LAW: THE CONTRACTOR'S SIDE: Regardless of reputation

Oct. 7, 2014

Court overlooks GDOT’s past tendencies on filing claims

The requirement for providing timely written notice of intent to file a claim is one with which all highway contractors and subcontractors should be intimately familiar.

Unfortunately, project managers sometimes neglect to provide such notice in the interest of avoiding confrontation or perhaps for fear of retribution from the owner. Rather, they handle the matter verbally during conversations or at project meetings in hopes the owner will be reasonable and they can work things out. This latter approach is sometimes successful, but if negotiations fail, the contractor will have provided the owner with an easy way out, and the merits of an otherwise valid claim will never be considered by a court.

Such was the case in Western Surety Co. v. Department of Transportation, 757 S.E.2d 272 (Ga. App. 2014). Western Surety involved a contract between a highway contractor and the Georgia Department of Transportation (GDOT) for construction on U.S. Highway 27. After it entered into the contract, the contractor experienced price increases due to project delays and found itself financially incapable of completing the project. GDOT eventually declared the contractor in default and the surety took over the project. 

During its work on the project, the surety submitted two claims to GDOT seeking additional compensation. After a meeting between the parties, GDOT asked for additional information, but the surety refused to respond because it believed GDOT was simply looking for a reason to deny the claims. One of GDOT’s requests was for the contractor to produce its written notices of intent to file a claim as required by the specifications. GDOT eventually denied the claims and the surety sued. 

Early on in the legal proceeding, GDOT sought partial summary judgment on the grounds the surety failed to provide the necessary written notice of intent to file a claim. The court agreed and dismissed the claims and the surety appealed. The main issue on appeal was whether the surety complied with the written notice requirement, which the contract stated was “an essential condition precedent to any recovery of damages . . . ”

The surety acknowledged that it did not strictly comply with the contract and provide advance written notice of its intent to file a claim. Rather, it argued that GDOT waived strict compliance by its history of actively encouraging disputes to be handled informally and by punishing those who strictly followed the claims procedures. The surety further stated that GDOT often negotiated claims with contractors despite having never received written notice of a claim. In the alternative, the surety contended that it substantially complied with the notice requirement because the parties openly discussed the claim issues from the outset. The surety argued that GDOT was thus not surprised by the claims when it received them.

In its analysis, the court recognized that parties are free to include in their contracts claim notice requirements and it observed the rationale for such requirements including affording an owner the opportunity to consider alternative action to mitigate damages and to allow it to witness additional efforts exerted by the contractor that result in additional costs. Notice provisions, the court noted, are thus generally enforceable unless the project owner affirmatively waives such provisions. It further noted that“[c]ourts will readily seize upon any fact or circumstance growing out of the conduct of the parties, tending to show a waiver of strict compliance, and will seek to avoid the forfeiture and to leave the actual merits of the case open to investigation.”

In this case, the court held that GDOT’s alleged reputation for discouraging the filing of claims or penalizing contractors for doing so on other projects does not constitute an affirmative act of waiver. The court similarly rejected the surety’s contention that discussions with GDOT concerning the claim issues constituted substantial compliance. In this regard, it noted that “if compliance with the Contract could be deemed waived or excused because the DOT was aware of a delay or of price escalations, which, as to the latter, would often be public knowledge, then the provision requiring timely written [notice of a potential claim] would be meaningless and superfluous.” 

As Western Surety and a plethora of other cases demonstrate, there is simply no excuse for a contractor failing to strictly abide by contractual written notice requirements. In most instances, such failure will result in a complete forfeiture of an otherwise legitimate claim. R&B

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