Where construction contracts contain language obligating the contractor to submit claims for extras or changes to the owner or higher-tier contractors within a certain period of time after it incurs increased costs or delay. In addition, many contracts also require the contractor to notify the owner or higher-tier contractors of its intention to ultimately make such claims within a certain period of time after the event giving rise to the claims. As demonstrated by MCI Constructors v. Spotsylvania County, 2003 Va. Cir. LEXIS 115 (Spotsylvania County Cir. Ct. 2003), it is critical for contractors to understand the precise moment when the time period to take action on a claim will begin to run. Adopting an unreasonable or unrealistic view of the triggering event can have disastrous consequences.
In MCI Constructors, a contractor was engaged by Spotsylvania County to construct a water treatment facility. As work progressed, disputes arose between the county and the contractor, delays occurred and extra work was required. During the course of this project, the contractor submitted various change orders to the county for approval, several of which were rejected. Months after the project was scheduled to be completed, the contractor submitted a “Request for Equitable Adjustment” to the County, requesting additional payment of more than $9 million and an eight-month time extension for the changed and extra work it performed. The County disputed 93 of the 106 claims asserted within the Request on the grounds that, among other things, the contractor failed to give timely notice of its intention to submit such claims. In response, the contractor brought suit to recover on its claims.
The trial court first examined the provisions relevant to the timing of the contractor’s notice. The court found that the contract between the County and the contractor provided that no claim for changed or extra work could be made against the County unless it was notified of the contractor’s intention to present such claim “within ten days of the event, thing, or occurrence giving rise to the alleged claim.” Similarly, state and local laws required the contractor to provide written notice of its intention to file a claim within ten days of the occurrence or beginning of the work upon which the claim was based.
The court next examined when the “event” or “occurrence”, which triggered the contractor’s duty to notify the county of its intention to present a claim for extra or changed work, happened. The County argued that the contractor was required to notify the County even before a dispute arose — in effect, simultaneously with its submission of a proposed change order in response to a request or directive in the field. The contractor took an opposite view, arguing that it was entitled to wait until a full-fledged dispute had arisen, and it was able to precisely determine the monetary impact of the extra or change, before having to provide notice of its intention to submit a claim. The court rejected both arguments, instead concluding that, as to each claim, the triggering event for the notice requirement was the contractor’s learning that its proposed change order, or other request for adjustment of contract terms, was denied, disallowed, or disapproved, in whole or in part, by the County. Applying such standard, the court concluded that the contractor did not give the County timely notice of its intent to submit all 93 disputed claims, and thus held that those claims were barred.
Contractors should always be careful to comply with all notice requirements in their contracts. In order to do so, contractors need to have (1) a firm grasp on the time period(s) in which they must take action to preserve their claim and (2) a good understanding of the point of which those periods will begin to run.
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ConstructionRisk.com Report, Vol. 6, No. 1 (Jan 2004)