Many construction contracts—particularly for public projects— contain notice provisions requiring the contractor to provide written notice to the owner of any issues (including delays, variances in specifications, extra work, invoices, and payments) within a specified time period. Often, these provisions are coupled with a warning that a contractor’s failure to comply with such notice requirements will constitute a waiver of the contractor’s objections to those issues. Failure to strictly follow these notice requirements could result in an unfair and undeserved outcome for a contractor.
In a recent case, Greg Opinski Construction, Inc. v. City of Oakdale (2011) 199 Cal.App.4th 1107, the California court considered the legal effect of similar notice requirements in a way that has potentially farreaching implications. In that case, the contractor challenged the city’s assessment of liquidated damages for late completion, arguing that at least some of the delays were caused by the city. The city countered that the contractor failed to obtain extensions in accordance with the contractual provision. The court agreed with the city and held that, since the contractor failed to obtain extensions for delays, the city was entitled to enforce the terms of the contract and assess liquidated damages.
This case is significant because it reaches a conclusion that is contrary to what the California Supreme Court held 30 years ago in Peter Kiewit Sons’ Co. v. Pasadena City Junior College Dist. (1963) 59 Cal.2d 241, where the Court reached the opposite conclusion: that an owner is not entitled to liquidated damages for delays the owner caused, even if the contractor did not comply with the contractual notice provisions. The Opinski court’s departure from Kiewit is based on a 1965 amendment to Civil Code section 1511, which the court believed was intended to overcome the holding in Kiewit. Civil Code section 1511 provides that parties to a contract may agree to be bound by a “reasonable and just” notice provision. Also, the holding of Opinski is not limited to a particular situation. So it could apply not only to public projects but also private projects, and in dealing with disputes beyond liquidated damages to any dispute between the owner and the contractor.
So, what is the take away from Opinski? Opinski is a cautionary tale for what could happen if you, the contractor, do not faithfully follow the notice requirements that are set forth in a contract. If you fail to follow the notice requirements, you may have unintentionally forfeited your right to challenge whatever action by the owner or owner’s representative to which you object.
In light of Opinski, it is doubly important that you set up a process at the beginning of a project for giving notice of objections and keeping track of them. Best practices would include the following: First, make sure that you understand exactly what notice the contract requires. Note that many contracts require a multi-step procedure, in which an initial written notice must be followed by a more comprehensive and detailed formal “claim” and may require you to bring the claim to mediation or arbitration even while your work on the project is ongoing. Second, you should implement a system to track each issue or event that you object to, the date of your initial written notice, the owner’s response, the formal claim (if required), and the status of any mediation or other process. At a minimum, you should have a spreadsheet that tracks this information, so that you can later prove that you followed all the required procedures. And third, keep in mind that even if you are disputing some action by the owner and even if that dispute has gone to mediation, arbitration or court action, contracts generally require you to continue work on the project diligently.