PCCA Journal 4th Quarter 2013 - page 10

PCCA Journal|4
th
Quarter 2013
10
NEER in writing, within 15 days, of any subsurface or latent
physical conditions at the site differing materially from those
indicated on the Surface or in the Contract Documents.
“Any claim for an increase in the Contract Price shall be
based on written notice delivered to OWNER and ENGINEER
within 15 days of the occurrence of the event giving rise to
the claim.”
The contractor encountered significantly different sub-
surface conditions (120,000 cubic yards of rock as opposed
to the anticipated 600 cubic yards) in January 1991 but did
not make a claim or identify the nature of the subsurface
conditions until May 1991. When the contractor wasn’t
paid, it sued the State of Wyoming. The state argued that
the contractor waived its claim because of untimely notice.
In response, the contractor argued that the state waived
the notice requirement because it had actual knowledge of
the contractor’s rock and water problems in January 1991
and even assisted it in preparing a draft claim form for the
changed conditions. The trial court disagreed, citing the con-
tractor’s failure to adhere to the strict notice requirements of
the contract and dismissing the contractor’s waiver of notice
requirement argument. The North Dakota Supreme Court af-
firmed the ruling of the trial court.
This case demonstrates that the strict-compliance standard
can be applied to nullify claims
even when the owner has full
knowledge of the claim!
This permits an owner to receive a
windfall: extra work performed with its knowledge, perhaps
even at its direction, when the contractor fails to provide full
and complete notice under the contract. This is a draconian
result that has sweeping consequences.
The strict-compliance standard shifts the focus from the
nature of the claim to the procedure of the claim. Fights over
when the notice period commenced or whether the notice
satisfied all the content requirements are inevitable in juris-
dictions that have adopted the strict-compliance standard.
Despite these consequences, the strict-compliance standard
is being adopted in more jurisdictions across the country.
Indiana, Ohio, New York, North Dakota, and Washington
are just a few of the states that have adopted some form of
strict-compliance standard for notice. Many jurisdictions still
abide by the prejudice standard because it allows for a more
meritorious resolution of claims, rather than preclusion by
foot-fault. Federal courts interpreting federal contracts have
traditionally applied the prejudice standard.
But the real challenge is determining which standard
(prejudice or strict-compliance) applies to a contract in a par-
ticular jurisdiction. These standards are usually articulated in
case law, not in statutes. This means that degrees of strict-
compliance or prejudice may exist based on the particular
facts of a dispute. For instance, a court may have found that
a claim was waived for failure to strictly comply but held so
because the contract had language that provided that failure
to strictly comply with the notice provisions waived claims.
That case, however, did not address whether untimely notice
would waive claims in the absence of such language. Unfor-
tunately, no bright line rule or collective jurisdiction-by-ju-
risdiction resource exists. An attorney should be able to help
you to identify the standard applicable to a particular notice
provision in a given contract, but full compliance is always
preferable to attorney involvement.
Waiver of Notice Requirement
Contractors who fail to issue proper, timely notice on a proj-
ect may have a way to retain the claim. If a contractor can
show that an owner waived the notice requirement, the con-
tractor may be able to recover for a claim that lacked the for-
mal notice requirements. Prevailing on owner-waiver claims
is difficult. Contractors usually must prove the owner waived
the notice provision by clear and convincing evidence, an el-
evated evidentiary standard. This is a last-ditch effort to save
a notice-deficient claim from becoming unrecoverable. Giving
proper notice of claims avoids this weak strategy.
Managing the Claims of Subcontractors
Contractors must carefully coordinate the notice provisions
of their subcontracts with the notice provisions of the prime
contract. Failure to coordinate such notice provisions may
expose a contractor to liability for subcontractor claims.
When (1) a subcontract has a longer notice provision than
the prime contract and (2) the subcontract does not properly
flow down the notice provisions of the prime contract, a sub-
contractor may provide timely notice of a claim to a contrac-
tor, but the contractor may not be able to pass through the
claims to the owner because of a shorter notice provision in
the prime contract. The exposure to a contractor under these
circumstances could be significant.
Best Practices
The following practices should help to minimize exposure for
untimely claims.
General Best Practices
• Know your notice periods and don’t let them pass without
full compliance.
• Oral notice is not written notice.
Take the time to put into writing the content required by
Legal Watch
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