Thirteen years ago, I wrote an article for the Washington State Bar News entitled Notice in
The 1998 Bar article was prompted by the injustice I perceived in the Court of Appeals decision of Absher Constr. v. Kent Sch. Dist, 77 Wn. App. 137, 890 P.2d 1071 (1995). The Absher case seemingly eliminated the prejudice standard in construction notice cases. Although I rallied against the injustice of Absher, my vehement complaints fell on deaf ears at the Washington Supreme Court. In 2003, in a 5-to-4 decision, the Supreme Court ruled on Mike M. Johnson v. County of Spokane (“MMJ”), 150 Wn.2d 375, 78 P.3d 161 (2003). The MMJ decision changed the landscape of written notice in Washington construction contracts, making Washington State likely the strictest in the Union when it comes to the interpretation of written notice in construction contracts. Since the MMJ decision was issued, many (in my opinion, misguided) owners have revised their general conditions to ensure that any contractor misstep in meeting the written notice requirement results in a forfeiture of the contractor’s claim. Overworked courts often jump at a procedural oversight (failure to strictly comply with the written notice claims) to dispose of a messy construction dispute instead of deciding the case on the merits. By way of confession, I have represented the interests of owners and relied on MMJ to defeat a contractor’s claim in summary judgment – it works!
It’s no secret where I stand on this issue. I have ranted at industry organizations, bar association meetings and to anyone who will listen to my take on Mike M. Johnson. This is an editorial, not an even-handed treatment of the subject matter (the article for the Bar News should be more clinical). At the risk of further chiding from my colleagues and readers, I am about to bleed on these pages and laugh at the blood. If you have already read one of my diatribes on this topic and wish to spare yourself another, now would be a good time to click out of this blog post.
1. Example of Onerous Notice/Forfeiture Clauses:
There are numerous examples of written notice provisions in construction contracts (both private and public), which contain forfeiture clauses to draw from. One such example is as follows (the Owner’s name has been changed):
“Contractor shall provide Owner with immediate oral notice after the occurrence of any instance of interruption, extra work, additional work, delay, hindrance or efficiency loss of any nature whatsoever in Contractor’s work (“Event”), believed by Contractor to be caused by the acts or omissions of Owner, followed by written notice within seven (7) days of such Event, which notice must be given and the Engineer’s direction received prior to performing the work. Such notice must identify in detail the basis for the claim. (Event Notice)
Within thirty (30) days of the Event (without regard to when notice of the Event was provided, if any), the Contractor shall provide the Owner with a written breakdown of all elements and sub-elements of the claim detailing of the increase in the Contract Time or Contract Sum being sought in accordance with this contract. (Claim Notice)
If the Contractor fails to satisfy the requirements of this paragraph, the Contractor shall be deemed to have waived all rights to assert any claims against the Owner arising from or related to the Event. (Forfeiture Clause)
No legal action against the Owner may be filed on account of a Claim or other liability arising out of or relating to this Contract, unless all the notice requirements have been complied with, the procedures of the Contract have been exhausted, and the lawsuit is filed and served on the Owner within 180 days of substantial completion. The Contractor’s failure to strictly comply with all requirements of this section shall be a complete bar to any lawsuit. (Forfeiture Clause)
Finally, the contract contains a paragraph in which a dispute resolution process is set forth, entailing many steps with which the Contractor must comply with to the letter, but which contain no reciprocal requirement for the Owner to respond in a timely manner. The “penalty” for the Contractor’s failure to comply is again a “waiver” (forfeiture) – but there is no penalty if the Owner fails to comply. (Claim Process)
2. The Three Elements (Hurdles) of Common Written Notice Clauses:
a. Strict Written Notice of the Event. As set forth above, the contractor’s first hurdle is to provide immediate oral notice of the Event, followed up by written notice to the Owner. Notice of the Event can be readily complied with by contractors. If the main contractors recognize when events have a cost or time impact on the project, they can expeditiously provide this Event notice to the owner in writing.
b. Strict Written Notice of Claim. Second, the contractor must provide the owner with a claim (a claim is generally defined by the contract and the Supreme Court as dollars and/or time). It is often very difficult for the contractor to comply strictly with the claim requirements, for example in the event of differing site conditions or design changes, there can be a significant lag between the time the design change or differing site condition is identified and a design “fix” is available. The lag in getting the design fix may exceed the duration of time allowed in the contract for the contractor to submit a written claim. Regardless, the Court has mandated that the contractor must provide the owner with some type of dollar or time estimate to avoid a forfeiture of its otherwise meritorious claim. Thus, contractors are forced to provide the owner with a ROM (rough order of magnitude) of the cost and time involved in the change to comply with this provision and preserve their claims.
c. Requirement to Follow the Contract Claim Process to the Letter. The third requirement is that the administrative process in the contract (dispute resolution process) must be complied with to the letter. Again, any slip-up by the contractor in following the timelines set forth by the contract’s dispute resolution process could result in a forfeiture of the contractor’s claim.
The most objectionable feature of these written notice provisions is that if the contractor fails in any of the three (3) hurdles set up by the contract, the “penalty” is forfeiture without regard to whether or not the contractor’s omission in any manner harmed the owner.
Practical Advice: In light of these requirements, it is recommended that every contractor’s notice of a claim or event giving rise to a claim include both the notice of the event itself, as well as the time and cost impact (a ROM if necessary). A sample notice of protest/claim letter is attached. By taking two hurdles (Event notice and Claim notice) at the same time, the chances of missing an artificial deadline is reduced.
The attached letter is an example of a one-step notice of claims provides the owner with:
- Notice of the event (encountering permafrost);
- Notice of the Claim [time and cost impact] ($200,000 and a time extension of ten (10) working days);
- Notice of the fact that the contractor is requesting direction and that crews are on standby.
In the next blog post, I will discuss the purpose of the notice provision and grapple with the question of, if no purpose is served by enforcement of the notice clause, the Supreme Court nevertheless strictly enforced the notice requirement in MMJ.