Enforcing Notice Provisions in Construction Contracts in the United States

Oct 20 2014

By Kimberly L. Karr, K&L Gates, Pittsburgh

Notice provisions are a key part of construction contracts. These provisions typically require a contractor to notify the owner of the project (or an owner-designated representative) when the contractor believes that it is entitled to extra costs or additional time for the project. Notice provisions generally require that notice be given within a certain time period and that the contractor back its claim with supporting information.

Notice provisions are often the source of disputes between owners and contractors. This post provides an overview of common issues that owners and contractors in the United States should consider when negotiating notice provisions and addressing notice of potential claims during a project.

Common Elements of Contractual Notice Requirements

While notice provisions will vary from contract to contract, most contain the following common elements:

Specified Time Limits. Most notice provisions mandate specific time limits by which a party must provide notice of a claim. Time limits vary, but common time frames found in construction contracts range between seven days to 30 days. These time limits are typically triggered when the contractor “becomes aware” of a claim. Of course, determining the exact moment when a contractor “becomes aware” of a claim is often a source of dispute in construction litigation. Some courts have held that a contractor may not be able to assess its claim until a project has been completed. See, e.g., James Corp. v. North Allegheny School Dist., 938 A.2d 474 (Pa. Commw. Ct. 2007).
Description of Claim. Typically, notice provisions will require a contractor to describe and/or provide evidence of its claim. Disputes often arise as to what and how much information ought to be provided.
Designated Party to Receive Notice. It is common for construction contracts to designate the party that must receive notice from the contractor. If provided to the wrong party, the contractor’s notice is at risk of being deemed ineffective and might preclude the claim. See Michael L. Orndahl,Construction Change Order Claims: Notice Requirements for Changes and Related Claims (citingCameo Homes v. Kraus-Anderson Constr. Co.,394 F.3d 1084 (8th Cir. Minn. 2005)).
In Writing. Many notice provisions require a party to submit its notice of claim in writing. Owners and contractors often dispute what type of “writing” is required and how “writing” should be defined. For example, some courts have accepted meeting minutes or monthly project schedule updates as written notice of a claim. See, e.g., Vanderline Elec. Corp. v. City of Rochester, 54 A.D.2d 155 (N.Y. App. Div. 1976). By contrast, other courts have refused to accept “requests for information” or a letter outlining a potential claim as satisfying the written notice requirement. See Orndahl, supra (quotingStarks Mechanical, Inc. v. New Albany-Floyd County Consolidated School Corp., 854 N.E.2d 936 (Ind. Ct. App. 2006); Barclay White Skanska, Inc. v. Battelle Memorial Institute, 2006 U.S. Dist. LEXIS 18947 (D. Md. Apr. 12, 2006)).

Overcoming Inadequate Notice

Strict enforcement of notice provisions varies from state to state in the United States or even case by case. As a result, the type of notice deemed satisfactory in one case might be insufficient in another. Steven G.M. Stein, 2 Construction Law § 4.13 (Matthew Bender & Company, Inc. 2014).

Certain jurisdictions have a reputation for being more strict when it comes to compliance with notice requirements. For example, courts in New York, New Jersey, Washington, and Maryland have been known to harshly enforce contractual notice provisions. See, e.g., Mike M. Johnson, Inc. v. County of Spokane,78 P.3d 161 (Wash. 2003); Phoenix Signal and Elec. Corp. v. New York State Thruway Authority,90 A.D.3d 1394 (N.Y. App. Div. 3d Dept. 2011). Other states adopt a more liberal “fairness demands” approach to enforcing notice provisions. See Earl K. Messer, Construction Contract Notice of Claim Provisions Are Generally Strictly Enforced in Ohio,June 23, 2012 (citing the American Bar Association’s Construction Lawyer publication at Volume 32, No. 1, Winter 2012).

When faced with a defense of inadequate notice, contractors generally raise one or a combination of the following common arguments: (1) the owner received actual notice—i.e, had direct or constructive knowledge of the claim or events leading to the claim; (2) the owner was not prejudiced by lack of formal notice; (3) the owner had “waived” or frustrated the giving of notice or was otherwise estopped from enforcing the notice provision due to some previous action; or (4) the contractor substantially complied with the notice provision. Some of these arguments are discussed in greater detail below.

· Actual Knowledge and Lack of Prejudice

As stated above, some courts are reluctant to enforce burdensome notice provisions. This is particularly true where an owner may be deemed to have actual knowledge of events giving rise to a claim, even if the contractor’s notice was technically non-compliant. See, e.g., Hoel-Steffen Constr. Co. v. United States, 456 F.2d 760 (U.S. Ct. Cl. 1972) (refusing to strictly enforce a notice provision where government and project owner had actual knowledge of a situation that was the subject of the contractor’s claim); but see Eggers & Higgins v. United States, 403 F.2d 225 (U.S. Ct. Cl. 1968) (owner prejudiced by lack of notice where claim was brought nearly five years after the required date).

For example, imagine a scenario where unusual or severe weather results in project delays or gives rise to a dispute among the parties. Claims (or potential claims) arising from severe weather are usually obvious to an owner, which may obviate the need for a contractor to send formal notice. SeeOrndahl supra (citing New Pueblo Constructors, Inc. v. State,696 P.2d 185 (1985)). If the lack of formal notice does not prejudice or harm the owner in any way, many U.S. courts will allow the contractor to bring its claim. See id.

· Waiver

Depending on the parties’ course of conduct, an owner may be deemed to have waived its right to enforce a contractual notice provision. See, e.g., Welsh v. Gindele & Johnson, 50 A.D.2d 971 (N.Y. App. Div. 1975). For example, one court held that an owner may have waived its right to notice after telling a contractor that giving notice would be “useless.” See Stone v. City of Arcola,536 N.E.2d 1329 (Ill. App. Ct. 1989).

Another common example of waiver occurs where a contractor gives oral notice of a claim, even though the contract mandates written notice. In this scenario, many courts will look to the parties’ course of conduct during the project. See Orndahl, supra (quoting Charles T. Driscoll Masonry Reconstruction Co. v. County of Ulster, 40 A.D.3d 1289 (N.Y. App. Div. 2007)). An owner may be deemed to have waived its ability to enforce a written notice requirement if the parties establish a pattern of inconsistent conduct during the project. See id. (citing Tupelo Redevelopment Agency v. Gray Corp., Inc.,972 So. 2d 495 (Miss. 2007)).

· Substantial Compliance

Some courts have held that “substantial compliance” with a notice provision is sufficient. This notion is basically just an amalgamation of excuses already discussed. For example, one court held that a contractor’s slightly imperfect letter of notice could be acceptable where it did not prejudice the owner. See id. (quoting Okee Indus. Inc. v. National Grange Mut. Ins. Co.,623 A.2d 483 (Conn. 1993)). Of course, how a court will apply the doctrine of substantial compliance depends upon precedent and the language of the notice provision.

Conclusion

Owners and contractors can avoid notice disputes by drafting clear and reasonable notice provisions and putting in place procedures to timely comply with notice requirements. If disputes over notice do develop, owners and contractors should consult with a construction lawyer and consider the issues raised in this post.