Introduction
On June 6, 2024, a new Washington law relating to the issuance and payment of change orders for private construction projects came into effect. The intent of the new law is to expedite payment for change orders, which is similar to current change order requirements on public projects. This follows a recent trend from the Washington legislature passing legislation that makes certain public construction requirements applicable to private projects. The new law will apply to private commercial and residential construction, but will not apply to projects of 12 units or less, i.e. single-family homes and smaller multi-family projects do not apply.
In sum, this new change order law requires an owner to issue a change order to the contractor within 30 days after satisfactory completion of additional work authorized by the owner. The change order requirements applies to owners as well as contractors with lower-tier subcontractors or suppliers. Within 10 days of receipt of an approved change order (from owner or upper-tier contractor), the contractor (or subcontractor) must then issue a change order(s) to its lower-tier subcontractors that performed the changed work. In general, if the owner or upper-tier contractor fails to issue a change order within the timelines required, the law provides for interest accrual at 1% per month as well as allowing an award of attorney fees and costs if litigation commences.
Background
In February 2024, the Washington Senate and House unanimously passed the subject bill – SSB 6192. In March 2024, Governor Inslee signed it. SSB 6192 amends and expands RCW 39.04.360 and it went into effect on June 6, 2024.
Application
A critical question is whether this new law will apply retroactively (to past or existing contracts) or prospectively (to contracts executed on or after June 6, 2024). Unfortunately, there is no clear answer because it does not contain language or direction on its application. Based upon several factors, there is a strong presumption the law will only apply prospectively – to contracts executed on or after June 6th. Ultimately, if attempts are made to enforce the new change order requirements on contracts executed before June 6th that issue will need to be decided by the courts.
Owners
The new law requires the owner to issue a change order to the contractor within 30 days after “satisfactory completion” of any “additional work or a portion of additional work authorized by the owner” by a “contractor, subcontractor, or supplier” and receipt “of a request from the contractor for issuance of a change order” for the “full dollar amount of work not in dispute”. However, the law does clearly not define “satisfactorily completed”, “additional work” or what constitutes a “dispute”. The 30-day time clock starts upon two conditions: (1) satisfactory completion of work and (2) a contractor’s request for issuance of a change order.
Contractors
Contractors that have lower-tiered subcontractors or suppliers will also have a requirement to issue change orders within 30 days similar to the above-described conditions.
For changed work “authorized by the owner”, upon completion the contractor should submit a request to the owner for an issuance of a change order. Then, within 10 days of receipt of the “approved change order” from the owner (or upstream contractor), the contractor must issue a change order to its impacted “lower tier subcontractors”. There is a safe harbor for upper-tier contractors because contractors will not be responsible for interest on changed work satisfactorily completed if the contractor makes a request for a change order within 30 days of completed work but the owner (or upper-tier contractor) does not issue the change order. To get yourself into the safe harbor make sure to pass lower-tier change order requests upstream.
Undefined Terms
As mentioned above, there are a number undefined terms in the new law that may result in disputes. By way of another example, the new law does not define how a contractor must “request” the issuance of a change order to the upstream entity. Contractors should always ensure to adhere to notice/claim procedures in their contracts. When drafting and negotiating contracts that fall under this new change order law, the parties should add definitions and procedures to try and fill in the gaps that the new law’s undefined terms may present.
Legal Remedies
Under this new law, an aggrieved party may bring a civil action for violations that will include interest on unpaid amounts at 1% per month. For owners, interest starts to accrue after 30 days of changed work that is satisfactorily completed and a request from the contractor for issuance of a change order. For contractors, interest starts to accrue if the contractor does not issue a change order to lower-tier entities within 10 days after receipt of an upstream-approved change order. Importantly, this new law allows for an award of reasonable attorneys’ fees and costs as part of the relief requested. Note – a contractor, subcontractor or supplier does not have any rights against a party with whom they are not a party to a written contract.
This article is provided for informational purposes only. Readers should consult with legal counsel before taking action subject to this article and/or new law.
Author James Grossman, partner at Ashbaugh Beal. If you have questions or want to have change order procedures/contracts reviewed, please contact James Grossman at jgrossman@ashbaughbeal.com or call 206-344-7425.