Notice on Notice

Notice on Notice

April 1, 2005

By Dean B. Thomson

Introduction

Everyone involved in construction knows that notice should be given on a variety of issues. For example, all standard form contracts require that the Contractor give the Owner and the Architect/Engineer (“A/E”) written notice of a claim for additional time or money. All standard form subcontracts require the same notice from subcontractors to general contractors. Unfortunately, the notice requirements of these contractors are rarely followed. This Briefing Paper reviews the results of several recent cases regarding the consequences of failing to give notice.

Cameo Homes

A recent cautionary tale about notice is found in Cameo Homes v. Kraus-Anderson Construction Company, 394 F.3d 1084 (8th Cir. 2005). In Cameo Homes, the U.S. Court of Appeals for the Eighth Circuit recently interpreted a contract between the City of East Grand Forks and Cameo Homes. Even though the decision involved a project in North Dakota , the contract being interpreted was a standard American Institute of Architect’s (AIA) set of General Conditions, so it is reasonable to assume that the Eighth Circuit’s decision would be the same no matter the jurisdiction in which the AIA documents were used.

Cameo Homes alleged that it was due extra compensation and submitted proposed change orders to the City’s construction manager, Kraus-Anderson, but the requested change orders were never approved. Without first giving written notice of its claim to the project architect, Cameo Homes filed suit to recover its claims.

The Federal District Trial Court dismissed Cameo Homes’ claims and held that the AIA General Conditions require a contractor to provide written notice of a claim to the architect as a condition precedent to bringing an action in court. The Eighth Circuit affirmed, ruling that the AIA contracts require notice of claims be given to the architect, not the construction manager. Cameo Homes argued that submission of a change order request to the construction manager was effectively the same thing as notice to the architect, but the appellate court disagreed stating that notice of a claim is treated differently under Article 4 of the General Conditions than requests for change orders pursuant to Article 7. The Eighth Circuit concluded, therefore, that Cameo Homes was contractually barred from bringing its claims in court because it had not provided notice of them to the architect.

Cameo Homes also argued that the parties’ course of conduct in submitting requests for change orders to the construction manager effectively modified the parties’ contract regarding notice to the architect. The Appellate Court strictly construed the terms of the contract, however, and enforced the contractual provision requiring that any modification to the contract be memorialized in writing. Because Cameo Homes could not produce any written agreement modifying the notice provisions, the Court affirmed the dismissal of the contractor’s claims.

Other Decisions 

While the Eighth Circuit Court of Appeals strictly enforced the AIA’s written notice provisions, other courts are more lenient. For example, the Missouri State Court of Appeals recently found that a public owner waived its contract’s written notice requirement by not enforcing it due to the project’s hectic and disrupted schedule. Gill Construction, Inc. v. 18th & Vine Authority and the City of Kansas City , Mo. , 2004 WL 2933484 ( Mo. App. W.D. Dec. 21, 2004 ). As another court recently stated, “Waiver of a written change order may be accomplished by either habitual acceptance of work completed upon oral change order or by presenting evidence that the parties agreed to the changes and the changes were completed.” Flooring Systems, Inc. v. Staat Constr. Co., 100 S.W.3d 835, 838 ( Mo. App. E.D. 2003).

The federal government also has repeatedly refused to dismiss claims due to lack of written notice if the government either had actual notice or was not otherwise prejudiced by the absence of notice. The following quote from a recent Court of Federal Claims decision summarizes how lack of notice is treated in federal contracts:

Finally, a point about notice. As to all the claims in question, defendant argues that plaintiff failed to comply with that portion of FAR § 52.249-10 which requires the contractor to notify the contracting officer in writing within 10 days from the beginning of any excusable delay, stating the cause of that delay. Research reveals no case that has really interpreted this provision. In general, however, the courts have held that such notice provisions should “not be applied too technically and illiberally where the Government is quite aware of the operative facts.” Hoel-Steffen Constr. Co. v. United States, 456 F.2d 760, 768 (Ct. Cl. 1972); see also Copco Steel & Eng’g Co. v. United States, 341 F.2d 590, 598 (Ct. Cl. 1965); Miller Elevator Co., Inc. v. United States, 30 Fed. Cl. 662, 699 (1994). Consistent with this view, the court believes that for this provision to be triggered, the contractor must know the cause of the delay sufficiently to be able to assert that it is “unforeseeable,” “beyond [its] control,” and “without [its] fault or negligence” within the meaning of the regulation. To require notice sooner would be to put a contractor in the untenable position of seeking an extension before it could demonstrate or document its entitlement thereto. Such an interpretation of the regulations makes no sense.

R. P. Wallace, Inc. v. U.S. , 63 Fed. Cl. 402 (Fed. Cl. 2004).

Minnesota state court decisions often reach results similar to the holding in R.P. Wallace. See e.g.New Ulm Bldg. Center, Inc. v. Studtmann, 225 N.W.2d 4 ( Minn. 1974) (owner waived written notice defense if it was fully aware of the fact that extra work was performed by contractor as the work progressed). Minnesota courts have also enforced notice provisions when there were not any mitigating circumstances precluding their application. Buchman Plumbing Co. v. Regents of the Univ. of Minn., 215 N.W.2d 479 ( Minn. 1974) (notice provisions were for the benefit of the party receiving notice to allow the party to cure a defect or delay). Notice provisions have been also enforced against owners as well as contractors. In Polk County v. Widseth, Smith, Nolting and Mark II of Fosston, Inc., 2004 WL 2940847 (Minn. App. 2004, unpublished), the Minnesota Court of Appeals found that the county’s claims were barred not only because the county failed to give the engineer written notice of its claim against the contractor, but also because the county made final payment without providing notice that it was reserving its claim for liquidated damages. Notably, the contract interpreted by the Appellate Court was the standard Engineer’s Joint Contract Documents Committee (EJCDC) Standard General Conditions found in many public works projects

Conclusion

While several cases suggest ways that legitimate claims can still be asserted even if the contract’s notice provisions are not followed, cases such as Cameo Homes remind us that it is not always possible. Obviously, the best way to avoid notice problems is to give written notice according to the terms of your contract. Some contractors believe that it is best to avoid giving notice of problems in order to foster a spirit of “partnering” or project harmony. True “partnering,” however, involves promptly and plainly putting problems on the table so they can be solved. If someone complains that you are causing trouble by providing written notice of claims, remind them that Cameo Homes requires you to do so.

This discussion is generalized in nature and should not be considered a substitute for professional advice. © FWH&T

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