Mike M. Johnson v. Spokane County – Contract Notice and Claim clauses are strictly enforceable

In Mike M. Johnson, Inc. v. Spokane County, 150 Wn.2d 375, 78 P.3d 161 (2003), the Washington State Supreme Court held that actual notice is not an exception to compliance with mandatory contractual protest and claim provisions. The Court went on to hold that a party may waive such provisions for its benefit, but waiver by its conduct requires unequivocal acts or conduct evidencing an intent to waive. In April 1998, Spokane County awarded Mike M. Johnson, Inc. (“MMJ”) contracts to construct two sewer projects, the Apple Valley Sewer Project and the Wolfland Project. The contracts incorporated WSDOT’s Standard Specifications for Road, Bridge and Municipal Construction. Both the County and MMJ anticipated that MMJ would perform the projects in sequence. Construction of the Apple Valley Project was to begin on May 27, 1998, and be completed in 88 working days, and construction of the Wolfland Project was to begin on June 29, 1998, and last 70 working days. At the preconstruction conference on April 23, 1998, the County informed MMJ that a road improvement district project was in progress to redesign Seventh Avenue, a roadway in the Apple Valley Project. The redesign would not affect the sewer installation, but would double the width of Seventh Avenue and add gutters and curbs. MMJ began construction on the Apple Valley Project, starting on Fourth Avenue, with a plan to follow with Sixth Avenue and then Seventh Avenue. On June 4, 1998, the County submitted the revised design of Seventh Avenue to MMJ and issued Change Order 3 which required MMJ to widen Seventh Avenue and change the elevation and grade. The change order proposed to increase MMJ’s compensation by $69,319, and add eight working days to the project. MMJ did not object or protest the design change, proposed compensation, or altered schedule, and began the work under Change Order 3. In late June, MMJ began subgrade preparations for the roadway on Seventh Avenue, and encountered buried U.S. West phone lines, which were not shown on the drawings furnished by the County. MMJ’s work on Seventh Avenue came to a halt while the County and U.S. West worked out the utility conflict. Both contracts incorporated Standard Specification § 1-04.5 which required written notice of protest of work required by a change order, other written order, or oral order from the engineer before doing any work, and supplemental information within 15 calendar days providing: (a) the date of the protested order; (b) the nature and circumstances which caused the protest; (c) the contract revisions that support the protest; (d) the estimated dollar cost, if any, of the protested work and how that estimate was determined; and (e) an analysis of the progress schedule showing the schedule change or disruption if the contractor is asserting a schedule change or disruption. The contracts further provided that MMJ accepted all requirements of a change order by endorsing it, writing a separate acceptance, or by not protesting it as required by § 1-04.5. Failure to protest constituted “full payment and final acceptance of all claims for contract time and for all costs of any kind, including costs of delays, related to any work either covered or effected by the change.” Standard Specification § 1-04.5. In addition, the contracts referenced Standard Specification § 1-09.11, which provided a mandatory formal claim procedure if § 1?04.5 failed to resolve a dispute. Full compliance by MMJ with § 1-09.11 was a contractual condition precedent to MMJ’s right to seek judicial relief. MMJ never filed a certified claim as required by § 1-09.11. MMJ did not file a written protest nor provide the supplemental information within 15 days as required by § 1-04.5. MMJ, by correspondence, did advise the County that it believed it was entitled to additional compensation. After MMJ struck the unanticipated buried phone lines in Seventh Avenue, the County verbally instructed MMJ to stop work until the County could redesign the project. This prevented MMJ from starting work on other streets during the approximately six weeks it took to complete its redesign. When MMJ sought to do work on other streets to try to keep on schedule, the County forced MMJ to quit. On August 7, 1998, the redesign was complete, and the County told MMJ to go back to work. However, a week later, on August 14, it was discovered that the County’s design grades were erroneous. The County required MMJ to shut down again while the County corrected the problem. Daily and other periodic meetings took place between MMJ personnel and County personnel. MMJ later filed a lawsuit seeking compensation for its extra work. The County moved for summary judgment on the grounds that MMJ’s claims for additional compensation were barred because MMJ failed to comply with the contractual protest and claim provisions. The trial court granted the County’s motion and dismissed MMJ’s clams. MMJ appealed and the Division Three Court of Appeals ruled in favor of MMJ on the ground that issues of fact existed regarding whether the County’s “actual notice” of MMJ’s claims excused MMJ from complying with the mandatory contractual protest and claim procedures. The County then appealed to the Washington State Supreme Court. Justice Madsen wrote the Court’s five-to-four majority opinion. She was joined in that opinion by Justices Alexander, Bridge, Owens, and Fairhurst. The majority stated that “Washington law generally requires contractors to follow contractual notice provisions unless those procedures are waived,” citing Absher Construction Co. v. Kent School District #415, 77 Wn. App. 137, 152, 890 P.2d 1071 (1995). 150 Wn.2d at 386. The majority went on and stated that: A party to a contract may waive a contract provision, which is meant for its benefit, and may imply waiver through its conduct. [Citations omitted.] Waiver by conduct, however, “requires unequivocal acts of conduct evidencing an intent to waive.” Id. at 386. In rendering its decision, the majority addressed MMJ’s contention that when an owner has actual notice of a contractor’s protest or claim, that notice, in and of itself, excuses the contractor from complying with mandatory contractual protest and claims procedures, citing Bignold v. King County, 65 Wn.2d 817, 822, 399 P.2d 611 (1965). The majority disagreed, and with regard to Bignold stated: Rather, it was the owner’s knowledge of the change conditions coupled with its subsequent direction to proceed with the extra work that evidenced its intent to waive enforcement of the written notice requirements under the contract. Id. at 388. The majority obviously found no direction to proceed from Spokane County to MMJ. The majority went on and found that the County had not waived MMJ’s compliance with the contractual protest and claims provisions through its conduct. Important to the majority’s conclusion in this regard was the fact that the County repeatedly asserted that it did not intend to waive any claim or defense or any contract provision. The Court rejected MMJ’s contention that the County’s continued negotiations evidenced the County’s intent to waive MMJ’s compliance with the contractual provisions. Justice Chambers provided an informative and vigorous dissent, which dissent was joined in by Justices Johnson, Sanders, and Ireland. Since this opinion was released there have been a number of attempts in the Legislature to create new law in response to this case, none of which have been successful. Posted in Change Orders, Claim/Notice Issues

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