Flow it in

Dec. 5, 2014

Charting project could prove to be beneficial

I often write about written notice clauses in construction contracts because a contractor’s failure to abide by these requirements provides a shield to the owner and can result in a court refusing to consider the merits of the underlying claim.

This month, I would like to highlight a case that serves as a lesson to contractors and owners to read their notice provisions closely and understand precisely what it is that triggers the duty to provide notice. Sometimes the timeliness of notice is measured from the time the event giving rise to a claim occurs and sometimes it is from the time the contractor begins incurring additional costs.  

Davidson and Jones, Inc. v. North Carolina Depart. of Admin., 337 S.E.2d 463 (N.C. 1985) involved a construction contract for a library addition at the University of North Carolina. The bidding documents instructed the contractor to include the costs for 800 cu yd of rock excavation in its bid and requested a unit price to be used for crediting the owner in the event the actual quantity underran the estimate and for compensating the contractor for quantity overruns. During construction, the contractor actually encountered 3,714 cu yd of rock and began asking the owner for additional compensation and time associated with the overrun. The owner did not respond to the contractor’s request until the contractor threatened to stop work unless an agreement was reached. The owner finally agreed to meet with the contractor, who was seeking compensation for the overrun quantity at the specified unit price, as well as “duration-related costs” to compensate for the additional time the contractor planned to be on the project as a result of the associated delay. The parties could not reach an agreement and the contractor proceeded under the disputes clause of the contract, which eventually led the parties to litigation.

The trial court ruled in favor of the contractor. The North Carolina Court of Appeals affirmed the contractor’s award of additional compensation for the rock at the specified unit price, but reversed the trial court’s award of duration-related costs. The contractor appealed to the Supreme Court of North Carolina.  

Although there were several issues involved in the appeal, the one most germane to the purpose of this article regarded whether the contractor’s notice of intention to claim its duration-related costs was timely. The notice provision in the contract provided that the contractor “shall give written notice . . . to the Engineer or Architect without delay, and shall not proceed with the work affected until further advised except in emergency involving the safety of life or property . . .” The owner argued that the contractor’s written notice was untimely because it was given well after most of the additional rock was excavated. The court agreed that the contractor did not give notice until the bulk of the extra rock excavation was complete, and it noted that had the contractor’s claim involved costs it incurred to perform that additional rock excavation, the owner’s argument might have been a good one. The court emphasized, however, that the contractor’s claim was for duration-related costs, and, in this case, the contractor did not begin incurring such costs until the following January when the project was originally scheduled for completion. Thus, the court held that notice preceded the work for which the contractor sought compensation and notice was timely.  

Project managers should get into the habit of kicking off every project by reviewing the general provisions of the contract and thoroughly understanding when and how notice must be given. Special attention should be given to distinguishing between initial notice of the existence of a change, unforeseen conditions and/or disagreement, and subsequent notice regarding the contractor’s intent to file a claim and/or pursue an unresolved matter through the specified disputes process. The most effective way for project managers to force themselves to fully understand all contract notice requirements is to create a flow chart illustrating the prescribed process for each of the several possible scenarios: a perceived change or delay; disagreement over pricing or time on an agreed change; disagreement with an owner directive or contract interpretation; differing site conditions; and intention to file a claim. These flow charts should be shared with all key project personnel and maintained in a handy place for reference throughout the project.

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