Carnell is a Western District of Virginia case that addressed the application of the Virginia Public Procurement’s 25% cap for change orders. Specifically, Virginia Code Sec. 2.2-4309(A) states that no fixed-price contract may be increased by more than 25% of the amount of the contract, or $50,000, whichever is greater, without the advance written approval of the Governor of his designee in the case of state agencies, or the governing body, in the case of political subdivisions. Carnell performed change work, which exceeded the cap.
The district court held that regardless of why the work was done, Carnell could not recover as a matter of law greater than the 25% cap because it had not received advance written approval (the 25% being based on the original contract price). The court was unpersuaded by Carnell’s argument that the cap did not apply to actions for breach of contract, holding that the cap applied to disputes as well as agreed contract action; holding that to rule otherwise “would result in the absurdity of allowing recovery on a public contract in excess of the amount that the legislature has specifically said that the contract may legally be increased.”
Contractors should be very concerned about this application of the 25% cap. It is not unusual for contractors to be forced by contract language to proceed with disputed work and negotiate adjustments later. However, based on this ruling, if the contractor does so and the costs of doing so exceed the 25% cap then the contractor has volunteered that work and is without a remedy. Carnell thus emphasizes the importance of estimating change impacts early and before proceeding with any work (which most contracts require anyway, but often is quite difficult to evaluate or calculate in practice), and if the cost impacts are expected to exceed the 25% cap then that issue needs to be addressed before proceeding, and certain prior to the costs reaching the cap.