Article by: Michael F. Higgins

Ernstrom & Dreste attorneys consistently warn of the dangers of proceeding without an executed change order, and of other ways public owners avoid paying for work performed.¹ But what about a situation where the public owner does not dispute ordering additional work, issues a change order with agreed compensation, accepts the benefit of the work, but then dodges payment because a legislative body failed to later approve release of the payment? The Appellate Division, Second Department recently approved just that.²  

In Atane, a construction manager contracted with Nassau County to provide construction management-agent services on a “not to exceed” basis for a defined time. Delays ensued and the contract period and cap were extended via change order with the Department of Public Works (“DPW”). The change order funding was then authorized by the County Legislature and signed by the County Executive. As the first extension ended, the DPW issued a change order to further extend the time for performance and the cap. However, the Legislature never approved the funding for the change order and refused to pay.

The appellate court sided with the County, reasoning that the extended period of construction management required a new “stand alone contract.” The legislature could not be forced to ratify the change order, said the court. The construction manager’s other arguments, including breach of contract, were rejected because the court concluded there was no enforceable contract for the additional services. The County could not be compelled to pay for the services, even though it obtained them by inducing them with a change order.

The contract included a provision that empowered the DPW Commissioner to order extra services. The contract also contained language cautioning that approval of the contract may require approval by the County Legislature.³ The contract had been duly approved by the legislature at inception and the extra services provision did not explicitly require legislative approval. The extra services provision only noted the “prior written approval of the Commissioner” was required. In other words, the fully vetted, legislatively approved and signed contract required only that the Commissioner issue prior approval for extra work (i.e. via change order). 

The court, seemingly ignoring the Commissioner’s power to issue change orders, went so far as to proclaim that a contractor’s only option is to refuse to perform until an agreement is executed and fully approved as required. While that is the safest course, here the construction manager had a change order in hand and the County project representatives clearly intended and anticipated payment. The actions of the project-level parties were thus stymied by the County’s later stance that the change was, instead, a new agreement requiring legislative approval. 

Atane risks upending the expectation that contractors will be paid for their work on public jobs. It also runs counter to long-settled court recognition that changes requested by a public owner do not make the contract invalid. The New York Court of Appeals has observed that if the existence of a change order provision in a public construction contract was sufficient to void a contract where the execution of change orders pushes the total indebtedness over the appropriated limit, then every public construction contract in New York State is potentially void. Further, Atane appears to violate State Law and the New York Constitution’s mandate that government entities pledge their full faith and credit for the payment of indebtedness. Change orders should not be treated as new contracts, and government entities should not be permitted to escape payment for authorized and accepted extra work performed under previously approved public contracts.

Atane reiterates that contractors risk non-payment for additional work until all contractual requirements are fully completed, and that a change order may not be enough. Must contractors now research whether legislative approval is required, risking work stoppages until the slow-moving cogs of government turn to finalize any required secondary approvals? Although wrongly decided, Atane indeed prompts prudent contractors to refuse performance of additional work until all contractual (and now County Charter or similar) requirements for changes, extensions, or amendments of the contract are fully performed.

1. Contracts often mandate full change order execution before proceeding under pain of non-payment, and various other bars or forfeitures of rights abound.
2. Atane Engineers, Architects and Land Surveyors, D.P.C. v Nassau County, 227 AD3d 708 (2d Dept 2024).
3. “The County shall have no liability under this [contract] Agreement (including any extension or other modification of this Agreement) to any Person unless (i) all County approvals have been obtained, including, if required, approval by the County Legislature and (ii) this Agreement has been executed by the County Executive (as defined in this Agreement).” The County Charter contained similar terms.