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Lessons from Wood Group v. Targa: Change Order Consequences
In Wood Group USA, Inc. v. Targa NGL Pipeline Co., LLC,[1], the Houston Court of Appeals delivered a ruling with serious potential effects on contractors and owners working through change order disputes on construction projects.[2] Here’s what you need to know:
Background
The case centered around a disagreement over claims for extra time and money under a unit price contract for construction of a natural gas pipeline. During construction, the parties agreed that there were significant increases in the number and length of bores needed to construct the project, and they executed several change orders.
This case analyzed a specific disputed item—Change Order 3—addressing various changes in the project, including additional borings, revised pricing, and scheduling impacts. Importantly, the contractor agreed that it had reviewed all information related to the changes, and that it waived any claims for changes to the contract based on information the contractor knew or should have known before the date of that change order.
After signing Change Order 3, the contractor submitted further requests for additional time and money, some of which related to issues or delays that the contractor knew about as of the date of that agreed change order 3. As a result, the owner rejected the additional change orders, citing the broad language in Change Order 3.
Court Ruling
Both the trial court and court of appeals[3] agreed with the owner’s stance, holding that Change Order 3 precluded any recovery for information known to the contractor as of the date of the change order. Because the later-submitted change orders addressed circumstances that the contractor knew about when it executed Change Order 3, the contractor’s claims for additional compensation were waived.
Implications and Takeaways
This ruling underscores the importance of thoroughly reviewing and understanding change orders in construction contracts. Agreeing to certain terms in one change order may limit a contractor’s ability to claim additional time or money for known issues in subsequent change orders. Courts will enforce language in a change order, making it conclusive as to any issues known to the parties as of the date of the change order.
[1] In Wood Group USA, Inc. v. Targa NGL Pipeline Company, LLC, No. 01-21-00542-CV, 2023 WL 5280249 (Tex. App.―Houston [1st Dist.] Aug. 17, 2023, pet. filed) (mem. op.).
[2] This write up is intended to alert you to recent court opinions that may impact your business. They are not a substitute for consulting with an attorney about your specific contract, business practices, or procedures. Nor are they a substitute for reading the case in its entirety. If you find this information useful, you should read the cases themselves to ensure that they are applicable to you and your intended use.
[3] The Supreme Court of Texas denied review of the 1st Court of Appeals’ opinion on June 14, 2024.