issue in further detail, please do not hesitate to contact us to schedule a free consultation.