Thoughts on construction law from Christopher G. Hill, Virginia construction lawyer, LEED AP, mediator, and member of the Virginia Legal Elite in Construction Law

Fraud, Construction Contracts and Change Orders- A Roundup

Fraud, Construction Contracts and Change OrdersMusings will be leaving the “green” reservation for a bit and discussing more mundane, though no less relevant, issues that arise in the construction world.

One interesting note is that the Virginia Storm Water Regulations were recently updated and are open to public comment. If you are affected by these regulations, be sure to make your voice heard.

On the construction law front, the Virginia courts are busy as always. Two recent cases stand out to me. The first is a Virginia Supreme Court case, Dunn Construction Company, Inc. et. al. v. Cloney. In Dunn Construction, the home builder admittedly failed to meet the plans and specifications when constructing the home, in particular the foundation wall. The contractor then “repaired” the wall and claimed openly that it had filled the repaired wall with rebar and reinforced the “cells” with concrete. After this representation (that turned out to be false), Mr. Cloney got a structural engineer to inspect the wall and determined that the contractor did not do what he said he’d done. Of course, litigation ensued. Along with the compensatory damages for breach of contract, the trial court granted Mr. Cloney punitive damages for the fraud of the contractor. The Virginia Supreme Court reversed the punitive award, and restated its long standing position that where a duty comes from a contract, no common law tort action can go forward.

What makes this case interesting is it’s extension of the so called “economic loss rule” to a case of a representation that is seemingly outside of the contract itself. Dunn Construction represented, after the contract was supposedly complete, that it had performed certain remedial measures that were not readily apparent from a visual inspection. Despite this fact, the Court found the duty to repair and honestly state the extent of the repairs arose from the contract, i. e. without the contract, the representation never would have occurred, and therefore a tort action for fraud could not go forward and punitive damages were unavailable.

The second case of note is Abacus Construction Company, Inc. v. Milestone Construction Services, Inc.. Without going into the major details of each and every claim and back charge involved in Abacus, suffice it to say that both sides had “change orders” that constituted a majority of the claims in the case. The Court went through each claim, compared it to the contract language and the scope of work outlined in the contract before determining if the additional charges were allowable. Much of Abacus’ claim was disallowed because “change orders” either were not in writing or described work that fell within the original scope of the contract. Additionally, the terms of the contract at issue allowed Milestone to recover 10% overhead on their back charges and its attorney fees.

The takeaway from these two cases? The Dunn Construction and Abacus Construction cases show just how serious the Virginia courts are about contracts. Your contracts are essentially the “law” for your project. As a contractor or subcontractor, the contract is the road map for all of your remedies and risks, so they need to be taken seriously and drafted carefully. Musings has discussed the importance of contracts on numerous occasions, and the Virginia courts consistently re-emphasize this importance. To make sure that these contracts are drafted properly and used correctly, get the assistance of an experienced construction attorney.

As always, your comments are welcome and encouraged. If you find this interesting, please subscribe to keep up with this and other Construction Law Musings.

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Fraud, Construction Contracts and Change Orders- A Roundup
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11 Responses to Fraud, Construction Contracts and Change Orders- A Roundup

  1. Tweets that mention Fraud, Construction Contracts and Change Orders- A Roundup | Construction Law Musings- Richmond, VA -- says:

    […] This post was mentioned on Twitter by James Bedell and RRG. RRG said: RT @build2sustain: Fraud, Construction Contracts and Change Orders- A Roundup: Musings will be leaving the “green” re.. […]

  2. It seems like we share much of the same legal lens Chris – the Abacus is another one I had pulled out that is sitting in the potential discussion stack!

    The Dunn case strikes me as one where perhaps the trial judge got swept up into the case a bit. As I was reading the case, it appeared pretty clear that the Richmond v. McDevitt Street case was directly on point and barred the fraud claims. For folks not into the inside baseball, pun intended, the Richmond case involved construction of the minor league stadium in Richmond. The contractor was alleged to have purposefully misrepresented the quality of its work, including signing a much of payment applications and substantial completion affidavits, when it knew that it had intentionally cut corners.

    This is another case where the lay understanding of being “defrauded” does not necessarily match up with the law, at least in Virginia!
    .-= Tim Hughes´s last blog post .. The Rosslyn-Ballston Corridor in Arlington Makes the NY Times =-.

  3. Thanks Tim. Virginia sticks to its contracts and won’t let you get around them, even in seemingly extreme circumstances such as this one. As far as the baseball “Diamond” is concerned, we need a new stadium, but luckily have a new team starting next year!

  4. […] I have discussed at Musings on several occasions, the general rule in Virginia is that fraud and construction […]

  5. […] Musings has discussed on several occasions, the economic loss rule in Virginia states that where a loss occurs that relates in any way to a […]

  6. So even when a general contractor intentionally misrepresents that he has paid sub-contractors, in a mechanics lien affidavit in order to obtain a draw, he is not liable for fraud?

  7. Sadly, that can be the result in a civil suit, but filing a false lien waiver is a criminal offense as well.

  8. In Construction Your Contract May Not Always Preclude a Negligence Claim | Construction Law Musings- Richmond, VA says:

    […] at Construction Law Musings I have discussed the interaction of the so called “economic loss rule,” construction contracts and tort claims on numerous occasions. The general rule is that where a duty to perform in a certain way arises […]

  9. […] is because almost all construction contract cases are exactly that: contract cases. Between the economic loss rule and the Virginia Courts’ almost (though not completely) impregnable wall between tort and […]

  10. […] is because almost all construction contract cases are exactly that: contract cases. Between the economic loss rule and the Virginia Courts’ almost (though not completely) impregnable wall between tort and […]

  11. Anyone intending to provide building services should take note of these two cases as they are very important case studies. Gone are the days where you can get away with shoddy work. The law is on our side now.

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