We have often written in this Newsletter and spoken at our construction law seminars about the allocation of risks between parties to a construction contract. We have talked about identifying and dealing with key contract clauses that may shift or reallocate certain risks among the parties involved in a construction project.
Standard form contracts contain numerous sophisticated risk allocation and risk shifting terms that contractors and owners seek to refine or modify. No matter how the parties agree to share the risk of changes, the risk of differing site conditions, the risk of delay, or interrupted payments, each of the clauses dealing with these eventualities contains some form of notice requirement as a trigger to its application.
Almost every issue of this Newsletter and every seminar or training session emphasizes the importance of notice. Many contractors and subcontractors utilize extensive checklists to identify notice requirements and develop very practical forms and reports to make the giving of notice as automatic and failsafe as possible. To further encourage the development of the habit of giving notice and ways of giving notice that are easily administered, the courts and boards of contract appeals frequently review the reasons for the multitude of notice requirements and the standards for judging the adequacy of notice to comply with contract terms.
In the case of J.S. Alberici Construction Co., Inc. and Martin K. Eby Construction Co. Inc., a Joint Venture, ENG BCA No. 6178, 98-2 BCA 6 29,875, the Corps of Engineers Board of Contract Appeals ("ENGBCA" or "Board") provided an extensive review of the basis for requiring and enforcing notice provisions. In the Aberici/Eby dispute, the contractor was to construct a coffer dam using government-furnished sheet piling salvaged from other construction. The contract expressly required the contractor to inventory the sheet pile materials as they were received and to notify the government within 24 hours of any shortages. At one point the contractor suspected that there might be a shortage of sheet piling. However, the contractor did not notify the government for over a year, when the shortage became critical. Thereafter, the contractor and the government worked together to minimize the effect of delay and disruption caused by a shortage of government-furnished material. Notwithstanding those events, the contractor filed a claim for excess cost based upon the previous shortage. The government defended by claiming that notice was not given as the contract required.
When is Lack of Notice Excused?
When courts or boards excuse the failure to give notice and allow relief from technical requirements, they are mindful of the underlying purpose of notice requirements, which is to preserve the owner's ability to avoid incurring liability for the claimant's costs by adopting a different course of action (Skytop Plastics, Inc., GSBCA Nos. 7000, 7110, 7116, 91-1 BCA 6 23,350 at p. 117,091), and so they weigh the failure of timely notice against the circumstances of contract performance.
Generally contractors rely upon certain factual circumstances to argue that notice requirements should not strictly be enforced. These include showing that the contracting officer or owner had actual or imputed knowledge of the facts so that notice from the contractor was unnecessary; that notice to the owner would have been useless because no alternative or evasive action could be taken to avoid the problem; or the owner frustrated the giving of notice.
No Relief if the Owner Can Show Prejudice
However, if the government or owner can show that the failure to give notice caused prejudice to its ability to take some alternative action or make choices to avoid or mitigate the added cost, then relief from the effect of the notice provision generally will be denied. If that opportunity to mitigate is denied because the other contracting party did not give timely and effective notice, then the burden of increased cost is often cast on the party which controlled the circumstances. That party is the one who could have given notice but by failing to act did not allow the opportunity for mitigation of the cost. In the Aberici/Eby appeal referenced above, the government alleged and proved that if it had received notice a year earlier, it could have changed performance sequences to make other government-furnished property available so that a shortage would not have occurred. The government was denied that opportunity to mitigate the effect of the shortage of sheet pile materials because the contractor did not make known its conclusion that it would run short of material in a timely matter.
Adequate Notice
The contract in the Aberici/Eby appeal required notice in 24 hours after government-furnished property was delivered to the storage area. The ENGBCA noted that this time requirement was rather stringent under the circumstances. However, the Board found that notice over a year after a shortage of materials was suspected denied the government the opportunity to respond and take action to prevent the shortage. This does not mean that every provision requiring notice within a short period of time can be ignored because, given the circumstances, notice within 24 hours or some other short period of time may be necessary to avoid prejudice to the owner's ability to respond and mitigate the circumstances. After all, there is a reason behind the provisions or requirements of most notice provisions and there is a long history of court and board decisions testing the purpose of the technical requirements and the defenses.