Contractual Time Limits for Providing Notice of Claim Must be Taken Seriously
The Connecticut Appellate Court recently issued a decision that should cause every contractor some concern. In J. WM. Foley Inc. v. United Illuminating Co., 158 Conn. App. 27 (Conn.App. 2015), the Appellate Court upheld a decision that denied a contractor’s $4.7 million delay claim because the contractor did not provide proper notice of the claim within the 10 days required by the contract. The case is disconcerting because the court’s decision appears to be based upon the contractor’s failure to strictly comply with the contract’s notice provision. There is no discussion indicating that the owner was harmed or prejudiced by the delay in receiving notice of the claim. Moreover, the decision acknowledges that the contractor had provided the owner with notice of events giving rise to the claim. In fact, despite denying the delay claim, the trial court awarded the plaintiff over one million dollars for its direct costs, which arose out of the same facts as the delay claim.
The project underlying the dispute in J. WM. Foley Inc. was the construction of a utility pipeline. The parties’ agreement stated that the contractor was expected to encounter subsurface obstructions and that the contractor would be entitled to additional compensation associated with same. However, the contract also stated that “claims for additional compensation would be ‘irrevocably waived and released’ unless [the contractor] submitted its change order request within ten business days of the event giving rise to the claim.” Id. at 33-34. The essence of the trial court opinion, which was upheld on appeal, was that the delay claim was denied because the contractor failed to give notice of the claim within the 10 days required by the contract.
The end result is a court’s decision that may appear to be harsh, but it also may not be what it seems. Most construction contracts contain provisions requiring the contractor to give notice of a claim within a certain number of days from the event that gave rise to the claim. However, the court decisions that deny claims for the failure to strictly comply with such notice requirements typically discuss how the owner was harmed by the contractor’s failure to give the required notice. Such harms usually include the owner’s inability to investigate claims for changed subsurface conditions after the alleged additional work is performed and/or the excavation is backfilled, or, as is often the case with a public owner, a funding source is no longer available if a project is officially closed out before the owner learns of the contractor’s claim. Here, while there is no discussion as to whether the owner suffered any such harm, the opinion does note that the contractor did not submit an appropriate delay analysis until 3½ years after the project was completed. Therefore, it has to be assumed that such a lengthy delay in providing the “required” information was considered by the trial court even if that issue was not specifically addressed in the appeal.
Another difference here is the contract language that expressly states that a claim is waived if the required notice is not given within 10 days. While most contracts do require a contractor to provide the owner with notice of claim, I have never previously encountered a contract which expressly stated that the failure to give such notice would result in the claim being waived. Therefore, the court in J. WM. Foley Inc. could simply be said to have followed the rule that requires contracts to be interpreted based upon the plain language used.
Similarly, the contract was very specific about the form of the notice of claim. Here, the contract stated that the “change order request had to include ‘an equitable schedule and/or price adjustment to compensate Foley for the actual, demonstrable delay in the critical path and/or the costs of Foley’s additional work.’” Id. at 33. Importantly, the opinion notes that the owner and contractor “were in dispute over what level of detail needed to be provided in the change order requests.” Id. at 17. It appears from the decision that the owner was expecting a detailed schedule analysis to be submitted as part of a change order request for delay damages but the contractor’s position was that the amount of subsurface obstructions being encountered made it impracticable or impossible to submit such an analysis within 10 days of encountering the obstructions. Instead, the contractor provided the owner with timely notice of the obstructions it encountered. Nonetheless, whether or not the contractor had substantially complied with the contract’s notice requirements was not an issue considered by the court because that issue was raised for the first time on appeal. Id. at fn. 13.
In light of the foregoing, the decision in J. WM. Foley Inc., which arguably stands for the proposition that a contractor’s claim will be waived if the contractor fails to comply with a contract notice provision, can be distinguished on several grounds, including, but not limited to: 1.) the contract expressly stating that the failure to provide specified notice will result in the claim being waived; 2.) the contractor did not provide the required delay analysis until 3-1/2 years after the contract was completed; 3.) the contractor’s failure to argue at trial that it had substantially complied with the contract’s notice required (which would have been a good argument given the finding in the contractor’s failure on its direct costs); 4.) the contractor’s failure to argue at trial that it could not comply with the 10 day notice requirement based upon “impossibility” under the circumstances; and 5.) the contractor’s failure to successfully assert its claim using the “total cost approach,” which the court dismissed without much discussion.
Thus, the lessons to be learned are that it is important to be aware of all relevant contract provisions in your construction contracts; that there are substantial difficulties associated with presenting and proving delay claims; and the importance of presenting all of your arguments to the trial court without waiting to raise an argument on appeal. The bottom line is that, as previously discussed in this blog, it is important to have good legal counsel during a project as a dispute develops. If you are in the process of dealing with a project that is experiencing delays because of change conditions, defective plans and specifications, and/or the owner’s failure to obtain a permit or easement, then please give me a call.
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