Case example: Oral agreements to change scope of services work can be dangerous

A case from Mississippi’s supreme court reminds us that it can be dangerous for service providers and customers to agree orally to changes in the scope of work:

¶3. Yates Construction, LLC, and D.W. Caldwell, Inc., entered into a construction sub-contract for the roof installation on a residential dormitory at Auburn University in Auburn, Alabama. …

Early on, Caldwell employees identified structural issues with the building …. [A]fter some discussion about the repairs needed, Caldwell agreed to repair the building prior to installing the roof.

Rather than amending the existing subcontract or creating a new contract for the repair expenses, Yates urged Caldwell to bill against “unperformed work” for those costs related to the extra work completed.

Although the arrangement was unconventional, Caldwell orally agreed to the billing scheme, requiring that it be paid weekly, on a “cost plus overhead and profit basis.”

¶4. When Caldwell completed both the repairs and the roof installation, it had yet to receive total payment for the structural repairs. The companies disputed the scope and expense of these repairs and quickly negotiated their way to an impasse.

Thereafter, Caldwell filed a claim against Yates for causing delay and increased costs by failing to pay for work performed, which was in breach of the agreements between the parties.

D. W. Caldwell, Inc., v. W.G. Yates & Sons Constr. Co., No. 2017-CA-00116-SCT (Miss. May 10, 2018) (reversing trial court’s modification of arbitration award) (emphasis and extra paragraphing added).

Business lesson:  Put something in writing about what’s expected.