About 100 years ago, Oliver Wendell Holmes Jr. wrote for the U.S. Supreme Court that one must “turn square corners” when dealing with the government. Never has that been more true than in recent cases involving notice provisions in public construction contracts.

 

A contractor with a claim against a government agency—whether for delay damages or disputed extra work—must overcome many hurdles. Often the hurdles involve liability (e.g., a “no damages for delay” clause). But sometimes the hurdles involve giving notice. Contracts often require notice in a very short time (say, within 24 hours of the event giving rise to the claim) or require voluminous documentation to support the claim (backup for all labor and material costs).  

 

To add insult to injury, these public contracts almost always provide that failure to comply with the notice provisions will constitute a waiver of the contractor’s claim. Courts routinely “strictly enforce” these waiver provisions.

 

Such was the case in a recent litigation involving the Dormitory Authority of the State of New York (DASNY) regarding a building at SUNY New Paltz. The contractor performed a significant amount of extra work (some 43 change orders) at the behest of DASNY, but disputes arose about whether they were extras or contract work, and/or as to their value. Because DASNY continued to review and negotiate some of these change orders over 23 months, the contractor did not send any formal notice of claim letters. When the contractor was finally forced to sue to pursue its claims, DASNY asserted its defense that the contractor failed to strictly comply with the contract’s notice provisions.

 

The court started its analysis with the classic justification for siding with the governmental agency in cases such as this: that contractors must strictly comply with the contract’s terms because governments need timely notice of “deviations from budgeted expenditures,” to allow them to “take early steps to avoid extra or unnecessary expense,” and to allow them to “mitigate damages and avoid the waste of public funds” (basically a variation of the “square corners” doctrine quoted above).

 

In opposition to DASNY’s motion to dismiss the action, the contractor raised a few arguments, none of which succeeded. First, it argued that DASNY “hoodwinked” it by negotiating the claims for months and not immediately rejecting them. The court gave short shrift to that argument, noting that to deem DASNY to have waived a known right, it must be “explicit, unmistakable, and unambiguous.” It cannot be established by an equivocal act, so that argument went nowhere.

 

The contractor next argued that allowing DASNY to hide behind a notice defense when it already knew all about the contractor’s claims was unfair. The contractor asserted that DASNY had actual notice of the claims because it not only learned about them in project meetings and direct conversations, but DASNY had ordered that the disputed work be done and sent notices to proceed to the contractor!

 

Proving that contracting with the government remains an expensive game of “gotcha,” the court held that “actual notice does not suffice to excuse lack of compliance with a strict contractual notice requirement.” Rubbing it in, the court further noted that the giving of such notice was “solely, exclusively, and easily within [contractor’s] control.”

 

Contractors beware. Know the contract’s notice requirements before you start, and make sure to “turn square corners.”