This article was written for the ConsensusDocs newsletter and first appeared here.

Deadlines are an inescapable part of the construction industry.  Bid deadlines. Submittal deadlines. Material delivery deadlines. Substantial completion.  Final completion. And so, inevitably, fighting about deadlines becomes a necessary byproduct.  Was the deadline really a deadline?  Was the schedule slippage on the critical path?  Should there be an equitable extension to the date of substantial completion?  Given the amount of attention and concern conferred on deadlines, those drafting construction contracts naturally seek to clarify which deadlines really matter with the inclusion of notice and timing provisions.

A contract’s change order and claims procedures are often a key friction point for those drafting and administering the contract.  Should there be a requirement for prior written notice of a claim for cost/time relief?  How much advance notice?  Who should the request be sent to?  Is a specific form of notice required?  What are the consequences of failing to provide timely notice? A practitioner should pay careful attention to negotiating these terms on the front end, because rest assured, these contract provisions will garner scrutiny when a change order dispute boils over.

While change order and claim provisions are frequently modified, the ConsensusDocs 200 form provides a good starting point for practitioners:

8.4 CLAIMS FOR ADDITIONAL COST OR TIME  Except as provided in Subparagraph 6.3.2 [Notice of Delays] and Paragraph 6.4 [Notice of Delay  Claims] for any claim for an increase in the Contract Price or the Contract Time, the Contractor shall give the  Owner written notice of the claim within fourteen (14) Days after the occurrence giving rise to the claim or within  fourteen (14) Days after the Contractor first recognizes the condition giving rise to the claim, whichever is later. Except in an emergency,  notice shall be given before proceeding with the Work. Thereafter, the Contractor shall submit written  documentation of its claim, including appropriate supporting documentation, within twenty-one (21) Days after giving notice, unless the  Parties mutually agree upon a longer period of time. The Owner shall respond in writing denying or approving the  Contractor’s claim no later than fourteen (14) Days after receipt of the Contractor’s  claim. Any change in the Contract Price or the Contract Time resulting from such claim shall be authorized by Change Order.

The million-dollar question (in some cases literally) is how strictly courts and arbitrators will enforce the notice and timing requirements.  Will the less-than-vigilant claimant be held to strict compliance or will equity allow the claimant extra time? Those looking for a brightline rule will sadly be disappointed, as such claim provisions receive varying treatment from courts and arbitrators.

Strict Compliance v. Substantial Compliance

The teeth that notice and timing requirements have often depends on the jurisdiction where they are sought to be enforced.  A split exists between those states that require “strict compliance” (i.e. “rules are rules”)[i] and those that apply the more lenient “substantial compliance” standard (i.e. “no harm, no foul”).[ii]

The doctrine of strict compliance is predicated on the notion of fundamental fairness.  A notice provision serves as a condition precedent to a contractor’s ability to pursue a claim (be it for out-of-scope work or delays).[iii]  If a contractor fails to strictly comply with these notice requirements, then the claim is waived.[iv]  And in the context of public projects, “strict compliance” jurisdictions (such as New York) stress that the doctrine has salutary benefits by allowing the governmental agency overseeing the project “to take early steps to avoid extra or unnecessary expense, make any necessary adjustments, mitigate damages and avoid the waste of public funds.”[v]  To allow a contractor to circumvent the contract’s notice provisions “would eviserate [sic] the viability of these clauses.”[vi]

Jurisdictions that subscribe to the doctrine of “substantial compliance” view the issue through a more pragmatic lens.  For instance, the Texas Supreme Court has held: “a party’s minor deviations from a contractual notice condition that do not severely impair the purpose underlying that condition and cause no prejudice do not and should not deprive that party of the benefit of its bargain.”[vii]  A party should not be able to avoid the contractual consequences of its actions by hiding behind a technicality and engage in “bad-faith ‘gotcha’ tactics.”[viii]  Yet, the Texas Supreme Court noted this leniency has its limits and expected a party to provide notice in writing if the contract so required.[ix]

However, other “substantial compliance” jurisdictions are more laissez-fair in their approach and will permit even oral notice should the recipient have actual knowledge of the events giving rise to the claim.  For instance, a Pennsylvania appellate court allowed a contractor to bring a delay claim that was not submitted until after the project was completed notwithstanding a contract provision requiring all claims be submitted within twenty-one days of the event giving rise to the claim.[x]  The court noted the impracticability of providing a claim with quantifiable costs during the project due to the ongoing nature of the schedule impact.  In addition, the court found the school district-project owner had actual knowledge of the delays and issued directives that prevented the contractor from mitigating its delay damages.[xi]  Because the school district “clearly knew of the operative facts giving rise to the construction delays…the notice provisions of the contract, albeit informally, were satisfied.”[xii]

Waiver of Timing and Notice Requirements

Regardless of a jurisdiction’s ideological bent, most, if not all, agree that a party’s affirmative conduct can operate to waive a notice requirement.  In the context of construction projects, this may be an obvious reality.  As one appellate court colorfully acknowledged:[xiii]

[E]xcept in the middle of a battlefield, nowhere must men coordinate the movement of other men and all materials in the midst of such chaos and with such limited certainty of present facts and future occurrences as in a huge construction project…. Even the most painstaking planning frequently turns out to be mere conjecture and accommodation to changes must necessarily be of the rough, quick and ad hoc sort, analogous to ever-changing commands on the battlefield.

In short, courts acknowledge that requiring parties to pull out the contract in response to every change or claim is not practical.[i]  Thus, for example, if there is clear evidence of parties employing a change order procedure in the field that differs from the one set out in the parties’ contract, a court may be inclined to evaluate claims of timely notice based on the parties’ actual conduct.[ii]  This is obviously a fact-intensive defense whose final outcome will be difficult to predict.  Thus, it is always better practice to know and comply with the express terms of the contract than to rely on a waiver.

Conclusion

It has been said that there is no substitute for paying attention.  That truism certainly applies to claims provisions.  Those asserting a claim should be diligent in identifying the cost and/or time impact to the project and putting their counterpart on notice of same.  While different jurisdictions may apply varying levels of scrutiny on a party’s compliance with timing and notice procedures, those who do not help themselves during the project by documenting impacts to their work and giving timely notice may forfeit the leniency that courts or arbitrators otherwise may allow after the fact.  Practitioners would do well by their clients to ensure claims provisions are clearly drafted and carefully followed.

For more information, please reach out to Cornelius “Lee” Banta, Jr.

Reference

[i] For instance, even a “strict compliance” jurisdiction such as New York recognizes: “construction work must often proceed without undue delays and that strict compliance with the formal contract procedures may sometimes not be practical.”  D’Onofrio Bros. Constr. Corp. v. Bd. of Ed. of City of N.Y., 72 A.D.2d 760, 761, 421 N.Y.S.2d 377, 378–79 (1979).

[ii] See id. (holding that “[t]he parties evinced an intent to proceed in a manner other than that provided for by the contract and defendant is estopped from asserting the failure to strictly comply with the terms of the contract.”).

[i] Such jurisdictions include Maryland [Brawner Builders, Inc. v. State Highway Admin., 258 A.3d 217, 232 (Md. 2021) (contractor failed to comply with thirty-day notice requirement with respect to subcontractor pass-through claim to project owner)]; Massachusetts [Glynn v. City of Gloucester, 487 N.E.2d 230, 235 (Mass. App. Ct. 1986) (“The contract provisions contemplated compliance with its written notice and claim provisions within the time periods therein prescribed…Were it otherwise, the contractual and statutory framework for the resolution of disputed claims would be virtually meaningless.”)]; New York [Huff Enterprises, Inc. v. Triborough Bridge and Tunnel Auth., 595 N.Y.S.2d 178, 181 (1st Dep’t.1993) (“[E]nabl[ing] plaintiff to succeed in attempting to circumvent having to give written notice would eviserate [sic] the viability of these clauses in public works projects.”)]; Virginia [Commonwealth v. AMEC Civil, LLC, 699 S.E.2d 499, 506–507 (Va. 2010) (requiring contractor to furnish written notice of intent to file a claim at the time of occurrence and beginning of work as required by Virginia statute, even though the State Department of Transportation had actual notice at the time the work was commenced of the facts and circumstances upon which the claim was based)]; Washington [Absher Constr. Co. v. Kent School Dist. No. 415, 890 P.2d 1071, 1073 (Wash. App. 1995) (“Washington law requires contractors to follow contractual notice procedures, unless those procedures are waived…[General Contractor] admits that it was not notified and did not provide written notice of [Sub-Subcontractor’s] claim until months after [Sub-Subcontractor] had completed all of its work. Thus, [General Contractor] did not submit [Sub-Subcontractor’s] claims in writing within 14 days of the events giving rise to the claim, as required by the contract.”)]; and Wyoming [Westates Constr. Co. v. City of Cheyenne, 775 P.2d 502, 504 (Wyo. 1989) (“[The contractor’s] failure to comply with contractual procedures for submitting its claims clearly and unambiguously deprives it of the right to compensation. As a general principle, parties to a contract have a right to employ whatever provisions they desire so long as those provisions violate neither law nor public policy”)].

[ii] Such jurisdictions include the U.S. Federal Claims Court [SIPCO Services & Marine, Inc. v. U.S., 41 Fed. Cl. 196, 224 (1998) (lack of notice of claim must result in “material prejudice” before claim is jeopardized)]; Georgia [Del Lago Ventures, Inc. v. QuikTrip Corp., 764 S.E.2d 595, 599 (Ga. App. 2014) (observing that substantial compliance is the “general rule” for notice provisions]; Pennsylvania [James Corp. v. N. Allegheny School Dist., 938 A.2d 474, 486–487 (Pa. Commw. Ct. 2007) (rejecting the school district’s notice defense where the district knew the underlying facts and was not prejudiced by the contractor’s failure to give formal notice of claims)]; Texas [James Constr. Group, LLC v. Westlake Chem. Corp., 650 S.W.3d 392, 406 (Tex. 2022) (confirming Texas follows the substantial compliance doctrine but clarifies that if a contract requires written notice then oral notice will not suffice).

[iii] See Fahs Rolston Paving Corp. v. Cnty. of Chemung, 841 N.Y.S.2d 404, 406 (3rd Dep’t. 2007).

[iv] Id.

[v] A.H.A. Gen. Constr., Inc. v. New York City Hous. Auth., 699 N.E.2d 368, 376 (N.Y. 1998); see also Travelers Cas. and Sur. Co. v. Dormitory Auth. State of N.Y., 735 F. Supp. 2d 42, 75–76 (S.D. N.Y. 2010) (“Actual notice or substantial compliance does not suffice. Under New York law, express conditions precedent, which are those agreed to and imposed by the parties themselves, must be literally performed….New York case law recognizes that prompt, written notice requirements in public works contracts serve salutary purposes, and merit strict enforcement. New York courts regularly dismiss lawsuits where it is apparent that a contractor seeking extra payment on a contract failed to comply strictly with contractual notice requirements.”) (internal citations omitted).

[vi] Naclerio Contracting Co. v. Envtl. Protection Admin., 493 N.Y.S.2d 159, 160–61 (1st Dept. 1985).

[vii] James Constr. Group, LLC v. Westlake Chem. Corp., 650 S.W.3d 392, 406 (Tex. 2022).

[viii] Id.

[ix] Id.

[x] James Corp. v. N. Allegheny School Dist., 938 A.2d 474, 485 (Pa. Commw. Ct. 2007).

[xi] Id. at 485–486.

[xii] Id. at 487.

[xiii] Blake Constr. Co., Inc. v. C. J. Coakley Co., Inc., 431 A.2d 569 (D.C. 1981).