August 2004
By ALEXANDER A. MIUCCIO, CIC Legal Counsel
Construction contracts frequently contain clauses designed to protect owners 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 the failure to give such notice constitutes a waiver of the claim. These types of clauses are 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 contractor. 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 Dipizio Construction Co. Inc. v. The State of New York.
Background
Dipizio Construction Co., Inc., ("Dipizio") entered into a contract with the New York State Department of Transportation (DOT), to reconstruct portions of a highway in and around the City of Buffalo. The contract designated a portion of the work as time sensitive and included an incentive clause in the contract, paying Dipizio $4,000 per day for each day that the project was completed ahead of schedule, up to a maximum of 30 days before the completion date. The contract also provided for a disincentive of $4,000 per day in liquidated damages for each day of work beyond the scheduled completion date, with no cap on the number of days that could be charged against Dipizio. The contract also contained a no-damages-for-delay clause, providing that any such claim by the contractor could be compensated for solely by an extension of time.
To complete the project prior to the scheduled completion date, Dipizio accelerated the work. As a result, Dipizio filed a claim for $1,567,709 for labor, materials, overhead and lost profits connected with the acceleration of the work, claiming that delays caused by the DOT compelled the acceleration. The DOT moved to dismiss the action, relying on the no-damages-for-delay clause, and claiming that Dipizio failed to give proper written notice of its claim for monetary damages under the terms of the contract.
Decision
The court held that the case should be dismissed because Dipizio failed to give the DOT proper written notice as required under the terms of the contract. Section 105-14(A)(3) of the contract required that: "within 10 work days after the Contractor has knowledge or should have had knowledge of an event, matter or occasion, that will result in time related damages, the Contractor must provide the Engineer with written notice of a dispute for time related damages."
With respect to acceleration of the work, Section 105-14(B) provided:
"ACCELERATION DISPUTES Ñ The Contractor may not maintain a dispute for costs associated with acceleration of work unless the Department has given prior express written direction by the Engineer to the Contractor to accelerate its effort. The Contractor shall always have the basic obligation to complete the work in the time frames set forth in the Contract. For purposes of this Subsection, lack of express written direction on the part of the Department shall never be construed as assent."
It should be noted that Dipizio did give notice to the DOT regarding the delays it experienced on the project. It sent multiple letters indicating that it had experienced delays as a result of the DOT's actions and eventually requested, and received, an extension of time. However, the court found that Dipizio never sent express notice that it would be seeking monetary damages, as opposed to a time extension, and had failed to submit extensive documentation, such as time sheets and costs and material data backing up its claim. Accordingly, Dipizio had failed to send proper written notice and furnish contemporaneous cost records as required under the terms of the contract. The court also found that the failure to seek express written direction to accelerate the work from DOT's Engineer removed any liability from the DOT for the acceleration costs.
Dipizio argued that the DOT should be prevented from arguing lack of notice as a condition precedent to recovery because it had raised the issue of the acceleration with the Engineer-In-Chief, and he informed Dipizio that the delay issues "would be resolved" following completion of the work. The court held that Dipizio could not rely upon the verbal statements of the engineer to relieve them of their contractual obligations and that, in any event, the engineer did in fact "resolve" the claims by dismissing them for lack of proper notice. According to the court, any waiver of the contractual conditions precedent by the DOT would have to be "unmistakably manifested" in order to bind the DOT and not merely a non-specific assurance of an employee of the DOT.
Analysis
This decision serves as a warning regarding strict compliance with the contractual requirement to provide written notice and detailed documentation of a claim, regardless of the actions of the owner's representatives on the project. In the pressure-packed environment of a time sensitive public project, it may be tempting to seek quick resolution of issues of delays without "papering" the contractor's position in strict accordance with the contract procedure. As the contractor in the Dipizio case learned, statements that the claim "will be resolved" after completion of the work are meaningless in the absence of a written directive. Had the contractor taken the further step of documenting its claim in writing, and submitted detailed backup as required under the contract, it may have recouped its costs in accelerating the work.
About the author: Mr. Miuccio is a partner in the law firm of Goldberg & Connolly and General Counsel to the Construction Industry Council of Westchester and Hudson Valley, Inc. Robert W. Napoles, an associate with the firm, assisted in preparation of this article.