One of the most commonly overlooked yet critically impactful provisions of a construction contract is a notice provision. In their most typical form, a contractual notice provision will require contractors to provide written notice to their customers to advise them of critical project issues (e.g., delays and claims for extra work) that may require additional time or compensation. The provision usually requires the contractor to provide the written notice within days of becoming aware of the issue and also provides that if a contractor fails to comply with the written notice requirement, it is not entitled to the relief it seeks such as an extension of time to complete the project or additional compensation for extra work.
The concept seems reasonable. Owners should be entitled to know about potentially costly issues as they develop so that they can deal with them up front before they become more costly or problematic. But the effect on contractors can be devastating. For instance, a contractor could leave hundreds of thousands of dollars of legitimate extra costs on the table simply because it verbally advised its customer of the issue and the associated cost while on site but never in writing. While some courts or arbitrators may overlook a contractor’s less formal compliance with contractual notice provisions and allow them to proceed with a claim, others will be unsympathetic to the contractor’s gripe.
The lessons to take from this reality, though seemingly obvious, are critically important:
- Read your construction contracts thoroughly before signing them, and, if there is room for negotiation, consider striking the writing requirement of the notice provision so that actual or constructive notice is sufficient.
- Read and understand all of the notice provisions in the contract (in many instances, there will be a multistep process that begins with general written notice and includes following up with a formal written change request or alternative dispute resolution).
- Advise the appropriate employees at your company of the notice requirement at the beginning of the project.
- Memorialize every time and cost impact on the job that you consider worth pursuing as a claim as they develop, and advise your customer in writing. Provide regular written updates to your customer.
At the end of the day, contractors should strive to comply strictly with contractual notice provisions because relying upon a judge or arbitrator to be lenient can be a risky and costly proposition.