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Construction Claims & Disputes | Importance of Claims Notices

Construction Claims & Disputes | Importance of Claims Notices

Taking simple steps to comply with contracts can help minimize the risks of noncompliance.
 

The concept of “giving notice” or “notifying” another party is common to most legal systems and one of the building blocks of just about every contractual process. At some point in most transactions, it is necessary to notify the other party of an event, a requirement, an assessment, or other such things that are necessary for the transaction to progress smoothly. Failure to provide such notice can prevent the other party from making timely decisions and, in certain circumstances, lead to a party incurring a loss or cost that could have been avoided if notification had been received.

It is often said that contracts are “onerously” drafted to trip up the unwary party, that contracts are “craftily” drafted to ensure that otherwise valid entitlements are somehow thwarted. “Notice” provisions are regularly referred to with disdain. The reason for their inclusion in an agreement is often cited as being present to ensure that contractor claims fail.

Is this allegation true? Is this a fair assessment of intent, or is it perhaps misrepresentative?

"A missing piece of paper”

You will not be surprised to hear that a 1987 FIDIC Red Book contract contains circa 115 uses of the words “notice” or “notify.” However, you may well be surprised to hear that while around 30 of those uses place specific notification obligations on the contractor, there are around 60 uses placing specific notification obligations on the engineer or employer. Effectively, the engineer and employer have twice as many notification obligations as the contractor. Not everyone will agree, but the figures do show that the 1987 FIDIC Red Book contract places far greater notification responsibilities on the engineer/employer than the contractor.

Though, one thing should be very clear: the contractor’s failure to comply with notice provisions is likely to have a far more serious impact on their financial position than a similar default by the employer. A failure or delay to give notice by a contractor can have serious consequences on any claim related to that notice. Stories of contractors losing out on millions of dollars of claimed costs because they were “only a few days late in submitting a piece of paper” are not fiction; they are fact and often the cause of great moral outrage. On the face of it, rejecting an otherwise valid claim due to a “missing piece of paper” does seem morally outrageous, but of course there are two sides to this argument.

Example

Consider this account:

“I dropped my car off at the garage for a service. I hadn’t heard back from them for a couple of days so I called their office for an update. To my surprise, they informed me that I had forgotten to leave my keys, and so the car had not been serviced.

To my horror, they also told me that my mistake had left their mechanic and machines sitting idle, and that I would have to pay a cancellation fee, costs of standing time, loss of profit, etc., as well as the cost of the service!”

The client in this scenario now wonders if they should pay. Of course, none of us would pay—we would say that the garage should have called to tell us about the missing keys. We would have returned immediately with keys in hand thus avoiding the delay, the idle time, and any losses or need for additional bills. While we apply this logic to our own personal circumstances, we often find it difficult to apply the same logic on the projects we work on. Perhaps the parable is an oversimplification, but it does illustrate the need for notice.

Best practices for giving notice

Claim events happen on all projects and that will continue to be the case, but you can avoid being the subject of the next big contractor loss headline by practicing the following:

  • At the outset of the project, ensure your team has read and understood every item in the contract that requires notification.
  • Pay particular attention to any notice that is stated as a “condition precedent” to entitlement or where it is stated that any entitlement is “conditional” upon the submission of notice.
  • Give your team a list of the events requiring notice and the notice periods applicable to each.
  • Draft a series of template notices for your team to use in each circumstance.
  • Put in place a notice tracking system to ensure that supplementary notices and further particulars are submitted at the required times.
  • Don’t be dissuaded by anyone that submitting a notice is a bad idea. If the contract requires that you submit a notice, then do it.
  • If the contract requires that you notify the employer of events that “may” or “might” cause delay or additional cost, then do it. They can always be withdrawn.
  • Remember this is not an aggressive commercial act, it is merely contract compliance at work. It is the contract that mandates your action, not your commercial strategy.

Conclusion

The fact is that notices are required for valid reasons. Failure to comply with notice provisions leaves both parties at risk. Take simple steps to comply with the contract and minimize the risks of noncompliance.

Interested in learning more?

Contact resources@jsheld.com and we will connect you with a member of our team. You can also reach our main office at 516-621-2900.

 
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