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Industry Updates

What’s in a Claim: Protecting Your Right to Extra Time or Money — Part Two

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Last week, we presented the first half of Luke J. Farley Sr. and Dixie T. Wells’ article on how to make a claim. Below is the second half, where the authors discuss how to give notice and who must receive notice.

How to Give Notice 

Notice of a claim must usually be given in writing. Even if by chance your contract doesn’t require written notice it’s still a best practice to put your notice in writing “for the record.” 

TIP: Many claims provisions will simply state that a claimant must “give notice” of their claim within a certain number of days. Even if the claims provisions aren’t explicit that notice must be in writing, there is very likely another clause someplace else in the contract which says generally any kind of notice required by the contract must be in writing. The best practice, then, is to always give notice of your claim in writing. 

If notice must be given in writing, is email sufficient? This question comes up all the time. The answer depends entirely on the terms of the contract. ConsensusDocs No. 200 provides that notice is “effective upon transmission by any effective means,” which would seem to include email. The A201, on the other hand, only allows a notice of claim to be sent via certified mail or a delivery service like FedEx (though the A201 allows email notice in most other instances — apparently a claim is considered too important to chance it getting caught in your spam filer). 

TIP: When negotiating the contract, push to allow for email notice. This will make it a lot easier to give the required notice of your claim, something which usually benefits the contractor more than the owner. If the parties agree that email is acceptable, then be sure the contract states the email addresses to which notice should be sent. 

Who Must Receive Notice 

For notice to be effective, it needs to be sent to the attention of the right person. Most contracts contain a section where the parties designate their representatives for the project. For the AIA documents, this is usually done in the main agreement, not the A201 general conditions.

Be sure to consult this section and determine the party representative before firing off a notice. A notice of claim should be sent to the attention of the party representative at the address provided in the contract. You must also send a copy to the initial decision maker.

Note that the party representative may not be the person with whom you’ve dealt on a day-to-day basis. For instance, the owner may have hired a consultant to perform construction, engineering, and inspection (CEI) services. The CEI consultant might be on-site every day and may even legitimately speak for the owner in some matters, but unless the CEI consultant is listed as the party representative, sending notice to the consultant would not be sufficient. 

TIP: While you may be focused on sending your Claim to the owner, don’t forget to send a copy to the architect, or the initial decision maker if the parties have appointed someone else to serve in that role.

Keep Working (Unfortunately)

One of the most unpleasant surprises for contractors to learn is that, in most instances, they must keep working pending the resolution of a claim. For instance, the A201 provides that even while a claim is being resolved, “the Contractor shall proceed diligently with performance of the Contract.” In fact, stopping work because you’ve made a claim is a breach of contract by the contractor. Don’t operate under the erroneous assumption that submitting a claim allows you to stop working. On the bright side, the owner must also continue to make payments. In other words, the project must continue even if the parties are fighting about something.

Still, the choice between continued contract performance and breach can be a difficult one. Continuing to work while a claim gets resolved can be a major financial burden on the contractor and can cause the contractor to perform work at its own risk. Consider a scenario where the contractor believes it has encountered differing site conditions and the architect disagrees and has determined that the conditions aren’t materially different than what’s shown in the contract documents.

The contractor’s only option is to perform the work and then make a claim or else be in breach of the contract. If the conditions truly are different and the contractor must continue performing the work until the claim is resolved, then the contractor will essentially be stuck financing a changed condition in the work unless and until the claim is resolved in its favor.

While the owner may be obligated to continue making payments for the rest of the work, it won’t be making payments for the differing site conditions claim unless the contractor prevails. At that point, the contractor should assess whether the risk of an alleged breach is outweighed by the benefit of incurring costs that the contractor may not be able to recover later.

Conclusion

The claims procedures in a construction contract are meant to help the parties resolve disputes. Contractors often view the claims procedures as “gotcha” clauses meant to cause the contractor to forfeit otherwise good claims because they didn’t dot every “I” and cross every “T.” To be sure, some owners draft the provisions hoping the contractor will get tripped up. If, however, the contractor is familiar in advance with claims provisions and is on-guard for changes and delays, then it’ll be in a stronger position to recover extra time or money.  

Luke J. Farley, Sr. is a construction lawyer at Ellis & Winters LLP in Raleigh, N.C. He can be reached at luke.farley@elliswinters.com. Dixie T. Wells is a partner in the Greensboro, N.C., office of Ellis & Winters LLP and a member of the Construction Law and Litigation Committee of the International Association of Defense Counsel. She can be reached at dixie.wells@elliswinters.com.

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