|Legal Opinion: |
Text of Document: Where the City has let contract for the replacement of water lines within the city, can the city under the same contract, through a change order, extend water service approximately one mile outside the city limits to several customers? You sent to me a copy of the request for bids, which involves “Project A,” and the installation of approximately 8,300 feet of water mains and allied work, “as shown on the Construction Drawings of indicated in the Contract Specifications.” Based on what you told me on the telephone this date, I think I am safe in assuming that Project A and the construction drawings and contract specifications, etc., are limited to the water line replacements inside the city.
While I do not have a copy of the change order provision of the contract, even if it were so broad as to permit such a change in the contract (which is highly unlikely), it would not conform to the competitive bidding laws that apply to municipalities in Tennessee.
Most change order provisions of public contracts provide for payment for “additional” or “extra” work in those or similar words. There are a number of change order cases in Tennessee, but they deal with the question of whether the cost of the additional or extra work is recoverable by the contractor from the government in question without a written change order. As far as I can determine, there is no Tennessee case on the question of the extent to which change order provisions in government contracts can be used to do work not contemplated in the original bid proposal and specifications. However, Manier, Herod, Hollanbaugh & Smith, A Practical Guide to Tennessee Construction Law, 2nd Ed. (1991), implies that change orders refer to minor changes in work, pointing to American Institute of Architects (AIA) A-201, 7.1.1: “Change in the Work may be accomplished after execution of the Contract without invalidating the Contract, by Change Order, Construction Change Directive or order for a minor change in the Work... That publication also distinguishes between change orders and “constructive changes”:
If an owner causes the contractor to perform additional or different work above and beyond what is called for under the contract, such conduct is referred to as a constructive change. The significance of constructive changes is that they can have the same legal effect as a formal change order, i.e. cause an adjustment to be made to the contract sum or contract time....
Constructive changes generally fall into four broad categories:
1. Situations where a contractor is required to do unanticipated work to correct defects in the plans and specifications;
2. Situations where a contractor is required to perform additional work due to the owner’s interpretation of an ambiguous specification;
3. Situations where the owner insists that the contract be performed in accordance with his misinterpretation of the plans and specifications;
4. Situations where it is impossible for the contractor to perform in accordance with the contract plans and specifications.
Constructive changes, then, apply to circumstances considerably more broad than the circumstances justifying change orders. But where, as contemplated by your question, the original contract calls for the replacement of water lines within the city, but a change is proposed to add a water main extension a mile outside the city limits to add additional customers, that change is even outside any of the four categories of constructive changes.
But the main reason the proposed change order would fail is that it would not conform to the standards of competitive bidding announced in State ex rel. Leech v. Wright, 622 S.W.2d 807 (Tenn. 1981). There the Court outlined what a government must do to “competitively bid” goods or services:
1. The request for bids must not be unduly restrictive. All persons or corporations having the ability to furnish the supplies or materials, or to perform the work to be done, should be allowed to compete freely without any unreasonable restriction;
2. In order to attain competitive bidding in its true sense, proposals for bids must be invited under fair circumstances which afford a fair and reasonable opportunity for competition. Consequently, it is essential that the bidders, so far as possible, be put on terms of perfect equality, so that they may bid on substantially the same proposition and on the same terms.
3. “Competitive bidding” requires due advertisement, giving opportunity to bid and contemplates a bidding on the same undertaking upon each of the same material items covered by the contract, upon the same thing. It requires that all bidders be placed on the same plane of equality and that they each bid upon the same terms and conditions involved in all the items and parts of the contract, and that the proposal specify as to all bid the same, or substantially similar specifications.
The Court further said that those requirements are not optional but mandatory where competitive bids are required. It is also said in Browning-Ferris Industries of Tennessee, Inc. v. City of Oak Ridge, 644 S.W.2d 400 (Tenn. App. 1983), that “Competitive bid requirements are strictly construed against the governing authority.”
The proposed change order would violate at least 2 and 3 of the Leech requirements. There is simply no way that a contract originally let for the replacement of city water lines, modified by a change order to include a water main extension a mile outside the city limits to add customers, are part and parcel of the same project; in fact, they are two entirely separate projects related only by the fact that they both involve water lines. Under Leech, the water line extension requires competitive bidding, even though that process will increase the price of the extension.