Almost all construction contracts anticipate the possibility that claims for increased compensation or contractual payment offsets might occur and provide guidance on how to process those claims.
A typical part of any such clause will be a limit on the amount of time for the affected party to give notice to the other party of the existence of the claim. When drafting a contract, be careful about demanding a short time limit for claims. If the time limit is too short, then it may well end up being void as a matter of law because it is too onerous.
A typical clause containing a time limit for claims is as follows:In the event the Subcontractor’s work is delayed, disrupted, damaged or rendered more expensive by the Owner, Contractor or other subcontractors, the Subcontractor, as its sole and exclusive remedy may, upon written request made to the Contractor, obtain time extensions and/or an increase in the Subcontract price to the extent of any amounts and time extensions that the Contractor believes is justified or, actually receives from the Owner or from the responsible subcontractors for such delays, disruptions, damages or added expense. As a condition precedent to any relief, the Subcontractor must give the Contractor written notice of delay, disruption, damage and/or added expense to the Subcontractor’s work within five days after the subcontractor first knew or should have known of such event or in compliance with the requirements of the Prime Contract, whichever is short
While the clause above addresses the contractor/subcontractor relationship, similar restrictions are found in most owner/contractor agreements as well. The clause clearly prohibits any sort of claim that is not made within a five-day period after the events giving rise to the claim are discovered by the affected party. While the clause is silent about the practical effect of the claim bar, the logical conclusion is that if a claim is barred for lack of timeliness, then an aggrieved party no longer can sue to recover on the claim. If that is in fact true, then a limit of five days for claims presentation does, in fact, seem onerous. The Texas legislature addressed this issue:
Sec. 16.071. NOTICE REQUIREMENTS. (a) A contract stipulation that requires a claimant to give notice of a claim for damages as a condition precedent to the right to sue on the contract is not valid unless the stipulation is reasonable. A stipulation that requires notification within less than 90 days is void.
First, all parties to contracts should check with competent local counsel to see if the law of that jurisdiction has any similar provision like Section 16.071 above. Second, from a practical perspective, a prohibition on claims time limits like the 90 days above may well be as impractical as requiring that claims be made within five days. If a party knows that actions attributable to it are causing claims, that party may have numerous other ways it can accomplish its goals without causing the impact that provides the basis for a claim on the part of another. However, with each day that goes by, those options may diminish.
In order to find a balance, first consider a clause like the following:
Nothing herein to the contrary, Subcontractor will have at least ninety (90) days to give notice of a claim for damages as a condition precedent to sue on this Subcontract, subject to the contractual claim and alternative dispute resolution processes set forth herein. However, where Subcontractor knew or should have known of the events giving rise to such claim in a period of less than ninety (90) days and did not give such notice, such a failure may be a defense to any or all damages arising from such claim.
In the provision above, note that no claims are expressly barred, but at the same time the claimant is put on notice that time is of the essence in asserting any claim. At the same time, the other party preserves its right to a defense in the event the claim is delayed. In the end, the point of the clause above it to try to find a balance between the need to provide an aggrieved party a reasonable time to recognize and assert a claim, with the need of the party on the opposite side of the transaction to be made aware of facts and circumstances where it may be causing or contributing to the cause of the conditions giving rise to the claim, so that it can take appropriate action to address those conditions.