Supreme Court Alters the Playing Field on Claim Notice Requirements
November, 2003
A general notification to the owner of a claim for delay impact, or changed conditions, is no longer good enough in Washington. With the Supreme Court's decision in Johnson v. Spokane County, entered on October 23, 2003, a contractor with a claim in Washington must strictly comply with the exact provisions of contractual notice and claim provisions. Under the Supreme Court's decision, every "i" must be dotted and every "t" crossed or no claim will exist. The Court's decision in Johnson dramatically alters the rules under which contractors have operated regarding preparation and presentation of claims. The owner's actual notice of a claim event is no longer good enough to preserve a claim, if the contractor has not strictly complied with notice provisions. Likewise, the well accepted rule that an owner must demonstrate prejudice from the failure by the contractor to strictly comply with contract notice provisions is no longer good law.
| Practically, Johnson means that one cannot delay when there is any issue on a project that might give rise to a delay or inefficiency claim later. Instead, contractors must immediately review the contract specifications to determine exactly what must be done to preserve that right. |
The Supreme Court in Johnson held, "We hold that 'actual notice' is not an exception to compliance with mandatory contractual protest and claims provisions."
This case has serious consequences for contractors in the way claims are prepared and the way notification of claims is given by project personnel. The Johnson case requires every general contractor and subcontractor in Washington performing work, under contractual notice provisions, to educate and inform its project personnel regarding how to preserve claim rights in view of contractual notice provisions.
In the Johnson case, Mike Johnson Construction was hired by Spokane County to construct two sewer projects. After the project was awarded, the County found out there was a road re-widening project that would affect the design and change the plans. On June 4, 1998, the County issued a proposed change order to Mike Johnson Construction.
The project's special provisions required Johnson to file a specific written notice of protest to any work required by a change order. The contract further required, within 15 calendar days of the protest, a filing of information including (1) the estimated dollar cost of the protested work, and (2) an analysis of the project schedule showing any schedule change or disruption. Johnson did not protest the change order.
Instead, on June 26, 1998, Johnson wrote a letter to the County indicating that impacts were "causing additional delay and costs to our work." On July 16, 1998, the County advised, "If you believe you have a claim for additional compensation within this contract, please submit this claim per Section 1-09.11(2)." Johnson submitted no certified claim, as required by the County's specifications. The County inspectors directed the work done and observed the changed work and delay that Johnson encountered. That actual notice was not sufficient in the eyes of the Supreme Court to preserve Johnson's right to file a claim.
The Court specifically noted, "General notice to the County that it expected additional compensation did not amount to claims under the contract, nor did it excuse MMJ from complying with the contractual claims procedures."
As to Johnson's arguments that the County had actual notice, which constituted a waiver of the technical compliance with contract notice provisions, the Court held, "To hold that a contractor's notice of protest to the owner serves to excuse the contractor from complying with mandatory claims procedures would render contractual claims requirements meaningless."
While the State Supreme Court did not completely rule out an actual notice exception to strict compliance with contractual claims requirements, it held that such waiver was only by "unequivocal acts of conduct evidencing an intent to waive." Therefore, it is the owner's announced intent to waive notice, rather than the conduct of the owner, that is determinative. The dissent criticized the majority decision as contrary to the general rule in Washington that, "Where the contractor notifies the owner of the changed condition, failure to precisely follow claims procedures will not defeat the contractors' right to compensation, unless that procedural error causes prejudice to the owner." Despite the strong dissent, that apparently is no longer the law in Washington.
Where do we go from here?
The Court in its majority opinion relied heavily on technical compliance with contract specifications. It minimized the actual notice the owner had, deciding instead to prioritize strict compliance with contractual notification requirements. What this means to a general contractor or subcontractors working in Washington is that, even onerous notice provisions that are highly technical and difficult to understand, must be strictly complied with or no claim will exist. Apparently, even ratification of a claim event by on-site owner personnel, or acknowledgement of the claim event in a project meeting, will not validate the claim in the absence of the contractor's technical compliance with strict notice provisions. If the notice provisions require a claim to be certified or sworn to, it must be certified or sworn to. If a delay claim provision requires that the claim must be supported by a detailed critical path analysis showing the effected delay, it must be supported by such an analysis. If a claims provision requires a quantification of the dollar impact of the delay, it must be so supported.
What this means to contractors and subcontractors is that project personnel must be educated and knowledgeable about technical contract notice provisions and compliance with them. Practically, Johnson means that one cannot delay when there is any issue on a project that might give rise to a delay or inefficiency claim later. Instead, contractors must immediately review the contract specifications to determine exactly what must be done to preserve that right. Rather than resort to a claims' consultant for months of analysis of the impact, the contractor's first call should be to its attorney to interpret and guide them through the notice provisions so that a right to a claim may be preserved. Project end delay and impact claims may be fading into obscurity as claims are resolved on a more piece-meal basis. Subcontractors now need to be more aware then ever of claims provisions in the general conditions that are incorporated by reference into the subcontracts.