The author has practiced construction law for nearly 40 years and continues to be amazed or disappointed, as the case may be, by the frequency of one type of problem: Non-compliance with what are usually simple contract terms for giving notice of a claim for additional compensation, damages or time.
Why does this happen? Sometimes, it amounts to inattention. It can also be attributed to unawareness of the governing notice clause. And frequently, the contractor or subcontractor prefers the personal touch by informally discussing or negotiating the matter rather than providing a “cold,” seemingly formal notice of claim. While the author appreciates the dynamics of a good relationship and that a claim can be seen to muddy a good rapport, one must be mindful that contractual notice provisions are part of the bargain that was struck. The parties agreed to this procedure for handling claims, and therefore no one should be surprised or shocked over a contracting party that honors the contract terms. In today’s construction world, “claim” is not a four-letter word, and one can present a notice of claim in a persuasive, and yet not necessarily adversarial or confrontational, manner.
A notice of claim can serve a valuable purpose. By way of example, suppose the general contractor believes a revised drawing to “clarify” the work to be performed actually amounts to a change that will increase construction costs. The owner may be unaware of the contractor’s position absent notification. Once notified in writing, the owner may elect to take steps to eliminate or reduce the change, or to choose a less expensive alternative.
Unfortunately for the contracting party wishing to preserve its claim, many courts and arbitrators will strictly enforce a notice of claim clause even when enforcement has adverse, even dire, economic consequences for the claimant. Enforcement is even more likely when the claim provision warns the prospective claimant that the claim is deemed waived if the notice of claim is untimely or omits the necessary content. Reported cases from around the country are replete with claim denials based on the failure to honor a notice provision.
Depending on the circumstances, the lack of the notice can sometimes be overcome. Examples of defenses to lack of proper notice are: (1) no prejudice — the other contracting party was not prejudiced by the lack of strict compliance; (2) substantial compliance — notice was effectively given by another means (such as discussion recorded in meeting minutes); and (3) waiver — the parties proceeded to discuss the merits of the claim notwithstanding a lack of timely or proper notice, or the parties have adopted a course of conduct in handling claims that varies the contractual terms. But why risk forfeiting a claim on what could be argued to be a technicality?
Know your contract — this fundamental principle cannot be overemphasized. It may be worthwhile to prepare a matrix or table identifying the different notice clauses by: contract citation; subject matter (e.g., claim for a differing site condition, claim for changed work, claim for a time extension, etc.); deadline for notice; and a summary of the content needed.
Standard forms of construction contracts and design-build contracts include notice clauses. Where contract negotiation is possible, change the notice provisions to meet your expectations.
Two key notice clauses in the 2017 edition of the AIA A201 General Conditions are summarized below (but beware!—the actual notice terms and conditions should be reviewed and followed, not this summary): (1) Notice of a “Claim” (for time and/or money) shall be submitted within 21 days after the later of: (a) the event that gave rise to the Claim or (b) the claimant first recognizes the condition giving rise to the Claim (section 15.1.3); and (2) Notice of a claimed differing site conditions shall be given promptly before the conditions are disturbed and in no event later than 14 days after their observance (section 3.7.4).
Key notice provisions in the 2014 edition of the Consensus Docs 200 Standard Agreement and General Conditions Between Owner and Constructor are summarized below: Notice of a concealed or unknown site conditions shall be given promptly after stopping the affected work (section 3.16.2); Notice of a delay must be promptly given to the Owner (section 6.3.3); and Notice of a claim for additional compensation or time, including a notice of a delay claim (see sections 6.4), shall be submitted before commencing the work involved unless it is an emergency, and, in any event, the notice shall be given within 14 days after the later of: (a) the event that gave rise to the claim or (b) the claimant first recognizes the condition giving rise to the claim (section 8.4). In addition, the claimant under section 8.4 shall submit the supporting documents for its claim within 21 days after the notice of claim (section 8.4).
Both of the above-referenced standard documents include other notice provisions affecting the right to formally submit the claim to dispute resolution.
Timeliness: Meet the notice of claim deadline. Be aware of short-notice deadlines and don’t let them slip. Do not procrastinate.
Content: In addition, the content should comport with what the notice clause specifies. Insufficient content within the claim notice may be met with a refusal to consider the claim. So, a claimant should ensure that not only is the deadline for notice honored, but so, too, is the requisite substance and support.
Sometimes, a claim notice clause asks the impossible or near impossible. This can occur when the provision calls for a notice soon after an event or condition or action causing delay or disruption, and the contract terms specify that the notice include then-unknown details such as the full impact cost and time-wise. Suffice it to say that the law does not expect the impossible. Although specific legal advice is probably warranted, the claimant should furnish whatever claim-related information is available and commit to following up when more is known.
Delivery of the notice: Comply with the contractual provision, if any, which identifies the means by which a notice under the contract shall be given. While courts and arbitrators tend to be more sympathetic with a claimant who can prove the notice was actually received by the intended recipient regardless of the means of delivery, why risk it? If one of the authorized methods for notice delivery affords proof of receipt, use that method to avoid any later contention of non-delivery.
A timely, proper and persuasive notice of claim is the gateway to the claimant preserving the claim for ultimate resolution on the merits. Without compliant passage through that gateway, the route to claim resolution is uncertain and risky.