Blog - Construction Contracts and Strict Notice Provisions - Components and Common Defenses

Take the following scenario: A contractor is ordered by an owner to perform extra work beyond the scope identified in the contract. The contractor objects, telling the owner informally that the extra work is out-of-scope, but ultimately agrees to do the job. The contractor completes the job, keeping track of the additional material and labor costs, as well as the extra time it took. The contractor then submits a claim seeking to recover these costs and requesting an extension of time to complete the contract.

To the contractor’s dismay, the owner rejects the claim, citing to the notice provision in the contract that required the contractor to give the owner a precise type of timely notice prior to asserting a claim. The contractor, undeterred, sues in what should be an easy case to win – after all, the contractor has a strong argument that the extra work was beyond the original scope and has kept excellent records of the extra time and additional costs incurred in completing that work. At trial, the contractor is surprised to discover he or she is out of luck. This is because, in many jurisdictions, courts will require contractors to strictly comply with the contractual notice requirements as a condition precedent to asserting a claim, and a contractor’s failure to do so serves as a waiver of that claim. So, what should the contractor have done to protect his or her interests and ensure that the work would not be done for free?

In the following post, we will explore the components commonly found in the notice provisions in construction contracts. We also will explore how – and whether – courts enforce those provisions, as well as some common defenses against strict compliance.

Adequate Notice Is Key

Adequate notice is a crucial part of the contractual relationship. It alerts the owner that the contractor is performing work considered to be beyond the contractual scope and will increase the total cost and/or result in a delay in the completion of the project. It also allows the owner to assess whether the extra work is worth the contractor’s time and additional expense. Because a contractor’s failure to give adequate notice of these types of claims can create real problems for the owner, construction contracts often prescribe a detailed process by which notice is to be provided.

AIA Document A201TM (General Conditions) contains a requirement that contractors give written notice “within 21 days after occurrence of the event giving rise to such Claim or within 21 days after the claimant first recognizes the condition giving rise to the Claim, whichever is later.” Other contracts place more onerous time requirements – often as few as seven days – for making a claim. Contracts also may require that the contractor include within the notice a description of the claims and documentation proving the existence of the claim, and may provide that notice must be given in a particular form (i.e., certified mail) to a specific person. Failure to satisfy any of these conditions could form the basis for the owner to claim that the contractor has waived his or her claim.

For that reason, contractors are best served by examining and regularly referring to the contractual notice provisions and then following them with exacting precision. If notice is required within a certain number of days, contractors should be mindful of those deadlines and diligent in providing the owner with as much notice of its claims as early and as often as is possible. In larger projects, it is often a good idea to hire specific personnel whose job it is to know the contractual claims process – including the notice requirements – and monitor claims throughout the process.

Another issue that often arises is determining when a contractor knew or should have known of the facts or conditions “giving rise to a claim.” Ascertaining this date can be difficult, and contractors often fail to give notice of a claim because they prefer not to escalate matters or they hope that disputes over costs will be resolved through the process of negotiation. But when disagreements crystalize and claims are denied, contractors often find themselves in a position where, although the owner knows the contractor is seeking extra costs, the exacting notice provisions have not been followed with precision. Indeed, many courts have held that the date on which a contractor has sufficient knowledge of the events giving rise to a claim and whether particular writings – such as a disputed payment application, a request for information or a letter outlining potential claims – satisfy these requirements is often a question of fact that can only be resolved by the jury. It is better to remove all doubt than to roll the dice at trial. Accordingly, contractors should be careful to provide the prescribed notice at the earliest possible moment, even if this means submitting formal documentation to the owner in the middle of a claim negotiation.

Jurisdictions Vary When Applying Strict Notice Provisions

Although our hypothetical scenario involved a contractor who was out of luck after failing to comply strictly with the contract’s notice provisions, this rule is not universally applied in every jurisdiction. In those states, contractors can advance several arguments as to why a court should show leniency for failure to comply with contractual notice requirements. These include: (1) the owner had actual notice of the claim, (2) the owner suffered no prejudice, (3) the contractor substantially complied with the notice provision or (4) the owner has waived the notice requirements by some other act or omission. Whether a contractor can rescue his or her claims based on these types of arguments depends on the laws of the relevant jurisdiction. 

For example, in the context of public contracts, federal courts often look to the prejudice suffered by the government in the absence of strict compliance. Where the government has actual notice or has suffered no prejudice, strict compliance is not required. The District of Columbia takes this type of approach.

However, in some jurisdictions courts have held that notice requirements are satisfied where “substantial compliance” with the notice requirement has occurred. In states that take this liberal approach, if the owner has actual or constructive notice and the contractor has substantially complied in notifying the owner of the claim, such notice may suffice.

The contractor also may argue that the owner, perhaps by some past action or course of behavior, waived the exacting notice requirements set forth in the contract. This could occur where an owner affirmatively communicates to the contractor that notice is not required or where a course of conduct demonstrates the owner’s willingness to accept a form of notice different from that found in the contract. In these cases, if the contractor has not provided notice in strict compliance because of some detrimental reliance on the actions of the owner, compliance with the contract’s strict notice requirements may be relaxed.

Regardless of the jurisdiction, contractors should review the notice provisions in their contracts and regularly reference them when potential claims arise to ensure that they comply with those notice requirements. Failure to do so places contractors at risk. Conversely, owners – and contractors who have included similar clauses in their subcontracts – should be mindful of the notice requirements, as they may provide a means to avoid late-arising or imperfectly made claims. 

Adrien Pickard is an attorney in Shapiro Lifschitz & Schram's Construction, Power & Energy Construction and Trial practice groups. He can be reached at pickard@sls.com. 

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