Washington Supreme Court Expands Contractor Notice Obligations

The Washington State Supreme Court dealt another blow to public works contractors in Washington State. In a case recently issued by the court, Nova Contracting, Inc. v. City of Olympia, [1] the court expanded contractors’ obligations when providing notice on public works construction projects. The Nova Contracting case was the subject of a previous blog. The case involved Nova Contracting and the City of Olympia. Nova was the low bidder on the contract. Nova alleged that the City of Olympia did not want Nova to win the job and intentionally hindered Nova’s ability to perform the job. The facts alleged by Nova, which were covered in the previous blog, involved the City’s improper and apparently punitive rejection of submittals on the job and the City’s eventual wrongful termination of Nova. Of significance in the case is that Nova never actually began work on the job. All that Nova had done at the time of termination was begin mobilizing its equipment on site. The Court of Appeals found that Nova had alleged sufficient facts to establish that the City violated the duty of good faith and fair dealing by improperly rejecting Nova’s submissions and had breached the contract with Nova by improperly terminating.

The Washington State Supreme Court reviewed the Court of Appeals decision in Nova and reversed. The Washington State Supreme Court said that the WSDOT Standard Specifications that were incorporated in the City of Olympia contract required Nova to give notice of a claim if it would be alleging that the City of Olympia had breached the contract by wrongfully rejecting Nova’s submittals. The Supreme Court seems to take a simplistic approach that the contract required notice, and Nova had no recourse if it did not give notice. What makes this case different than any of the other prior notice cases interpreting the WSDOT Standard Specifications is that this case involved a situation where the contractor was not making a claim for additional time or money on the job. Here Nova was only making a claim for its lost profits on the existing contract that was improperly terminated by the City of Olympia. WSDOT Standard Specifications are drafted to address situations where there is a claim for additional money or time. The notice specifications make numerous references to claims for additional time or money and require documentation related to those types of claims. The initial notice requirement also states the contractor must provide notice to the owner before doing the extra work: “immediately … before doing the work.” However, Nova had not done any work on site. Nonetheless, the Washington State Supreme Court still held that Nova was required to give the initial notice.

The Washington State Supreme Court held that Nova’s claim for lost profits – or expectation damages – was barred because it failed to follow the notice and claims procedures for its claim for lost profits when the City breached the duty of good faith and fair dealing. Nova apparently needed to be clairvoyant and understand that the multiple rejected submittals would later be found by a court to violate the duty of good faith and fair dealing and that it may need to later make a claim that the City improperly terminated the contract. This is the only way that Nova would have known that it needed to start making claims for each of the rejected submittals.

Comment: Contractors who are doing work on projects that incorporate the WSDOT Standard Specifications now need to be aware that they must follow the notice and claims procedure not only for claims for additional time or money, but for any claim for which they may need to seek legal recourse for in the future – including claims that the public agency is violating the terms of the contract. Absent doing that, the contractor may be at risk of losing that legal right in the future.

[1] 2-18 WL 4625429 426 P.3d 685.

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