Two Federal Cases Involving Written Claim Notice Issues Contrasted

Our Blog is replete with posts on the written claim notice issue [Written Notice Requirements Part IPart II, and Part IIIAmerican Safety v. City of Olympia]  and, members of the firm have written extensively on the notice issue in Washington [Mike M. Johnson v. Spokane County – Contract Notice and Claim Clauses are Strictly Enforceable, Construction Contract Draconian Notice Provisions, Part I and Part II].  Here are two federal cases, which demonstrate the various ways the notice issue is handled in federal contracts.  Generally, federal contracts require an element of prejudice before the courts will impose a forfeiture on a contractor’s claim as outlined in Redondo Construction Corp. below.

1.  Fluor Intercontinental, Inc. v. Dept. of State, CBCA 670, et al., 07-2 BCA ¶ 33691, 2007 WL 3055018 (October 4, 2007).

This case involves an acceleration claim by the general contractor in a dispute arising from construction of the United States Embassy complex in Astana, the capital of Kazakhstan. 

Fluor Intercontinental (Fluor) was awarded the contract for $63 million in September 2003 to build the U.S. embassy complex in the capital of Kazakhstan.  The contract required that the contract be completed by March 5, 2006, and imposed liquidated damages of $18,000/day for every day the project was late. 

The contract also contained a very exacting notice provision.  The general contractor was required to give the contracting officer written notice of any potential issues that could cause a delay in the project.  Specifically, Fluor was required to submit “impact analysis” within 15 days of suffering a delay, if it failed to submit such an analysis within the specified time, it was deemed to have waived any rights to additional time and compensation.

Fluor mobilized to the project in February 2004, but the area lacked critical infrastructure such as electricity, water, and roads.  The government continued to remind Fluor that irrespective of the local conditions, Fluor was obligated to deliver the project by May 5, 2006 or suffer liquidated damages.  Fluor was allegedly told by the government that no schedule extensions would be granted even if warranted.  Although during the course of the project, there was some correspondence and meeting exchanges concerning delays to Fluor’s work, Fluor did not provide the time impact analysis as required by the contract.  After Fluor achieved substantial completion in September 2006 it sought compensable delay damages for 154 days and thus remission of liquidated damages for those days also.  The State Department contracting officer disagreed and withheld approximately $2.7 million in liquidated damages on grounds that the firm failed to submit a request for an extension supported by time impact analysis and the State Department never ordered Fluor to accelerate the performance. 

Fluor appealed the contracting officer’s decision to the Civilian Board of Contract Appeals and asserted that it had been constructively accelerated by the government.  The Board found there were no excusable delays and even if there were, Fluor did not comply with the contract in requesting a time extension in the manner required by the contract. 

Comment:  This decision by the Civilian Board of Contract Appeals is a very harsh outcome for Fluor.  Not only did it lose on the acceleration issue, the Board ruled against Fluor on its claim of $9.1 million.  Many contractors that work on federal projects do not take these types of provisions seriously; they believe that they will be able to convince a Board or court that the government had actual knowledge of the problems giving rise to the claim.  In this instance, Fluor, when this argument did not work, learned a hard lesson.

2.  Redondo Construction Corp. v. Puerto Rico Highway and Transportation Authority, 678 F.3d 115 (1st Circ. 2012).

Redondo Construction Corp. (Redondo) was the general contractor on three Puerto Rico Highway and Transportation Authority (Authority) projects.  Redondo encountered unanticipated differing site conditions and design issues.  Corrective actions took considerable time, delayed and impacted the project and forced Redondo to perform extra work that increased the cost.  Redondo eventually completed the project and submitted a claim.  While the claims were pending, the contractor filed for bankruptcy protection and these cases were decided by the Bankruptcy Court applying federal law.  Redondo was awarded in excess of $11 million on its differing site conditions and defective contract documents claim. 

The Authority appealed the case, asserting that the contract specifications required that Redondo notify the resident engineer in writing of its intention to make a claim for extra compensation within one (1) working day after the contractor began work that is the subject of the claim.  The court found that Redondo had informed the Authority of both of the problems and of its intention to seek additional compensation in a prolonged series of daily conversations and weekly meetings (apparently not in writing as required by contract written correspondence).  The court also found that the Authority had issued work order and change orders authorizing further work (actual notice).  The court found that strict conformity with the contract’s written notice provision is not required, as long as the counterparty [Authority] receives substantially the same information through timely actual notice and suffers no prejudice from the non-conformity. 

Comment:  The contrast between federal courts in these two cases is striking. The Fluor case likely involved a critical time sensitive project ($18,000/day in liquidated damages) and the general contractor’s cavalier treatment of the urgency of the project (the construction of a U.S. embassy likely involves issues of national security) may have offended the court.  No such urgency existed in the second case and may be the explanation as to why the federal courts treated the notice issue so much differently.  As an aside, in the Redondo case, it is also interesting that the court allowed Redondo to recover extended overhead costs utilizing the Eichleay formula, without applying the harsh P.J. Dick, Inc. test (See Using the Eichleay Formula Part I and Part 2).

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