A number of years ago, I hired a carpentry company to work on my house. At completion, the company’s president came over with his final invoice. I told him that the invoice was wrong. His crews had neglected to note extra trim I had ordered and extra work I had requested on some windows. Where did he go wrong?
The old maxim for electrical contractors is “when in doubt, code to conduit.” That approach does not help much in tracking job costs or extra work.
Too many codes, on the other hand, can be discouraging to your foremen. If you only follow job costs by comparing a “cost to complete” column with your schedule of values, you will not be alerted to cost overruns until your books show a loss.
Aside from monitoring your own performance, modern contracts contain a wealth of provisions requiring documentation.
How’s this? “No claim [for suspensions, delays or interruptions] shall be allowed for any costs incurred more than 20 days before the contractor shall have notified the [owner] in writing of the act or failure to act involved ... ”
You might think this is a 20-day notice, but it is not. And what is also hidden in this clause is the concept of “failure to act.”
Let us analyze the 20 days part first. By the owner’s acts or defaults you incur extra costs, but you neglect to send a written notice. Under the express language of this clause, a written notice sent 40 days after the event is all right, but it only covers costs for “20 days before” plus future costs. So you may lose 20 days of claims.
Now we have the “failure to act,” a very difficult concept. The owner or general contractor is late in issuing a schedule update, or a change order proposal or he does not act on your verbal complaints of non-coordination among subcontractors. If you have this kind of language in your contract, what have you done to prepare a documentation procedure to address the issue?
Here is another one: “All claims for extension of time shall be made in writing no more than 20 days after the occurrence of the delay, otherwise they shall be waived.”
A variation on this language: “All claims for extension of time shall be made in writing immediately at the inception of the delay, otherwise they shall be waived.”
The differences between these two clauses are extreme. If you only performed a cursory review of your contract before signing, you could find yourself in deep trouble.
Without being too metaphysical, what is an “occurrence” of a delay? Is it the issuance of a change proposal for future work, adverse weather, late delivery of owner-supplied materials, etc.? More importantly, what has your company created to document these delays to preserve your rights?
An infamous case
Plaintiff E. C. Ernst, the electrical subcontractor on a project for General Motors, brought this suit to recover $135,000 in delay damages. The start of construction was delayed six to seven weeks due to site preparation difficulties. Immediately after being informed of the delay, Ernst wrote to the general contractor disclaiming any liability for the late start and indicating that it would submit a proposal for its additional costs.
The project was not completed until 13 months later. Sometime after that, Ernst met with the owner and general contractor to discuss its claim and eventually Ernst submitted a 108-page claim package detailing its losses.
Ernst lost this case at the trial level and took an appeal. Ernst’s main argument to the appeals court was that the trial court was wrong in finding against it on the basis that Ernst had not given adequate notice.
The appeals court decided that the finder of fact (a judge or jury) could arguably have found that Ernst’s notice was inadequate, even considering the continuing nature of the delay, due to the long period of time between the initial notice and the submission of the claim package. Moreover, the appeals court noted that it was customary to settle all outstanding claims at the end of a project, and Ernst did not raise its claim at the final settlement meetings. Therefore, the judgment against Ernst was affirmed.
When you send memoranda, speed letters, faxes, etc. to notify the general contractor or owner of problems, you do not need to be nasty or mean. You need to be timely and factual.
“Our crews arrived Monday morning, as planned, but they were unable to proceed because of the following ...” or “We need to notify you as quickly as possible about a developing problem ...” or “We are in the process of assembling our extra costs incurred because of ...” or “The exact time impact from _____ is not yet finalized.”
No one can complain that this kind of language is confrontational or adversarial. But it is needed. I have long advocated that field personnel use standard form letters to make this “notice” easier to implement and control.
Do you have a plan?
A survey was done to determine the principal causes of construction problems. Number one was errors and omissions in the drawings or specification. Number two was changes and number three, differing conditions.
You might argue about this order, or you might want to add to the list. The key question, however, is this: How does your contract address these issues, and how have you planned to document them?
If you have a 30-day notice clause, have progress meetings every two weeks. If you have an “immediately” clause, get your field people to supply your home office with daily reports. Where extra work is being performed, create a cost code to track the costs. If you have a progress schedule, whether bar chart or CPM, review it regularly, not only when you think that you are in trouble.
Train your people to be alert, how to be alert and then what they should do. EC