Should Notice-of-Claim Provisions Be Strictly Enforced?

Construction contracts usually contain notice-of-claim provisions. The contractor must, within a stated period of time, notify the project owner in writing of any occurrence which may give rise to a claim for additional compensation under the contract. The policy behind these requirements is sound. Owners should have the opportunity to respond to problems as promptly as possible while options are available and costs can be mitigated.

Notice-of-claim provisions also have teeth. The contractor’s failure to give timely written notice of a claim occurrence will constitute a waiver of the right to any additional compensation under the contract. Courts take two different approaches to this language. Sometimes, such as a recent case from New York, failure to give proper formal notice is a bar to additional compensation even if the project owner had actual knowledge of the occurrence. The requirement is strictly enforced.

Other times, such as a recent decision by the Wyoming Supreme Court, the requirement is interpreted in a more permissive manner. Some notice is sufficient and strict compliance is not mandated. A contractor was allowed to pursue a claim for extra work despite the failure to break down the cost elements of its claim.

How do you feel about this? Should these notice requirements be strictly enforced for the protection of project owners? Or does strict enforcement place form over substance and cause contractors to forfeit legitimate claim rights? I welcome your comments.

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Comments

[Jack Bailey]

There should be some give in any contract where notice of a claim is at stake. Many times, either or both the GC and the Sub realize there is reason to give notice because of a lack of accuracy on the design plans or due to a disagreement on an interpretation of the special provision. Yet, while the project is going full speed, they make an attempt to work the problems out without a claim. They don't know the extent of the cost of the claim until the problem is cured. Once notice is given, a 30-60 day period is not enough. There should be extended time once notice is given.
Also, Engineers, Owners and Managers should be punished when they allow a sub to drift along until the problems are cured, and then say "If you don't like absorbing the cost, then file a claim." hoping the claim will be denied due to notice constraints. That's what goes on each day in the real world.

[Eden Milroy, President, Pilot Development.]

Notice requirements should be strictly upheld. The argument that the cost is not known until later is weak and self serving. If the cost of the entire project can be estimated in advance, then claims can be also. Waiting simply serves to lock in potentially avoidable costs.

[RUFRAN C. FRAGO, P.Eng, PMP, CCE]

Ideally, strict implementation of the Notice of Claims provisions is nice to have but since a contract brings with it certain aspects of personal human relationships, the best way is to strike a balance between strict enforcement and liniency, a process lined with practicality. Identification of key decision makers between the two parties and establishing a common ground. This is important for decisions to be made in a timely and effective manner, where everyone leaves the room happy, yet without sacrificing each one's due diligence.