Basic corporate law states you do not have a contract with a corporation until you have reached an agreement with an authorized representative. The same is true with satisfying a contract’s written notice requirements. This concept seems obvious, yet contractors regularly lose their contract rights by failing to tell the right person about a change or dispute.
For example, modern contracts have a number of written “notice” clauses. You are to notify the other party in writing of delays, extras, differing conditions, force majeure events, errors in the plans or specifications, etc. A written notice helps avoid confusion that might otherwise arise from verbal conversations and directions.
There are hundreds of court cases where a contractor had a legitimate complaint but did not send the letter. Maybe they just forgot. Maybe they thought that the meetings and conversations were sufficient. Maybe they did not read the contract. Whatever the cause, the other party normally defends itself by saying that, without a formal written notification, the claim or demand is waived.
The other party explains that the written notice requirement is a method of ensuring it is made aware of any problems and that the problem can be addressed within a meaningful time frame. For many courts, this explanation is not necessary; the contract language is unambiguous; and the failure of notice, by itself, is enough to bar the claim.
My experience, especially with electrical contractors, is that ECs do not want to appear claims-oriented. ECs are concerned that these notice letters, even though demanded by contract, will adversely affect working relationships. In other instances, the problem is simply that the field supervisor has not been adequately instructed that they need to put things in writing.
There are also circumstances where it may not be obvious that a written notice is mandated. In one case, a project manager received an updated schedule that changed interim completion dates. This schedule required acceleration, even though the owner expressed no direction to accelerate. In another case, the owner was verbally informed of extras and asked the contractor for an agreement to reduce the cost of other work as a tradeoff.
So now you have this article—and others I have written on the subject—and you are writing the letters. Are you sending them to the right people?
The contract may or may not clearly identify the authorized representative for the other party. This representative may or may not be the person you regularly converse with at the project. In addition, the contract may require notices to be sent to more than one person.
Where a project architect exists, it is common that certain notifications must be sent to the owner and the architect. The same can be true when the owner is using a construction manager (CM).
In a recent case, a contractor encountered underground obstructions (a differing site condition) and had conversations about the problem with the owner’s CM. Under the contract, the contractor had to send a written notice regarding the differing condition before the area was further disturbed. This kind of provision is fairly common. The CM met with the contractor and seemed to agree that there was a differing condition, but rather than process the information through the changes clause, as the contract required, the CM came up with an alternative proposal.
The CM said that, if the contractor could find cost savings on other work that would offset the impact of the subsurface conditions problem, the CM would recommend payment to the owner for the differing condition at the end of the job. While these discussions continued, the time for sending a written notice passed.
Apparently concerned about the verbal deal, the contractor finally sent a written notice to the CM. Now confronted with a formal submission, the CM denied the claim as unfounded. The contractor then sued the owner and the CM. The case was dismissed, based on the expressed language of the contract, before a trial could take place.
First, the court held that the written notice was sent after the 10-day notice period in the contract. Second, the notice was sent after the work had been disturbed. Third, the written notice was sent only to the CM and not to the owner as required. Fourth, the CM did not have the authority to make promises of payment on behalf of the owner. The court also found that the CM’s verbal promise to make a recommendation to the owner was not legally enforceable.
Had the EC had its contract directly with the CM, he might have been able to successfully argue that the verbal notice, coupled with the CM’s direction on how to proceed, created a waiver of the writing requirement. However, the CM was an independent contractor to the owner, and the contract required notifying both both the owner and the CM. The court held that the CM could not waive the owner’s right to receive a written notice and could not waive or modify the owner’s change order procedures.
So what should you do? One school of thought says that, when you are hurt, tell everyone. When you encounter a delay, a change in the work or an interference, send email notices to whomever you think should be notified. You cannot be criticized for keeping a large mailing list. If you are dealing with an owner’s representative (an engineer, architect or CM), send your notice to the owner as well. Do not be lured into silence by promises of future payment. What you understood as a promise may not be remembered with such clarity later on.
A client once called me to say that the owner was complaining about all the written notice letters my client was sending and that, if he spent the same effort on construction as letter-writing, the job would be further along. My advice was that he write the owner, summarize the criticism, and ask the owner for written direction that the letters were no longer necessary. Not surprisingly, the owner never responded to that request.