Contractors have once again been reminded of the harsh consequences of failing to follow the claim procedures specified in their contracts.
In Contractors Edge, Inc. v. City of Mankato, the Minnesota Court of Appeals rejected a contractor’s claim for extra compensation because, despite providing the initial written notice, the contractor did not follow up with the amount of the claim and supporting data within the time frame required by the contract. The contract included the Engineers Joint Contract Documents Committee (EJCDC) Standard General Conditions, which are widely used on public works projects throughout the country. Those general conditions require the contractor to give an initial written notice of the “general nature” of a claim within 30 days after the claim arises; and a second notice with the “amount or extent of the claim, with supporting data,” within 60 days after the claim arises (unless the engineer allows additional time).
The court stressed “the primary rule that failure to comply with written notice requirements results in contractor’s inability to recover for extra work,” adding that parties are “free to contract as to the type of notice that would be required.” The court recognized that owners lose their right to insist upon close compliance with notice requirements if their earlier conduct was inconsistent with the intent to insist upon them. If earlier change orders had been issued without following the specified claim procedures, for example, the contract’s change-order provisions would not have been enforced. The court, however, did not find any evidence that previous change orders were handled differently than the contract required.
Not all courts are as severe as Minnesota's in enforcing written-notice provisions. In federal contracting, for example, late notice is fatal only if the owner loses the opportunity to monitor costs, consider less expensive alternatives, or otherwise address the claim. In these courts, the lack of timely notice will not bar the claim unless the owner is prejudiced by the delay, but only if the contract is silent on the effect of filing a late claim. Even in those states, however, the claim may be barred if that result is clearly required by the notice provision.
The lesson of the Contractors Edge decision is that a contractor puts a claim at risk by not following all of the steps in the contract's specified claim procedures. The initial written notice is sometimes only the first of many steps that the contractor should closely follow. A contractor cannot always give notice of a claim, sit back, and assume the next move is the owner's. When a claim arises, a contractor should study the steps required by the particular contract.
Claim procedures can vary from contract to contract. The EJCDC general conditions applied in the Contractors Edge case illustrate potential pitfalls. Not only do they include the 60-day follow-up discussed above, but they include later deadline traps for the unwary. The engineer must issue a decision on the claim within 30 days after the contractor provides the claim amount and supporting documents. If the engineer denies or does not rule on the claim within those 30 days, the contractor must request mediation within the next 30 days. The contractor cannot simply wait for the engineer's decision beyond the 30 days, which is the natural inclination, but must treat the claim as denied and request mediation if it wants to keep the claim alive. If the contractor does not timely request mediation, the engineer's denial is "final and binding" and the claim dies.
With a variety of contractual claim procedures, a contractor may want to consult an attorney early to make sure that the claim is properly documented and all deadlines are met. If one or more deadlines have already passed, the attorney can assess the possible consequences, which can vary from state to state, and whether the contractor may have a legal excuse for not following the procedures strictly.
