United States: Contractors Must Keep Track Of Actual Costs Of Extra Work Claims Says New York Court

Courts in New York have generally interpreted notice provisions in construction contracts very strictly. As a result, certain extra work claims that had not been presented by the general contractor to the owner or by a subcontractor to the general contractor in writing within the time requirements mandated by the contract terms have been denied.  Likewise, New York courts have disallowed certain extra work claims that were not supported by countersigned time and material records where a contract provision required the daily submission of signed tickets tracking costs in the absence of an agreement on the price of the extras.  Recently, a New York appellate court had occasion to rule on the requirements for documenting a claim for extra work outside of any such contractual notice provisions.

In this case, a structural steel subcontractor sued a general contractor to recover for a number of extra work items, most of which related to closing the building exterior using tube steel and bent plates.  To prove its damages for the performance of the extra work items, the subcontractor introduced its change order estimates into evidence.  The trial court allowed that proof and permitted a recovery for the extra work on the basis of the cost estimates.  The appellate court disagreed, ruling that in order for the subcontractor to recover for the extra work claims, proof of the actual costs expended in performing the extra work had to be presented at trial. The estimates alone are not sufficient.

The subcontractor argued that the costs of performing the extra work were so intertwined with the costs of performing the base contract work that it was not possible to segregate the two. The appellate court, however, was unconvinced, for two reasons:  First, the subcontractor’s own job cost history report appeared to track some costs separately for extra work. Therefore, the appellate court believed that if the subcontractor was able to segregate some of its extra work costs, it should have been able to do so for all. Second, the appellate court reasoned that since the additional steel utilized in the extra work was not included in the scope of the original price, the subcontractor should have been able to demonstrate the actual costs of the materials involved and, by the same token, should have been equally able to keep track of the labor and equipment costs to install those additional steel pieces.

While the appellate court sided in favor of requiring proof of actual costs, the ruling was not written in absolute terms.  The appellate court held that a new trial on the amount of damages related to the extra work was necessary because the subcontractor had "not demonstrated any justifiable inability to substantiate its damages using actual costs." Thus, a door was left open to proving extra work through cost estimates if establishing actual costs is truly not feasible.  However, the court did not set any standards or provide any guidance as to the circumstances under which a contractor would be allowed to substitute cost estimates for proof of actual costs.

Editor’s Note:

If a contract contains a clause requiring the daily submission of signed time and material tickets when extra work is being performed without a signed change order, compliance with the clause will result in the satisfaction of the actual cost requirement.

It should also be noted that while this decision was issued in the context of a case between a subcontractor and a general contractor, the same reasoning would apply and the same result would be reached in a case between a general contractor and an owner.

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