Masonry Magazine August 1999 Page. 12
time extension claimed. Courts are increasingly construing notice provisions strictly. Failure to comply with the time limits or to supply the required content may result in complete loss of the claim, no matter how much merit it has otherwise. For this reason, notice provisions should be carefully reviewed and the subcontractor should negotiate for a reasonable time within which to give notice. The amount of information required should match what is reasonably available within the time allowed, so that the notice provision is something more than a trap for the subcontractor.
f. Dispute Resolution
More and more contracts provide specific dispute resolution procedures. These provisions are being used both as tools to resolve disputes short of litigation, but also as weapons to bar claims if the procedures are not followed before filing suit. For example, some agreements specify a multi-tiered dispute resolution process that first calls for a meeting between field personnel, second with management personnel, and finally with persons at the executive level. If the dispute is not resolved at this third level, the dispute is required to be mediated before commencing any litigation. At least one court has found that the subcontractor's failure to comply with the prime contract's mandatory dispute resolution procedures (imposed on the subcontractor through an incorporation-by-reference clause) resulted in a complete waiver of the subcontractor's claims.
g. Contractual Limitations on the Time for Commencing Suit
Contracts increasingly compress the time for commencing suit. While the ordinary state law may provide as much as six years to file suit, a contract provision, perhaps buried deep in the contract, may require that suit be brought within 120 days after substantial completion. Such provisions are enforceable, and may completely preclude recovery by a subcontractor that relies on the statutory limitation period rather than reading its contract. Such limitation clauses are often not labeled separately, and may pass unnoticed.
h. Required One-Part Change Orders
One-part change orders require a contractor to include not only its direct costs resulting from the change, but also all indirect costs and sums for impact and delay. Until the change order is approved, the contractor will not be paid. This often puts a hardship on the subcontractor who cannot determine delay or impact costs until after its work on the project is completed. A sample provision reads:
Subcontractor acknowledges that, unless expressly stated otherwise within a written change order, any change in the contract price and time affected through a written change order shall constitute full payment and accord and satisfaction for all costs incurred, labor performed, material and equipment furnished, any delay, acceleration, or loss of efficiency associated with the change in the work.
The subcontractor that submits and obtains approval for changes without including its impact costs will find itself coming up short at the end of the project, without recourse.
Performing the Work Without Following the Subcontract
Subcontractors that fail to follow the requirements of the contract documents probably account for the largest portion of claims that are either barred completely or that result in significantly lower recoveries. The failures are often puzzling, in hindsight: field personnel who simply performed additional work without obtaining a change order or directive at all; personnel who fail to provide written notice within the time frame required by the contract provision, or who fail to provide the required information; execution of lien waivers and claim releases when costs or claims remain outstanding but not identified, failure to submit billings in a timely fashion.
The solution to this pitfall is deceptively simple: require the necessary people to read the contract and develop a procedure to ensure that they follow the requirements. For example, if written notice of a claim is required within 48 hours, instruct each foreman or the superintendent to complete a job report at the end of each day. If the dispute resolution clause requires a three step process, develop a checklist so that such process can be complied with in each instance.
Reread the contract periodically, rather than once when the contract is signed and then again in the attorney's office when the claim is being prepared.
Ask the general contractor for a copy of the general contract. Read it. Highlight the portions that apply to the subcontract work and summarize it for the field personnel.
By reading, negotiating, understanding, and following the subcontract, the subcontractor can avoid most of the pitfalls in contracting, thereby controlling risks and increasing profits. The "ounce" of pre-contract preparation is worth a "pound" of post-contract scrambling.
Chris Soelling is a member of the Seattle law firm of Short, Cressman & Burgess, PLL.C., where he has worked in construction law for 18 years. Mr. Soelling represents subcontractors, general contractors, developers, and owners, assisting them in reviewing and negotiating contracts, solving disputes and resolving claims. As a litigator Chris has taken contractor claims to trial before judges and juries. He also serves as a mediator and arbitrator, belonging to the American Arbitration Association's construction and commercial arbitration and mediation panels. Mr. Soelling is a graduate of the University of Washington and the Comel University Law School.