In a purely cooperative world, construction contracts would be unnecessary. If the owner or contractor caused a problem, the party would admit fault and make amends. Unfortunately, we do not live in a purely cooperative world. Owners and contractors have adverse interests, and responsibility for problems is not always clear. When a dispute arises, the construction contract provides rules for resolution.
Construction contracts typically include procedural provisions that incorporate an element of time. For example, the owner or architect must respond to submittals and pay applications within a specified time. If the contractor wants to make a claim for more time or money, it usually must give notice to the owner within a stipulated time of learning the facts underlying the claim, and it usually must follow up its notice with substantiating information.
Time limits on claims have a reasonable purpose: the owner wants prompt notice of claims so that it can help look for efficient solutions. Potentially expensive problems can sometimes be mitigated by paying for additional equipment or labor, by making a design change, or by resequencing work.
However, time limits can be a trap for the unwary. Project personnel may be more focused on getting the job done and solving problems than on formal notice requirements. A cooperative owner may overlook the absence of formal notice and participate in informal claim discussions. Be careful: even if the owner ignores notice requirements during the early stages of a project, it may decide to enforce them later as claims get bigger. Many construction contracts have a clause addressing this situation that says in effect: “The fact that the owner did not enforce a particular provision on one occasion does not affect its right to enforce that provision later on.”
Here are some common examples of time limitations relating to contractor claims:
- If the contractor discovers differing site conditions or hazardous materials, it shall give written notice to the owner within seven days and before such conditions are disturbed. The notice shall describe the conditions and state when they were discovered.
- If the contractor believes that some direction by the owner or architect will delay its work or make it more costly, it shall give written notice to the owner within 10 days, identifying the direction in question and when it was received.
- If the contractor has given notice of a claim for additional time or money, it shall follow up within 14 days with a detailed explanation of the basis for the claim, citing all relevant contract provisions, and an estimate of the expected impact on the contract time and contract price.
In some states and under some circumstances, the failure to comply with notice requirements can limit the right to bring a claim or bar a claim altogether. In other states, late notice may be excused if the party receiving notice was not harmed (e.g., if it knew about the issue before the formal claim was submitted).
To avoid a procedural trap, consider establishing a procedure to track and comply with time limits. Take time in daily or weekly project meetings to discuss potential claim issues. Report any claim issue involving significant time or money in writing to project management and identify any applicable time limits for response. Given the short time frame allowed for certain kinds of claims (seven days for differing site conditions is common), project management should give all claim issues prompt attention and submit timely notice if appropriate. To facilitate a quick response, provide project managers a template for sending notices. Once notice has been given, project staff should be assigned to prepare a more detailed notice of impact, if the contract requires it.
Sometimes claims cannot be submitted on the schedule defined in the contract. For example, when differing site conditions are discovered, their scope may not be known right away, and the cost of dealing with them may not be known until a mitigation plan is developed and approved by the owner. In such a case, the contractor should give timely notice, including its best estimate of the impact, state that the estimate may change, and update the notice as new information is obtained.
The beginning of a year is a good time to review contracts, identify the provisions that are subject to time limits, and make sure that project representatives have procedures in place to identify and comply with those limits. May you have a happy and timely New Year!
Originally published as an Op-Ed by the Oregon Daily Journal of Commerce on January 19, 2023.
