Claim notice provisions in construction contracts are common. In fact, many standard form construction contracts usually contain these types of provisions. These provisions are often implicated as the scope of work changes under a contract or delays or interferences occur that may increase a contractor’s costs or time on the project. A prudent contractor should be careful to comply with each and every requirement of the notice provision, even if the contractor is in a state in which substantial compliance may be sufficient, in order to protect the contractor’s right to make a claim for payment.
Claim notice provisions typically set out certain procedures that must be followed by a contractor in notifying the relevant party (typically the owner) before the contractor is able to pursue a claim for extra costs or additional time for the project. These procedures can include deadlines for the contractor to notify the owner (within a certain number of days from the occurrence of the event giving rise to a claim for additional payment, for example) and specific items or information that must be included in the notice regarding the specifics of the claim.
Although simple enough in theory, these claim notice provisions can be easy to overlook in the midst of a fast-moving project when payment and cost-related issues come up. The danger arises because a number of states require strict compliance by a contractor with these types of contractual claim notice provisions in order for the contractor to be able to maintain a claim for payment.
Courts in New Jersey, New York, Washington, Ohio, Florida and Maryland, for example, have historically been more strict when it comes to enforcing compliance with these notice provisions. Courts in these states often interpret these types of provisions literally and have held that a contractor’s failure to adhere to every requirement of the provision operates as an absolute bar to the contractor’s recovery.
As a result, this type of strict compliance interpretation of a notice provision gives the owner a potential “technicality” defense to payment. For example, if the claim notice provision states that notice of a claim must be made in writing within 21 days of the occurrence of the event giving rise to the claim and the contractor provides the notice in writing 24 days after the occurrence of the event, technically, the notice is deficient and the other party has a complete defense to payment. The result of the application of a strict compliance standard to contractual claim notice provisions can therefore have extremely harsh results for a contractor who would otherwise be entitled to payment.
Some states, however, have taken a different approach and have adopted more of a fairness-based standard. In states like Connecticut, Pennsylvania, California and Alaska, for example, substantial compliance with a claim notice provision will often be sufficient, particularly where the contractor can show that the other party had actual or constructive notice of the claim and the issues giving rise to the claim.
If, for example, a claim notice provision required notice to be given in writing and notice was given verbally but it was undisputed that the other party knew about the claim and the related issues, the verbal notice would be deemed sufficient and the claim would not be barred.
A contractor should therefore carefully review any notice provisions in its standard form or customized contracts and take note of the following requirements:
- What the notice should look like
- How the notice should be sent (whether by mail, fax, or email)
- What information the notice should contain
- Who the notice should be sent to
- Any time limits associated with sending the notice
Jill received a Bachelor of Arts degree, Magna Cum Laude, from Clemson University and a law degree from the University of South Carolina where she was a staff member and editor of the South Carolina Law Review. Jill has been recognized by her peers as a “Georgia Rising Star” in business litigation, an honor that no more than 2.5 percent of the lawyers in Georgia receive.