When an issue arises that will adversely impact the project’s budget or schedule, most contract forms require the contractor to provide the owner notice of the issue and its expected impacts within a stated period of time. Depending on the facts and circumstances, failure to do so may result in the contractor waiving its right to additional compensation or time. That is exactly why a subcontractor’s $1,136,608 claim for delays, extra work, and the resulting need to accelerate its work was denied in Central States Mechanical v. Agra Ind., Inc. (D. Kan. 2012) 2012 WL 3896940.
Untimely Notice Determination
In the Central States case, the subcontractor (Central) asserted that it incurred additional expense due to the failure of the prime contractor’s designer to provide various design documents in a timely manner. Even though the delays were not Central’s fault, the court denied the claim because Central waited five months before giving Agra notice of its delay claims despite the contract requirement that notice of such delay claims was to be given “promptly” and “prior to the commencement of such changed or revised work.” The contract also contained what is known as a forfeiture provision that stated “‘[f]ailure to give timely notice shall be deemed to waive extension of time.’” As Central failed to present a compelling basis to justify avoidance of the forfeiture provision, the federal district court justified its denial of the claim by stating that Central:
[S]imply faces the consequences of its own bargained- for construction contract, under which it was obliged to present timely notices of delays or costs increases as conditions precedent to a successful claim. Central makes no argument that it was unaware of the delays or that it was unable to comply with the Change Order procedure.
The Central States decision illustrates that a court may enforce contract notice provisions when warranted by all of the facts and circumstances.
Exceptions to Notice Compliance
While compliance with notice requirements serves the contracting parties well in many circumstances, there are certain circumstances that will allow a court to overlook a failure to strictly comply with a written notice requirement. The Central States court alluded to such exceptions when it mentioned that the contractor did not argue that it had been unaware of the delay or was unable to comply with the terms of the contract’s change order procedures. There are a number of circumstances in which strict compliance with a notice or change order provision has been excused or found to be unnecessary. These include one or more of the following: (1) the delay or additional expense is not the contractor’s fault; (2) there was no prejudice to either the owner or general contractor; (3) the other party had actual knowledge of the delay or expense associated with the claimed extra work; (4) compliance with the notice provision was frustrated or rendered impossible by the other party; or (5) the other party actually reviewed and denied the claim on its merits thereby waiving its right to assert compliance with the notice provision as a defense to the claim. Depending on the particular facts, courts vary in how strictly they interpret and apply notice and change order provisions.
Know the Contract’s Notice Provisions
Proper notice is almost always defined by the parties’ contract. A construction contract notice or change order provision typically includes a stated timeframe within which a party must provide written notice of an event that may or will adversely impact the project’s budget or schedule, and also require a detailed description of what that written notice must contain. However, as in the Central States case, if a contractor submits either late notices or claims, it risks a possible denial of its claim for time or money on the grounds that it was untimely. Knowing and understanding the contract’s notice requirements is of paramount importance for both parties. This is yet another reason why a contractor should closely review the contract at the proposal stage and develop a systematic approach to notice during construction of the project.
Systematic Approach to Notice
Providing notice is important because construction is a complex process filled with many unknowns and unforeseeable events. A party can use those provisions in a manner that is productive because one purpose of notice provisions is to provide the owner or general contractor with the opportunity to review the situation so the parties can work together to mitigate or efficiently resolve the scheduling or budgetary issues as early as possible. Exercising good judgment in that regard also requires that the parties work together in a manner that always keeps the other informed about what is going on with the project.
One common reason contractors fail to strictly comply with notice or change order provisions is that they do not want to turn a good working relationship into an adversarial one. The fear is that providing notice of a potential or actual claim will be met with hostility. That does not necessarily have to be the case. What is important is that the party providing the notice do it the right way and make sure that the tone is one of wanting to work together to resolve the issue as quickly and inexpensively as possible. Minimizing or eliminating claims on a project requires that the contracting parties work together with open lines of communication – the contract’s notice provisions are there to facilitate that outcome. Aside from eliminating the risk that meritorious claims will be denied because they did not technically comply with the contract’s notice provisions, compliance with those provisions may increase the possibility that previously unforeseen issues will be resolved without costly litigation.