If You Didn’t Notice It, It Can Cost You | John Sheridan, Executive Director, PMA Consultants, LLC
When a potential change on a project is discovered, reviewing the contract documents is often not the contractor’s first step. A contractor is typically inclined to focus its attention first and foremost on solving the problem. However, it is important to recognize that most contracts contain provisions requiring certain steps be taken by any contractor or subcontractor who intends to assert a claim for extra work. For example, notifying the appropriate designated representative within a specific time frame is typically required. It was recently reported that a Massachusetts Appeals Court decision confirmed that strict compliance with written notice provisions of the contract was paramount and failing those obligations was not excused. Contracting parties should therefore understand that the litigation of a claim may be quite short lived if a contractor fails to comply with the notice requirements contained in its contract with the owner.
In a typical contract used by owners, the American Institute of Architects (AIA) contract documents has numerous references to the many notices required under various circumstances. AIA A201 general conditions require that the contractor or subcontractor give written notice of any claim "within 21 days after the occurrence of the event giving rise to such claim or within 21 days after the claimant first recognizes the condition giving rise to the claim, whichever is later.".
A201 does not detail the notice and documentation requirements for a claim. Instead, it provides: "The Contractor's Claim shall include an estimate of cost and of probable effect of delay on progress of the Work." The Associated General Contractors ("AGC") of America has also developed its own set of standard form contract documents called ConsensusDocs. In accordance with Article 8.4 Claims for Additional Cost or Time, written notice is required within 14 days after occurrence or 14 days after Contractor first recognizes condition giving rise to claim, whichever is later. It also notes written documentation of claim within 21 days after giving notice, unless a longer period is agreed upon. In addition to the AIA and AGC standard form documents, the Engineers Joint Contract Documents Committee ("EJCDC"), the Design-Build Institute of America ("DBIA") and the Associated Owners & Developers ("AOD") have each developed their own set of standard form contract documents. Those documents contain notice of claim provisions similar to those found in AIA A201 and ConsensusDocs.
Contracting parties should take great care to prevent a technical requirement from turning into a technical deficiency when intending to make a claim for extra time and or compensation.
Always make sure that you and your field personnel are aware of and follow all notice provisions requisite to perfect your claim. Failure to follow those provisions to the letter can result in the denial of an otherwise legitimate claim for extra work.
There are some situations where a contractor can make the case to overcome the lack of notice, such as its ability to demonstrate waiver, actual knowledge, misconduct, cardinal change, or the notice provision was not yet in effect. Another reason used to get around lack of notice is that the owner was not “prejudiced” by the lack of having notice (i.e., it would not have changed the situation, the owner was not harmed/damaged, etc.) assuming they at least had constructive notice.
Circumstances such as these (there may be others) may permit the prosecution of the claim even without strict compliance with contractual notice provisions.
However, the prudent contractor, when asserting a change, should not rely on convincing a trier of fact that one or more of these exceptions existed, thereby obviating the need to provide proper and timely notice.
The 2017 revisions to AIA A201 modernize the mode in which notices may be delivered. All notices still must be in writing, but the methods are expanded to now include delivery "in person, by mail, by courier, or by electronic transmission if a method for electronic transmission is set forth in the agreement."
Contractors could realize greater benefits from flexible notice provisions. Electronic and fax notice are particularly efficient ways for the contractor's project management and field personnel to communicate notice of claims to an owner, but understand it must be specifically agreed upon in the document. Also the notice must satisfy the contract's notice of claim requirements. Whatever information is required in the written notice of claim by the contract, should be included in an e-mail or fax notification, and make sure you retain proof of receipt by fax or e-mail. Follow up in writing. Another important change to the AIA notice provisions was the modification of the notice required to make a claim for concealed or unknown conditions. The limited notice window was changed from within 21 days "after the first observance of the conditions," to just 14 days. These are only a couple of the changes in the most recent version of A201.
In recognizing the critical importance of notice requirements, there are some steps you can take at the start of the project to better prepare your team. These include:
This article is not intended to offer legal advice. The parties to contracts should always seek qualified legal advice from attorneys experienced in construction law prior to contract execution, and as necessary throughout the contract term.
About the author
John Sheridan is the Executive Director at PMA Consultants, LLC a hispanic-owned, international construction consulting firm and recognized leader in program, project, and construction management. They specialize in owner representation, project controls, claims management, and project risk management.
For 28 years, John has provided a diversified portfolio of project management and expert services to Private and Public Clients on programs/projects ranging from a few million to billion(s) of dollars.
Learn more at www.pmaconsultants.com