Subcontractor’s Failure to Strictly Comply With Notice Provision Costs $200,000

Whether you are an owner, contractor, subcontractor or supplier, you will want to read the rest of this post since it illustrates precisely what all those attorneys have been telling you for years: “Please, please, please read your contract.” In this instance, one party’s failure to strictly follow the contractual notice provision was a $209,235.36 mistake.

In Schindler v. Tully Construction Co., 139 A.D.3d 930 (May 18, 2016), the New York Supreme Court, Appellate Division, reversed a trial court’s award of delay damages in favor of a subcontractor on a public contract.  The general contractor entered into an agreement with the City of New York Department of Sanitation to construct a garage. The subcontractor agreed to to furnish and install five elevators for the project. Although the court’s decision does not elaborate on the details, the subcontractor filed suit and was awarded more than $200,000 in damages incurred as a result of delays in performance of the work.

The prime contract between the City and the general contractor, which was incorporated into the subcontract by reference, contained a strict notice provision:

. . . within forty-five (45) Days from the time such damages are first incurred, and every thirty (30) Days thereafter for as long as such damages are incurred, verified statements of the details and amounts of such damages, together with documentary evidence of such damages.

. . . [a failure] to strictly comply with the requirements of Article … 11.1.2 shall be deemed a conclusive waiver by the Contractor of any and all claims for damages for delay arising from such condition.

While the words “condition-precedent” do not appear to be expressly stated in the contract, the court found that the contract contained “a condition-precedent type notice provision.”  The appellate court held that the letters and emails relied upon by the trial court “did not strictly comply with the contractual notice requirement, since they did not contain verified statements of the amount of delay damages allegedly sustained by the plaintiff and were unsupported by documentary evidence.”  The appellate court also found that actual knowledge of the delays and claims did not excuse the subcontractor from complying with the the notice requirements of the contract. Accordingly, the appellate court reversed the award of damages in favor of the subcontractor and held that the subcontractor’s complaint should be dismissed.

Do you think the court in Schindler reached the right conclusion?  Like every legal question, the answer is: It depends!  Depending on the law in your state, “strict compliance” and “substantial compliance” compel different results.  For example, in Lee Masonry, Inc. v. City of Franklin, the Court of Appeals of Tennessee held that an owner’s actual knowledge of the events giving rise to the claims at issue did not bar recovery even though the contractors did not strictly comply with the notice requirements.  The appellate court also held that if the contractors did not fully comply with all of the notice provisions, such non-compliance would not be a material deviation from the contract requirements:

We agree with the trial court’s assessment that, based on meeting minutes, daily reports, revised schedules, and default letters to [the engineer], the City had actual knowledge of the delays and disruptions on the project and how they were impacting [the contractors]. As the trial court noted, “[a]ny further written notice would not have served any practical purpose.”

Strict or substantial compliance. When you are required to strictly comply with a particular provision or legal requirement, then any departure from that requirement (no matter how insubstantial) can void the claim or provide an absolute defense.  On the other hand, if only substantial compliance is required, then you need only meet the primary purpose or central aim of the contract or statute is met.  It is an equitable doctrine that if you act in good faith but fail to meet the exact requirements, the law treats the requirement as having been meet.

Your takeaways?  Read the notice provisions in your contract and check your state’s laws on the substantial compliance doctrine.  Read this post on providing notice and ten other tasks when pursuing a construction claim.  Don’t make a $200,000 mistake by failing to follow the contract and law.