Contractor’s failure to follow notice provisions leads to waiver of claim

Many, if not most, construction and development contracts contain provisions requiring notice of claim to be served within some specified period of time and in a specified manner.  Surprisingly, many contractors ignore these provisions or are simply oblivious to their existence.  However, notice provisions should not be ignored and are, in fact, one of the most important provisions in the construction contract.  Field supervisors need to know what events might trigger an obligation to give notice under the contract and they need to know who to relay that information to back at the office so that the proper notice can go out to the correct people on time.

In a recent Third Department case, an electrical contractor learned the notice lesson the hard way.   In Ridley Electric Company v. Dormitory Authority of the State of New York the electrical contractor entered into an agreement with DASNY to perform certain electrical work.   The contract contained a provision stating that if the contractor believed it was being ordered to perform extra work then it must submit notice by:

“filing a written notice within 15 days after being ordered to perform the work or beginning performance, whichever is earlier, and to submit documentation of, among other things, the anticipated cost of the extra work within 30 days. Failure to comply with these notice and reporting requirements is deemed to be “[a] conclusive and binding determination on the part of the [c]ontractor that [the work in question] does not involve extra work and is not contrary to the terms and provisions of the [c]ontract” and, also, “[a] waiver … of all claims for additional compensation or damages as a result of [the work].”

The contractor appears to have conceded that it did not comply with the above provision and that it in fact submitted notice of the claims some two years later.  The Court noted that notice and reporting provisions such as the ones here are “common in public work projects, provide public agencies with timely notice of deviations from budgeted expenditures … and allow them to take early steps to avoid extra or unnecessary expense, make any necessary adjustments, mitigate damages and avoid the waste of public funds.”  The court concludes that “[b]ecause of these important public policy considerations, such an expressly agreed-upon notice provision “must be literally performed,” and a party who has failed to do so cannot prevail on a breach of contract claim.”  As such the Court dismissed the contractor’s claims for extra work.

The dismissal here may have been particularly painful because the owner had, at one point, agreed to make a partial payment against the extras.   The contractor disagreed with the proposed partial payment and that led to the commencement of the lawsuit.  The contractor tried to argue that the partial payment offer constituted a waiver of the contractual provision but the Court cited both the law of waiver (requiring clear and unequivocal release of the rights) and certain contractual provisions as a bar to that theory.   Had the subcontractor accepted the partial payments it would have been better off as not only did it ultimately recover nothing but it, presumably, paid for years of litigation too.   Hindsight truly is 20/20.

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