September 2003
By ALEXANDER A. MIUCCIO, CIC Legal Counsel
Construction contracts frequently contain clauses designed to protect owners and general contractors from claims for extra work, change order work or delay. Some clauses provide that no change orders will be permitted unless in writing and signed by the owner or general contractor. Other clauses provide that written notice of claims for extra work or delay must be given within a certain period after the claim arises. Contracts may also provide that the giving of such notice is a condition precedent to bringing a legal action on such claims, or that the failure to give such notice constitutes a waiver of the claim. These types of clauses are all generally enforceable by the courts.
Just as frequently, oral instructions to perform certain work are given on job sites, with promises that the paper work will follow. Depending on the wording of the contract, such promises could be a trap for the unwary. By failing to obtain the necessary written authorization prior to commencing work, or by failing to give written notice of a claim for extra work or delay within the contractually required time limits, a contractor runs the risk that its claims for additional compensation may be denied. One contractor learned this lesson the hard way in the recent case of Promo-Pro Ltd. v. Lehrer McGovern Bovis, Inc.
Background
Promo-Pro Ltd. commenced an action against the New York City Housing Authority, as owner, and against Lehrer McGovern Bovis, Inc., as construction manager, seeking damages for breach of contract and foreclosure of a mechanic's lien. The contractor's claim sought to recover for change order work. The construction manager moved for dismissal on the ground that the contract contained an express notice of claim provision, that compliance with the provision was a condition precedent to the contractor's right to bring an action, and that non-compliance with the provision constituted a waiver of the claim.
The lower court granted the construction manager's motion and dismissed the complaint. The contractor appealed.
Decision
The appellate court affirmed the dismissal of the complaint. According to the court, one of the purposes of clauses requiring notice is to permit the owner, general contractor or construction manager to investigate the claim while it is still fresh. The court noted that in this case, there was no need for the construction manager to investigate the claim because it had directed the performance of the work. However, the court pointed out that an additional and significant underlying purpose of such clauses is to avoid credibility contests that arise in cases of alleged oral modifications and waivers of written contract provisions.
The court distinguished this case from others in which claims based upon oral directions for extra work or change order work was permitted to stand. According to the court, the clauses in issue in those cases did not mandate strict compliance with contract terms and did not set forth the consequences of non-compliance. In the Promo-Pro case, however, the clauses specifically made compliance a condition precedent to bringing a legal action, and the failure to comply specifically constituted a waiver of claims for extra or change order work.
Comments
Although courts will generally enforce contract provisions requiring written change orders or written notice, there are exceptions. Where it is clear that directions were given for work outside the contract, that the work was performed with the knowledge of the owner, contractor or construction manager, and that the benefits of such work were received, courts have held, in order to achieve equity, that the contract provisions requiring writings were waived. Where there has been a course of conduct of oral directives, which have later been reduced to writing and paid, the courts will also be more inclined to forgive the failure to comply with the strict requirements of the contractual provisions on the grounds of waiver or estoppel.
There may also be an inclination by the courts to forgive non-compliance with contractual provisions in private improvement contracts more readily than those found in public improvement contracts, in part because of the principal of protecting public funds, and in part because of the legal constraints against finding waiver or estoppel against a municipality or public contracting agency.
Conclusion
It cannot be emphasized enough that contractors should familiarize themselves with the notice requirements of their contracts. A court will look first to the contract requirements in determining whether a construction claim for extra work or delay damages may be maintained. Strict compliance with the notice provisions contained in the contract will protect the contractor's right to maintain these claims. This column has previously noted three basic elements of constructions claims administration, which bear repeating: recognition, notification and documentation. Prompt recognition of claims for extra work or delay, notification in accordance with contractual requirements, and documentation of extra costs are essential to a contractor's recovery and increase the opportunity for early and fair settlement of its claims.
About the author: Mr. Miuccio is a partner in the New York City-based law firm Altieri, Kushner & Miuccio, P.C. and legal counsel to the Construction Industry Council of Westchester and Hudson Valley, Inc. Robert Mark Wasko, senior associate with the firm, assisted in the preparation of this article.