Rob Bobby: Don’t Kick the Claim Until the End of the Project: Timely Give Notice and Preserve Your Claims on Construction Projects

For this week’s Guest Post Friday, we welcome Tara L. Chadbourn. Tara is an attorney with ReavesColey PLLC in Chesapeake, VA, where she concentrates her practice on construction law, litigation and commercial litigation. Tara counsels owners, contractors, subcontractors and materials suppliers in various government and commercial construction matters. Tara can be reached at tara.chadbourn@reavescoley.com.

You may have experienced and have certainly heard of the scenario in which a contractor waits to address a claim as part of project closeout, only to realize the applicable deadline has already passed. While there may have been discussions about claims during the course of the project, contractors cannot rely upon oral conversations about outstanding claims. Instead, contractors must be vigilant in satisfying notice requirements and preserving claims. While entitlement must still be proven, a contractor’s chances of recovery increase greatly if the contractor abides by notice requirements and consciously preserves claims in the following ways.

Contractors Must Acquaint Themselves with Contractual Notice Provisions:

Many prime and subcontract agreements contain stringent notice provisions that require the contractor to give notice within a certain time period or else the claim is expressly waived. The deadline for notice is often only a few days after the occurrence giving rise to the claim or the contractor becoming aware of the claim. To avoid waiver, contractors must carefully review their contracts for provisions requiring notice of a claims for adjustment for a variety of situations to include unforeseen site conditions, trade sequencing changes, project delay or scope of work changes.

In addition to reviewing the prime or subcontract for strict notice provisions, contractors would be wise to include the same notice provisions in contracts with lower-tier contractors.

Contractors must also ensure that project managers and other key personnel are aware of the contractual notice requirements and monitoring the deadlines during the course of project performance. If those with boots on the ground are unaware of the notice deadlines, then important deadlines may expire and claims will be waived.

Contractors Must Be Careful to Preserve Claims in Release and Lien Waiver Form

Many contractors are required to execute partial waiver and release of lien forms during the course of a project. The forms are often drafted to waive and release all liens and claims through a specified date. If a contractor is aware of a claim or of facts that may later lead to a claim, the contractor must expressly exclude such claims or potential claims from the partial waiver and release of lien. Courts strictly construe release and waiver forms and will deny recovery on a contractor’s unpreserved bond claim, mechanic’s lien claim or other claim.

Contractors can take the following simple steps to protect themselves in signing release and lien waiver forms:

Review each release and waiver form closely;
Consider limiting the scope to a specific payment application, instead of waiving all claims through a specified date;
If claims or potential claims are known, describe the claims and expressly exclude them from the scope of the release and waiver. For example, unapproved change orders can be identified and excluded.

Reviewing Contract Modifications:

Unwary contractors can also waive claims in contract modifications. To preserve claim rights, contractors must carefully review contract modifications. Contractors should look out for broad release language. For example, on federal projects, a contractor should be on the lookout for language like “In consideration of the modification agreed to herein, the Contractor hereby releases the Government from any and all liability under this contract for further equitable adjustment attributable to such facts or circumstances giving rise to the “proposal for adjustment.’”

Similar to the above-described handling of release and lien waiver forms, the contractor should expressly identify and exclude all unresolved issues between the parties, claims and potential claims in contract modifications in order to preserve such claims. If the owner or higher-tier contractor refuses to allow the express reservation, then the contractor can try to protect itself by expressly signing the modification under protest.

Notice Provisions for Federal Projects:

For any federal projects, be sure to review the provisions incorporated by reference into your prime contract or subcontract as there may be time limitations for notice of claims or requests for equitable adjustment.

For example, FAR 52.242-14, pertaining to suspension of work, prohibits claims for costs incurred more than twenty (20) days before the contractor gives written notice of a government-caused delay, suspension or interruption of work (unless the government issues a suspension order). FAR 52.242-14 goes on to require that contractors give notice of the amount of the claim as soon as practicable after the termination of the government-caused delay, suspension or interruption of work, but not later than the date of final payment.

Similarly, FAR 52.236-2, pertaining to differing site conditions, requires the contractor to “promptly” give written notice of differing site conditions before the conditions are disturbed. Otherwise, no adjustments will be made for differing site conditions, unless the contracting officer agrees to extend the deadline for notice.

Conclusion:

Contractors’ awareness must go beyond the more obvious notice deadlines such as those for payment bond claims and mechanic’s liens.

The above notice requirements can be harsh and devastating to a contractor’s bottom line. Contractors must monitor all notice triggers and be careful to preserve claims during the course of performance.

The above discussion of notice requirements and ways to preserve claims is not comprehensive or tailored to a specific contracting tier. Contractors should consult a construction attorney to obtain advice tailored to their circumstances.

As always, Tara and I welcome your comments below. Please subscribe to keep up with this and other Guest Post Fridays at Construction Law Musings.