ConstructionPro Week, Volume: 1 - Issue: 19 - 09/10/2012

Notice of Claim Requirements: An Unreasonable Stumbling Block for Contractors?

By Bruce Jervis

Construction contracts frequently specify procedures and deadlines for submitting claims. A contractor’s failure to comply bars any right to a remedy under the contract. An example from a recent case called for written notice to the project engineer within 30 days of the occurrence giving rise to the claim, quantification of the claim and supporting documentation within 60 days of the occurrence, and written notice of appeal of the engineer’s decision within 60 days of substantial completion of the project.

The contractor in this case failed to file a timely notice of appeal. It lost the right to go to court seeking remission of more than $200,000 in liquidated damages the contractor alleged had been wrongfully withheld by the project owner. And the owner never even contended it had been unaware of the claim or had suffered any prejudice as a result of the late notice of appeal.

Claim notification requirements are not inherently unreasonable. Project owners must be given an opportunity to respond to problems promptly and mitigate their costs. Owners are entitled to know the basis for a claim and the amount demanded.

All too often, however, multiple written notice requirements are embedded in the contract as a “condition precedent” to any contractor recovery. It can be argued that these notice requirements function not to protect the legitimate interests of the project owner, but to defeat the reasonable expectations of contractors. What is your opinion? I welcome your comments.

COMMENTS

Under the law of most states there are various methods of reducing the impactn of such clauses. In Florida The requirement that claims be in writing can often be deemed waived if a party can show a pattern or practice of contract adjustments without written advance approval. It then is much easier to have prove that notice was given if a verbal conversation is sufficient. If an owner fails to meet its obligations of good faith which hinders or delays performance, such breach can also obviate the exculpatory language that otherwise may protect the Owner. Some courts have found that very limited information satisfies the notice requirement. Of course, the best practice is to have read and negotiated the contract terms before it is signed. It is of limited value to simply complain that a party didn't know what the contract required.
Posted by: Jim Dickson - Friday, September 14, 2012 11:49 AM

Most Public works contracts do provide lanugage that requires timed notice and even define notice within the Contract. However it is very sedom that a Contractor acutally provides the required notice to the Owner timely. Our experiences are that for various reasons the General Contractor may delay notice because of other issues, over worked Project Managers, untimely notice or incomplete information from the Subcontractor involved, and other reasons. Even so, the notice generally is incomplete, not well documented, and not meeting the requirements in the Contract. This makes the judgement of Contract compliance tougher as most Owner's require that the bahavior stipulated in the Contract be followed by the all parties in the Contract.

Bottom line, incomplete or untimely notice is the responsiblity of the submiting party. Owners' have paid substantial costs for issues in Projects where the Construction team delay of notice directly or indirectly cause cost impacts the Owner's project.

Issues of notice and claim(s) recovery are never as black and white.

Thanks for indicating that the idea/concept of notice is not unreasonable.
Posted by: Dennis C. Kabba - Friday, September 14, 2012 12:48 PM

An Owner can, and often does create an adversarial arena on projects. Regardless of court remedies, the Owner had to have knowledge of the situation or similar situations if they were engaged in the project at all.

As an Owner, we seek to be fair but firm in administering construction contracts and the associated costs of any claim. Timely notice is necessary to protect the interests of all parties. To avoid the pitfalls of biased documents, we have developed our own General Conditions and contract language that are easy to read by everyone. These have protected our interests for 25 years and the last resort is to seek remedy in Court - where the Owner always loses financially.
Posted by: Tom Burrows - Friday, September 14, 2012 1:14 PM